Visa’s head of crypto explains why the $120 trillion market for B2B payments is ripe for disruption from digital currencies
Visa is pushing into the crypto space, but its focus sits in areas outside just buying and selling Bitcoin.
It’s seeing demand from clients for stable coin-based cross-border payments.
It’s also helping fintechs offer crypto rewards, but hasn’t yet seen much demand for day-to-day spending with Bitcoin.
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Bitcoin is soaring to all-time highs in 2021, and players like PayPal and Cash App are seeing massive demand for crypto trading on their apps.
But payments giant Visa sees opportunity far beyond consumers buying and selling Bitcoin.
As a payments network, Visa is in the business of facilitating the movement of money digitally. So when it comes to digital assets like cryptocurrencies and stable coins — digital assets pegged to another source of value like the US dollar — Visa wants to handle as many of those transactions as possible, similar to its bread-and-butter card business.
“What we’ve been doing over the past 18 months is really looking at how we upgrade our treasury infrastructure to be able to support digital currencies as just another form factor for fiat,” Cuy Sheffield, head of crypto at Visa, told Insider.
“We support many different currencies on our network today. A stable coin isn’t even a new currency, really. It’s just another way to represent an existing currency,” Sheffield added.
For Visa, near-term crypto opportunities lie in B2B payments
While there’s plenty of buzz around consumers buying and selling cryptocurrencies like Bitcoin, Sheffield says that business-to-business payments, albeit less buzzy, are a big opportunity for Visa’s crypto strategy.
“We expect that the growth in usage of stable coins is going to happen from corporate treasuries in B2B before a consumer is buying their coffee directly with a stable coin over a blockchain network,” Sheffield said.
Stable coins are often pegged to fiat currencies like the US Dollar, making them less volatile than digital assets like Bitcoin, Ethereum, and Litecoin.
Moving money via stable coins offers more flexibility and efficiency for businesses. Across its merchant network, Visa has seen more demand for crypto in businesses looking to pay their vendors and employees via stable coins as opposed to accepting cryptocurrencies at the point-of-sale, Sheffield said.
A global business, for example, with an international workforce and network of vendors to pay, stands to benefit from more streamlined payments facilitated by a stable coin via a blockchain network.
“We think there’s significant potential for stable coins in cross-border payments because they flow over these new public blockchains that are globally-available, 24/7 payment rails,” Sheffield said.
Without the limitations of other payment networks like Fedwire or ACH, businesses can send cross-border payments outside of market hours.
“There’s $120 trillion of B2B payment flows, and many are still bank wire and check. These are becoming digitized,” Sheffield said. “What we’re seeing is across the world, businesses are looking at how they can leverage stable coins to have more efficient B2B payments and more efficient treasury infrastructure.”
While payments systems like Fedwire are set up to process millions of payments daily, they’re not flawless. On Wednesday, the Federal Reserve reported disruption to its Fedwire payments services.
“There are a lot more problems to be solved and areas of improvement globally that will increase GDP if we could have more efficient B2B payments, than there are giving people ways to buy their coffee,” Sheffield said.
Retail use cases will crop up as consumers start accruing crypto assets
To be sure, Visa isn’t ignoring consumers' growing affinity for cryptocurrencies. Sheffield said the payments giant has seen “significant and growing interest” when it comes to holding assets like Bitcoin as a store of value.
To that end, many fintechs are rolling out ways for consumers to earn bitcoin, often through rewards.
“We don’t see a lot of consumers that say, ‘I want to use Bitcoin to buy my coffee,'” Sheffield said. “We see consumers that want to, when they buy coffee, automatically be earning some Bitcoin that can then appreciate.”
Visa has partnered with fintechs like BlockFi and Fold, which rewards customers with Bitcoin.
Through its crypto API, Visa is helping its fintech and bank partners offer Bitcoin to their customers. The API is currently in a pilot program with neobank First Boulevard. But more banks are lining up to use Visa’s crypto API to add Bitcoin, too.
“Since the announcement, we’re seeing really significant demand from banks all across the world that are coming to Visa looking for us to help them develop their strategy,” Sheffield said.
And its crypto API is geared not just toward fintechs, but traditional banks, too.
“You can expect a number of products and services that Visa can provide to be focused on traditional banks to make it easier for them to come into the ecosystem and interact with Bitcoin and with stable coins,” Sheffield said.
Currently, Visa only supports Bitcoin through its API, but it will consider adding more use cases and cryptocurrencies based on consumer demand, Sheffield said.
What Happens if All Stablecoin Users Have to Be Identified?
Imagine the following scenario: Sometime in 2021, financial regulators declare that all stablecoin owners must be verified. What would happen to the cryptocurrency ecosystem?
Right now, a large chunk of stablecoin usage is pseudonymous. That is, you or I can hold $20,000 worth of tether or USD coin stablecoins in an unhosted wallet (i.e., not on an exchange) without having to provide our identities to either Tether or Circle, the managers of these stablecoin platforms. We can send this $20,000 along to other users, who can transfer the coins on, who in turn can transfer them on, and no one along this chain needs to unveil themselves.
J.P. Koning, a CoinDesk columnist, worked as an equity researcher at a Canadian brokerage firm and a financial writer at a large Canadian bank. He runs the popular Moneyness blog.
The only point at which stablecoin users have to submit to a Tether or Circle know-your-customer (KYC) process is to redeem stablecoins directly for traditional bank dollars. Or vice versa, to deposit dollars with Tether or Circle and get freshly minted stablecoins.
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In a world where traditional non-blockchain based financial institutions like PayPal, Chase, and Zelle link all payments to names and addresses, stablecoin networks have become a rare moat of digital payments privacy. This has led to some fairly exotic uses for stablecoins.
In Moscow, Chinese gray market clothes vendors trade cash for tether to repatriate profits, writes CoinDesk’s Anna Baydakova. Ukrainian companies that import from Turkey use tether to skirt foreign exchange controls, and a multi-million Ponzi scheme relied on Paxos standard (PAX) for payments. Meanwhile, in the world of decentralized finance (DeFi), unidentifiable computer programs are conducting billions of dollars in unregulated financial transactions using USD coin and other stablecoins.
But will regulators allow this privacy moat to continue to exist? What if, at this very moment, officials working for the Financial Crimes Enforcement Network (FinCEN), the U.S. Treasury’s money laundering watchdog, are plotting how to rein in stablecoin pseudonymity?
Let me speculate about how a potential unveiling might look.
FinCEN could rule that henceforth, if anyone wants to access tether, USD coin, or any other official stablecoin (TrueUSD, Paxos standard, Gemini dollar, Binance USD, HUSD) they will need to apply for a verified stablecoin account. That would mean providing photo ID, proof of address and other information to Tether, Circle or other issuers.
For many existing stablecoin owners, this won’t be a big deal. Professional arbitrageurs who use stablecoins to move value from one centralized exchange to another are probably already KYC’d. And retail clients who keep their stablecoins on an exchange like Binance wouldn’t see any changes because the exchange already verifies their identities anyways.
But given that every transfer would need to have names and addresses associated with it, an unveiling would certainly weigh on gray market uses such as the Chinese traders in Moscow.
With stablecoins getting bigger by the day, regulators probably can’t ignore the issue of pseudonymity forever.
The issuers themselves would be inconvenienced, too. Building infrastructure to collect and verify the identity of all users, and not just the few who redeem or deposit, is expensive. To recoup their costs, issuers like Tether and Circle may consider introducing fees. All of this could render stablecoins less accessible for people who only want to use them for casual remittances.
It is in the world of DeFi that the fallout of a stablecoin unveiling could be felt the most. Real people who own stablecoins can be easily identified. But in DeFi, stablecoins are often deposited into accounts controlled by bits of autonomous code, or smart contracts, which don’t have any underlying owner. It’s not evident how a stablecoin issuer can conduct KYC on a smart contract.
Maker, one of the most popular decentralized tools, contains $350 million USD coins in various user-created vaults. This hoard of stablecoins serves as collateral backing for dai, Maker’s decentralized stablecoin. Another $130 million USD coin is held in a Maker’s peg stability module smart contract. If all stablecoin owners must be identified, it’s not apparent who or what entity would have to undergo a KYC check for this $130 million.
Compound, another popular DeFi tool, currently holds $1.6 billion USD coin and $350 million tether. Lenders can deposit their stablecoins into Compound smart contracts and collect interest from borrowers who draw from the contracts.
Liquidity pools, smart contracts underpinning decentralized exchanges like Uniswap and Curve, also hold large amounts of stablecoins. Curve liquidity pools currently contain $1.25 billion worth USD coin and $450 million worth of tether.
See also: JP Koning – What Tether Means When It Says It’s ‘Regulated’
Under the strictest scenario, stablecoin issuers could be required to cut off any entity that can’t provide a verified name or address. Which means Curve, Maker, and Compound smart contracts would all be prevented from receiving stablecoins.
Given the ecosystem’s reliance on stablecoins, this would come close to breaking it. Compound, Curve and Uniswap might try to adapt by substituting FinCEN compliant stablecoins like USD coin with decentralized ones, say like Maker’s dai stablecoin. Because decentralized stablecoins don’t rely on traditional banks, they are less beholden to FinCEN dictat.
But remember, Maker relies on USD coin collateral to imbue dai with stability. If Maker, like Compound and Curve, can no longer hold USD coin, then dai itself would become less stable. And so the usability of Compound and other protocols relying on dai would suffer.
If we imagine a more dovish scenario, FinCEN might allow for a smart contract exemption. As long as stablecoins are held in a smart contract rather than an externally controlled account, then FinCEN would allow the stablecoin issuer to provide financial services to the smart contract. Much of DeFi could continue on as before.
This option provides a pretty big loophole for bad actors, though. The whole reason for requiring platforms to verify accounts is to prevent them moving illicit funds. If stablecoins held in smart contracts are exempt from KYC obligations, then enterprising individuals will move stablecoins to the smart contract layer and thus stimie FinCEN controls.
A middle-of-the-road scenario is that FinCEN exempts smart contracts from stablecoin KYC, but only if the smart contract itself verifies the identities of all addresses that interact with the contract. So Curve, in this case, would have to set up a customer due diligence program if it wanted to qualify to use stablecoins. Maker would have to vet all vault owners.
Under this scenario, we could imagine DeFi splitting into two. Purely decentralized protocols would avoid stablecoins altogether to avoid subjecting their users to KYC. Not-so-decentralized finance would start to verify users to maintain access to stablecoins.
There are many other potential scenarios. As you can see, this is a complex problem. If FinCEN is indeed exploring the question of stablecoin pseudonymity, I wouldn’t want to be the official tasked with trying to design an appropriate response. Too strict and DeFi may no longer function. Too light and DeFi will continue to pose a money laundering threat.
xSigma Passes Security Audit and Prepares to Launch Stablecoin DEX With LP Rewards – Press release Bitcoin News
xSigma Passes Security Audit and Prepares to Launch Stablecoin DEX With LP Rewards
press release
PRESS RELEASE. February 24, 2021 – xSigma, a decentralized exchange for stablecoin swaps, has announced details of its launch program. The DEX, which supports liquid swaps between stablecoin pairs, will go live on February 24, having passed a third-party security audit.
Blockchain security company Hacken audited the xSigma smart contracts and found no critical errors in the code, green-lighting the Ethereum-based exchange to launch as scheduled. A second security audit is underway to give the xSigma community additional confidence in the code powering the AMM.
Backed by a NASDAQ-listed company, and developed by an experienced team that includes former Google engineers, xSigma has secured the support of several high profile backers. These include NBA star Dwight Howard, who has committed to participating in the xSigma launch as an early liquidity provider (LP).
LPs will earn double rewards for the first fortnight to incentivize adoption and ensure a liquid environment for executing stablecoin swaps with minimal slippage. Ahead of its launch, xSigma has created a detailed guide for liquidity providers, walking them through the process of LP’ing and staking their pool share tokens to earn SIG, the protocol’s native governance token.
In addition to providing LP rewards for pooled USDT, USDC, and DAI, xSigma will incentivize a Uniswap liquidity pool for ETH/SIG. The xSigma DEX is scheduled to launch on February 24 at 13:00 EST (18:00 UTC), ushering in a new era for efficient stablecoin swaps.
About xSigma
xSigma is a stablecoin DEX powered by a governance token that gives holders the right to determine how the protocol should be managed. Token-holders receive a percentage of all DEX fees, with team and LP tokens vested gradually for two years to align incentives between the platform and its community. xSigma is backed by its parent company ZK International Group, a NASDAQ-listed corporation.
This is a press release. Readers should do their own due diligence before taking any actions related to the promoted company or any of its affiliates or services. Bitcoin.com is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in the press release.
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