Category Archives: DeFi

Governance in Payments

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Long blog – Paid Content

Executive Summary

I’ve been writing about governance, trust, transaction costs and payments for a long time. In my view THE KEY to understanding how stablecoins, agentic, DeFi, Open Banking, tokenization and other payment innovations is governance. I seem to be the only one writing about it, so I don’t see a reason to stop now. Governance is the BIGGEST competitive moat for Visa and Mastercard, and its also the heart of their biggest break out growth opportunity. If you thought AI was transformational, radically reducing transaction costs (TCE per Nobel work of Ronald Coase) will dwarf it. In fact the monetization of AI is a Gordian knot of governance issues (see Agentic Commerce and Governance). 

Today I’m expanding on “value exchange” governance with 5 core themes.

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Top US Banks to Issue their own Stablecoin

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Executive Summary

  1. As a former Banker running payments for 2 of the largest US banks I have a perspective on how this will play out. I may be wrong, but it is an informed perspective.
  2. As outlined 2 weeks ago banks in the EU are planning their own stablecoins.
  3. The GENIUS ACT forces stablecoin issuers to obtain bank licenses, thus this morning’s WSJ report that Bank of America, Wells Fargo and Chase are now in the mix is only logical
  4. As outlined in Stablecoin predictions, this will not impact cards as they retain their role in the last mile and banks protect the card model. 
  5. As outlined in Power of Bank Networks, Payments are where the power of banking is unlocked. The major US banks are payment hubs that connect to all networks, from TCH, RTP, Swift, Card, …etc.  These banks are leaders in innovation and in managing operations that consistently clear trillions of dollars PER DAY. 
  6. The stablecoin settlement model is much simpler than an RTP network where each participating party has to register as a sender or receiver of payments. Senders must have settlement funds which restrict their ability to clear payments. In a Stablecoin model, originators only have to have valid stablecoins to transact, and can also create programmable rules around them (see Programmable Money)
  7. The business drivers are remittance, cross border, B2B, and the prospect of growing the global deposit base as international consumers and businesses buy stablecoins. Italy’s finance minister is quoted as saying USD stablecoin adoption (ie dollarization) represents a greater threat to the EU than Tarriffs. 
  8. In my view this is a 3 yr effort. Banks don’t move quickly in isolation, and even more slowly in consortium. I do think that this will first move with commercial use cases and remittances, with banks as stablecoin issuers. Within retail consumer UCs, P2P and Zelle are the area that would be impacted first.  
  9. US Banks should consider the slippery slope of Stablecoin. Once issued, their transfer can’t be restricted, and will operate without friction. Every movement of money becomes instant. This is why I don’t think we will see consumer interfaces within US bank domains in near term. Priority 1 is creating the stablecoin issuing platform and legal structure. Priority 2 is focusing on UCs like cross border and B2B. 

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Programmable Money – Coins and Cards

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Overview

Today we discuss programmable money, a concept that merges smart contract functionality with digital tokens operating on distributed ledger technology (DLT). We trace the historical development from open decentralized finance (DeFi) to the adoption of permissioned systems by leading financial institutions, analyze the technical distinctions between public and private blockchains, and emphasize the necessity of robust governance for scalable deployment. The paper further examines real-world use cases in high-value asset transactions and the growing relevance of programmable money in agentic commerce, highlighting the role of stablecoins and card networks in enabling trusted, logic-driven payments.

There is a payment geek battle of concepts in Agentic commerce. Conceptually, stablecoins and smart contracts provide a better technical architecture for agentic. However, it is my firm belief that these new technologies will be used by existing networks and stakeholders rather than a completely new set of participants and approaches. For example, Visa and Mastercard are likely to remain both the primary off ramp for Stablecoin (ie card merchant acceptance) AND ALSO retain their role in standards, governance, identity, economics and how programmability operates with regulated stakeholders.

I know many of my colleagues will disagree with my views here, that is OK as the dialog will help us all. As such, your comments are welcome.

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The Realities of On-Chain Finance: Why Closed Ledgers Will Lead the Way

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Short Blog.

New technology rarely disrupts industries overnight. Instead, it is first used by existing players in established markets to gain a competitive edge. On-chain finance is no different. While decentralized finance (DeFi) and public blockchains promise a future of open financial networks, the immediate growth will come from closed, permissioned ledgers operated by financial institutions.

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Networks, Value Assembly and Organizational Structures

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Bull Case For Visa and Mastercard 

Very Long Blog.  4 Page Exec Summary. Feedback appreciated. This blog has been my “blocker” as I’ve iterated over the last 7 months. I’ve thinned this down from 31 pages (which no one would read) to 23. No I will never write something this big again.

The thoughts below are an update to my 2016 Small Wins, where I outlined how the forces that have driven scale, and shaped organizations, are atrophying (Transaction Cost Economics, asset intensity, information intensity, finance… etc). Paul Graham’s calls this change Refragmentation, I call it Transformation of Networks.

It’s as if the gravitational constant (the big G) is changing and new forces are driving the formation of new networks influenced by a rapidly evolving world of “weak links”. Information intensity has moved beyond “tweaking” 100 yr old business models to transform the design of industries, communities and people.

Whereas the 2016 blog was more about the “possibilities” enabled by tech, this blog is about the reality of how things will evolve.  

© Starpoint LLP, 2024. No part of this site, blog.starpointllp.com, may be reproduced or retransmitted, in whole or in part, in any manner without the permission of the copyright owner. Also see our Legal/Disclaimer (this is a highly opinionated and partially informed blog).

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Settlement – The Core of Banking – Part 1 

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© Starpoint LLP, 2022. No part of this site, blog.starpointllp.com, may be reproduced or retransmitted in whole or in part in any manner without the permission of the copyright owner.

Given that 80% of my payments thoughts over the last month have been on identity it is time to move on to settlement. Understanding the process of settlement is key to understanding both payments and banking. 

Today’s blog hopes to address 4 questions

  • What are the fundamental innovations in settlement?
  • How will innovations change competitive dynamics?
  • How will innovations change political dynamics?
  • What flows will be impacted?

Nobel economists Coase/Williamson demonstrated how transaction costs shaped the Nature of the Firm. Settlement systems define the transaction costs of finance. Thus settlement system design shapes the organization of financial services. Settlement is in the midst of a revolution as many parties seek to remake settlement as the “base” platform capable of unbundling financial services.

Settlement provides the legal structures and operating rules required to clear $USD Trillions per day are 95% across multiple parties. Banking is a connected business, if the world was in a single account there would be no settlement issues as everyone would be on the same ledger. 

As with all networks increasing scale results in increased network rigidity and existing participants consider how changes impact the value they receive and their unique competitive dynamics. For example, many of the proposed changes to settlement will impact correspondent banking. While some see opportunities to reduce the “cost” of correspondent banking, others providing the correspondent services see change as a reduction in revenue.  While the tech of settlement is fascinating, at the end of the day one counterparty has to trust the netting process to permit funds to flow from their account. 

While there is no near-term cliff, settlement innovations may result in a dramatic shift of payment volume. Today V, MA, SWIFT, EFT, … ALL run on the same settlement process. As most of you know, there is over $4T of market cap driven by networks residing on TOP OF settlement.  For example, card networks do not move funds, but rather are messaging networks. While the legal and operational structure of settlement may not change, a change in technology can have significant implications for how messages operate between trusted parties and the DIRECT ACCESS of non-banks (ex PSPs, non-banks, …etc.).  

This is a HIGHLY POLITICAL undertaking, with many change advocates working to reduce the power of US/EU banks and sanctions controls. Changes in settlement have the potential to unbundle banking, payments drive changes to central bank power and FCY reserves. Where open banking breaks open the FRONT END, settlement remakes the back end. For example, if risk in settlement can be managed by specialists commercial/retail banking (and payments) could move toward a model which resembles modern financial markets (clearing process is a commodity).

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Identity, Authentication and Risk

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Bridging Domains – Short Blog – Random Thoughts

This is a “Random Thoughts” blog, which means there are many points that I’ve left hanging (not finished cleanly). The blog’s objective is to stimulate discussion, so please don’t hesitate to comment.  Identity is a hot topic for me with 15+ years of previous bosts. Here are a few updates … as well as my evolving perspective. 

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Near Term Impacts of Distributed Ledger Technology to Financial Services – Chain of Trust

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© Starpoint LLP, 2022. No part of this site, blog.starpointllp.com, may be reproduced in whole or in part in any manner without the permission of the copyright owner.

Continuation of last week’s blog on “binding” and minting of tokens. 

I’m currently immersed in DeFi, DAOs, Blockchain, …etc. Selected readings are at the end of this blog. Keeping Current in DeFi/DLT is almost impossible. I certainly invite comments and corrections to anything I’ve written below. While I have teams building services in this area, my perspective is biased. My purpose in writing is to stimulate discussion so don’t be shy in the comments, I welcome disagreement and discussion. 

Topic today: What impacts will the $50B invested in FinTech/DLT/Crypto have on existing financial services in next 5-10 yrs? What is the summary CEO/Investor View?

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Bank Opportunity – Binding

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Big picture thoughts on a key service where banks will lead in the future

© Starpoint LLP, 2022. No part of this site, blog.starpointllp.com, may be reproduced in whole or in part in any manner without the permission of the copyright owner.

Existing businesses spend significant energy on remaking things that work. Moore’s law has justified this investment in chipmaking, as has Tesla’s investments in batteries and manufacturing processes. These area of focus are where products performance is critical to the customer and incremental capability provides differentiation. But what about banking and payments?  What provides differentiation? Which investments are driving performance critical to the customer? or operational efficiencies? (see Changing Economics of Payments) 

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Trust Assertions – Identity Will Define the Future of Payment Networks

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©Thomas Noyes, May 2022

My blogs last week have me thinking about the changes going around in Identity. This will be a long blog. Typo warning.. I’m still revising. 

The number one thing I look for in payments is change: volume, technology, behavior, data, …etc. Effective networks are notoriously hard to change, but they are also very resilient (see blog). Small changes in data flows, can lead to significant changes in margin and “control”.  Margin and control guide both public and private investment (see Evolution of Visa and Mastercard Beyond Payments). 

Identity is our most important asset — it’s literally who we are. 

Our complete “identity” is known to no one, as each entity we interact with has a partial view of us based upon what we chose to give them and what they observe. How others accept and validate our identity, and how others share insight about us, is the core of payments (see Trust Networks and Authentication in Value Nets). The structure, exchange, and assertions associated with identity are defining: web3, DeFi, Crypto, CBDCs and the Metaverse. These are not separate silos, but rather overlapping ecosystems that must interact, thus the importance of bridging identity across networks/domains (see Blog – Trust is domain specific). 

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