Programmable Money – Coins and Cards

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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Stablecoins: Near-Term Predictions

12 Page Blog

Key Themes

  • Stablecoin growth is booming in the areas of remittance, cross-border, disbursement, and B2B supply chain. 
  • Card volumes face no threat as they remain the “last mile” of use and an economic model for stable coin issuers. 
  • The STABLE and GENIUS acts are driving significant central bank discussions, with divergent views on response in Europe. 
  • Asia is developing differently, with the effectiveness of Ukraine sanctions and fear of dollarization driving central banks to a CBDC approach.
  • The value of any network corresponds to the combined investment made by all parties around it. Stablecoin is the fastest-growing network and at the core of most FinTech investments.
  • PayPal, and legacy remittance providers are under a substantial near term threat
  • Expect big tech and mobile platforms to support stablecoins in new ways (ex recurring payments and emerging markets). 
  • A small number of low profit Banking segments are also at risk, as Stablecoin issuers become banks and threaten niche payment providers like Cash App, as well as specialists in categories like MSB, NBFCs, ELMI, …etc.

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Stablecoins. Breaking down a momentous set of April announcements

Impact of Stablecoins on Banks and Central Banks, the Upside for V/MA.

Stablecoins took many amazing leaps in the last 2 weeks. Key developments include

  1. PayPal’s new Stablecoin (PYUSD) earning 3.7% (in PYPL wallet). 
  2. Circle Launches Cross-Border Payment Network:- Circle Payments Network (CPN) – see CPN whitepaper
  3. Paxos and Coinbase, as well as Circle, are pursuing bank charters
  4. Visa to join Paxos and Robinhood in USDG
  5. EU banks are creating a new consortium around stablecoin with the involvement of ING and others.
  6. ECB flags risk of contagion from US crypto push in new policy paper, similarly the Bank of International Settlements (BIS) also published a paper outlining how Crypto and DeFi may destablize finance. 
  7. Italy’s finance minister warns that the attractiveness of US stablecoins poses a bigger risk to Europe than Tariffs.
  8. Regulatory – The STABLE Act has advanced through the House Financial Services Committee, increasing the likelihood of Congress passing legislation to regulate stablecoins (and New Bank Formation Act). Fed Chairman Powell voiced strong support at the Economic Club of Chicago.
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Settlement – The Core of Banking – Part 1 

© 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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Update – Views on CBDCs – Free Content

I thought I’d put together my latest thoughts on Central Bank Digital Currency (CBDC). This blog is an update to my June 2022 Post – CBDCs: Growth Opportunity for US Banks. 

Challenge – Explain a CBDC to a 10 yr old and describe why it is “better” than using cash or a card. While you can never lose your money. The government has the ability to know the source and destination of every transaction.

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

© 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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CBDCs – Growth Opportunities for US Banks

The future for a US CBDC is uncertain. While President Biden signed an executive order in March 2022 directing the government to “Explore a U.S. Central Bank Digital Currency (CBDC) by placing urgency on research and development of a potential United States CBD”, US banks seem dead against it.

This is my third blog on CBDCs, today the focus will be on the societal benefits of CBDCs, current bank resistance, and the opportunities for banks if they embrace it. The previous 2 blogs are blow and I’ll try not to repeat myself:

  • Digital Dollar (March ‘21) – Inventory of Central bank efforts and drivers with key detail on China’s digital yuan. 
  • Case for CBDC – Market Efficiency (June ‘21) – Is focused on the benefits to the unbanked and in reducing friction in low-value payments. 

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