Decrypting Misconceptions: A Deep Dive into SPBDs, SEC Guidance, and Coinbase's Strategic Playbook
Counterargument to an Attorney's Perspective on Regulations
(Disclosure: The opinions expressed below are the personal views of the author and should not be considered as a basis for making investment decisions or construed as a recommendation or advice to engage in investment transactions. Additionally, neither the author, Jenny Q. Ta, nor Web3VCFunds.com, or any other entities owned by the author, is affiliated, personally known, paid for, sponsored by, or connected with any of the names and entities listed in this publication. Furthermore, the author does NOT own any shares or tokens, directly or indirectly, in any of the mentioned entities, asset classes or securities. The views presented in this article are solely those of the author.)
I came across a tweet-post by TuongVy Le ("TVL") on X (formerly Twitter) and felt compelled to share my thoughts, elaborating on the aspects where TVL was correct and where the SEC also held accuracy in their rejection of Coinbase's rulemaking petition. TVL, a respected attorney and the Partner and Head of Regulatory & Policy at Bain Capital Crypto in the crypto space, has earned my admiration for her work. While not an attorney myself, I've publicly emphasized that understanding SEC, FINRA, and CFTC rules and regulations doesn't necessarily require legal credentials. My expertise comes from founding two investment bank-broker-dealers from the ground up without relying on any legal assistance.
In the domain of security regulations, especially those enforced by the SEC, many attorneys may comprehend the laws but might lack practical understanding of how a registered investment bank or broker-dealer operates. This gap can result in a disconnect between legal concepts and operational realities. On the other hand, founders like Brian Armstrong of Coinbase and Vlad Tenev, with the latter leading Robinhood, a registered broker-dealer, may lack a comprehensive understanding of legal intricacies since their primary focus may not have been on founding their ventures with meticulous attention to legal and compliance understanding from the ground up.
TL;DR, but if you follow through, I'll guide you through the steps where TVL is accurate and where she is somewhat unaware. She simply and clearly missed a number of marks when it comes to the different broker-dealers being offered and how each functions based on the types of businesses they were approved for. Furthermore, I'll make a few bold forecasts regarding how BlackRock has amended its proposed Bitcoin spot ETF to issue cash redemptions, as indicated in a recent filing, and discuss its potential impact on Bitcoin and/or Ethereum. This aligns more with the SEC's preferences, departing from in-kind redemption models. I'll also share my thoughts on the future of stablecoins like Tether and USDC. It might surprise many that they will not only be tied to the US CBDC but rather also stem from the International Monetary Fund (IMF). It's detailed, but it's worth your time – trust me. 🙂
What are Special Purpose Broker-Dealers (SPBDs)?
The introduction of Special Purpose Broker-Dealers (SPBDs) by the U.S. Securities and Exchange Commission (SEC) in December 2020 marked a distinct regulatory framework allowing entities to both custody and transact in crypto asset securities. This unique status, however, comes with stringent conditions. On the positive side, SPBDs have the authority to engage with crypto asset securities, providing a comprehensive solution compared to traditional broker-dealers restricted to either transacting or custodying. The ability to operate within the distributed ledger technology (DLT) space and exclusive control over held assets through private key protection are notable advantages. Nevertheless, some broker-dealers may find SPBD status less appealing due to perceived restrictions, such as limitations on handling non-securities crypto assets and those not registered or exempt under federal securities laws.
Differentiating SPBDs vs traditional BDs, like Goldman Sachs
I founded two investment bank-broker-dealers (BDs) similar to Goldman Sachs. Through extensive personal experiences, I have gained an in-depth, comprehensive understanding of the differences among various types of BDs. But, for the sake of staying focused on today's topic, which will be lengthy enough by the time I'm done with it, we will specifically distinguish between SPBDs and traditional BDs.
In May 2023, Prometheum Ember Capital achieved the distinction of being the first SEC-registered Special Purpose Broker-Dealer approved to custody digital asset securities. Two years earlier, in 2021, INX reached a significant milestone by becoming the first operating company, acting as a broker-dealer, authorized to offer security tokens. The significance of these two entities, each approved for distinct types of businesses, marks a crucial step forward for the crypto industry in the United States.
To better elucidate, let's contrast these with a traditional brokerage firm like Goldman Sachs – outlining the differences below:
PROMETHEUM as an SPBD (CRD#: 312784/SEC#: 8-70739):
As an SEC registered SPBD, Prometheum has a dual role where it can safeguard customers' cryptocurrency assets through custody services, and it functions as an Alternative Trading System (ATS) for digital asset securities, allowing for the trading of these securities in a regulated manner. It cannot do anything else.
Custody of Customer's Crypto Assets:
Prometheum has the capability to take custody of customers' crypto assets. Custody in the context of cryptocurrency refers to the safekeeping and management of digital assets on behalf of customers. It implies that Prometheum can securely hold and store cryptocurrencies on behalf of its customers, providing a secure environment for the storage of digital assets.
In traditional finance, when broker-dealers custody customer stocks in street names, it means the securities are registered under the broker-dealer's name rather than the individual customer's. This streamlines trading processes and enhances efficiency, allowing for quicker transfers and settlements without the need for physical stock certificates. Despite being in street name, accurate records are maintained for each customer, and statements are provided to reflect their holdings and transactions.
Similarly, in the context of cryptocurrency custody, Prometheum holds assets on behalf of customers. This process is akin to 'not your keys, BUT your coins,' an approach designed to enhance efficiency and facilitate transactions without requiring the physical possession of each customer's individual assets.
With appropriate insurance, such as SIPC, this approach may increase adoption for cryptocurrencies. Traditional high net worth investors often prefer holding their investments in street names, encompassing stocks, bonds, mutual funds, and even cash.
For example, Goldman Sachs employs traditional custodial practices, akin to a secure bank vault, to safeguard clients' conventional assets like stocks and bonds. In contrast, Prometheum utilizes advanced cryptographic measures and digital protocols, acting as a modernized digital vault, to securely hold and manage clients' cryptocurrency assets, ensuring the safety of their digital holdings in the evolving landscape of blockchain and digital finance. Traditional broker-dealers' custody assets are held in trust at banks; they are not part of a bank's assets or balance sheet.
Alternative Trading System (ATS) for Digital Asset Securities:
An Alternative Trading System (ATS) is a trading venue regulated by the U.S. Securities and Exchange Commission (SEC). An ATS is a non-exchange trading venue that matches buyers and sellers of securities. It specifically deals with digital asset securities. This means that Prometheum provides a platform or system where participants can trade digital securities in compliance with regulatory requirements. It's important to note that an ATS is not a national securities exchange. However, an ATS has the option to seek approval from the SEC to transition into a national securities exchange.
It’s also important to note, the key term here is 'securities.' Consequently, any and all cryptocurrencies that will eventually be traded on Prometheum’s ATS must be registered as 'securities.'
Alternative Trading Systems (ATSs) are well-regulated entities. Goldman Sachs (GS) operates an ATS and actively advocates for regulations that enhance post-trade reporting transparency within such systems. Additionally, GS has implemented a standardized method for tallying executed trades on its ATS.
In summary, as an SEC-registered Special Purpose Broker-Dealer (SPBD), Prometheum plays a dual role—safeguarding customers' cryptocurrency assets through custody services and operating as an Alternative Trading System (ATS) for digital asset securities, facilitating regulated trading. Additionally, it adheres to well-regulated practices similar to traditional finance custody, and it aligns with ATS regulations, ensuring that any cryptocurrencies traded on its ATS are registered as 'securities.' This dual functionality positions Prometheum as a secure and regulated entity in the evolving landscape of blockchain and digital finance.
GOLDMAN SACHS as a TRADITIONAL BROKER-DEALER (CRD#: 361/SEC#: 801-16048, 8-129):
Goldman Sachs, as a traditional Broker-Dealer (BD), offers an extensive range of financial services to a diverse clientele, including corporations, financial institutions, governments, and individuals. However, unlike Prometheum, it does not currently provide digital asset securities.
In summary, Prometheum, as an SEC-registered Special Purpose Broker-Dealer (SPBD), has a dual role. Firstly, it safeguards customers' cryptocurrency assets through custody services, ensuring secure storage. Secondly, it functions as an Alternative Trading System (ATS) for digital asset securities, enabling regulated trading. In contrast to Goldman Sachs' traditional custodial practices, Prometheum employs advanced cryptographic measures, acting as a modernized digital vault for clients' cryptocurrency assets. Traditional broker-dealers' custody assets are held in trust at banks, distinct from their assets or balance sheets. The ATS operated by Prometheum, regulated by the SEC, matches buyers and sellers of digital asset securities. Notably, for any cryptocurrency traded on Prometheum's ATS, registration as 'securities' is a requisite, aligning with ATS regulations. This dual functionality positions Prometheum as a secure and regulated entity in the evolving landscape of blockchain and digital finance, distinct from traditional BDs like Goldman Sachs.
INX SECURITIES as a DIGITAL ASSET BROKER-DEALER (CRD#: 162182/SEC#: 8-69058):
To best describe INX, it's simplest to draw a comparison with Goldman Sachs as follows: While Goldman Sachs operates as a traditional Broker-Dealer (BD) offering a wide range of financial services in the conventional finance realm, INX functions as a Digital Asset Broker-Dealer, specializing in the digital assets space and blockchain technology.
Goldman Sachs, as a prominent traditional investment bank, offers a wide array of financial services. It facilitates the listing of securities on traditional stock exchanges, aiding companies in conducting initial public offerings (IPOs) or subsequent public offerings. With a robust presence in investment banking, Goldman Sachs provides advisory services for mergers and acquisitions, underwriting, and corporate finance. Additionally, the bank is a major player in asset management, overseeing investment portfolios and delivering wealth management services to both institutional and individual clients. Furthermore, it assists companies in raising capital through traditional financial instruments such as stocks and bonds.
In contrast, INX operates in the digital assets space with a specific focus on blockchain technology. Specializing in digital securities, INX facilitates the listing of security tokens on its platform, catering to the evolving landscape of blockchain-based assets. Actively engaged in digital capital raising, INX leverages mechanisms like Security Token Offerings (STOs) in the digital asset space. Serving as an Alternative Trading System (ATS) for digital asset securities, INX provides a regulated platform for participants to trade digital securities. Beyond traditional finance, INX explores applications of blockchain technology and contributes to the emerging field of decentralized finance (DeFi). Moreover, INX navigates the regulatory landscape specific to digital assets, ensuring compliance with evolving regulations in the digital securities space. Similar to Goldman Sachs, the INX trading platform, unlike others, is fully regulated and compliant with FINRA and the SEC.
In summary, Goldman Sachs operates as a traditional Broker-Dealer (BD) providing diverse financial services, including listings, public offerings, and capital raising in the conventional finance sector. INX, on the other hand, resembles Goldman Sachs in its role as a Broker-Dealer but operates primarily in the digital assets space, focusing on blockchain technology and digital securities. INX has more similarities with Goldman Sachs in terms of its broad range of services. Meanwhile, Prometheum, categorized as a Special Purpose Broker-Dealer (SPBD), specializes in the digital assets and cryptocurrencies space, offering services limited to custody and serving as an Alternative Trading System (ATS) for digital asset securities.
Analyzing Attorney TuongVy's Tweet-Post in Relations to Coinbase:
Attorney's Argument:
Attorney TuongVy Le (TVL) adeptly critiques the SEC Chair's claim that the Special Purpose Broker Dealers Release from 2021 provides a viable path for brokers to engage in crypto asset securities transactions, except that it doesn't. TVL questions this assertion, highlighting that, in reality, the SPBD framework lacks the effectiveness implied by the SEC Chair.
Assessment of Facts:
Partially accurate, as having an SPBD alone is insufficient to meet the diverse needs of an exchange like Coinbase. TVL accurately pointed out that while the SEC Chair suggests a path in the 2021 SPBD Release, that alone isn’t sufficient, because a complete solution would require a combination of both INX and Prometheum functionalities to match traditional broker-dealers like Goldman Sachs. TVL's insight acknowledges that SPBD status alone falls short in covering the breadth of services needed for comprehensive crypto asset transactions, which is accurate because without the functionalities from INX, it would not work. SPBD, like that of Prometheum, is simply custody, while INX isn’t an SPBD but a full-service digital assets broker-dealer. The SEC Chair's guidance is accurate in pointing to the right path. The SEC Chair isn’t going to hold anyone’s hand and teach them the ABCs of how to read and dissect the rules and regulations of the SEC and how to conduct one’s business; that is not the SEC’s job, nor that of the Chair’s.
In summary, "there is obviously a way forward for crypto in the United States." It’s the necessity for a nuanced approach, blending the functionalities approval process of INX and Prometheum, to chart the course for the crypto industry in the United States.
Attorney's Argument:
Attorney TuongVy Le (TVL), “SEC requires brokers that transact in crypto assets to limit their activities to crypto asset securities, but there are basically no crypto assets registered as securities due to the lack of a workable path for issuers, a process outside a broker’s control.” However, this statement may NOT be entirely accurate.
Assessment of Facts:
On October 24, 2023, the U.S. Securities and Exchange Commission (SEC) took the position that nearly all cryptocurrencies are securities, with Bitcoin being the only known exception. This classification has significant implications for their regulation.
In the context of cryptocurrency exchanges such as Coinbase, which frequently lists various cryptocurrencies, the classification of these assets as securities subjects them to specific regulatory requirements. Therefore, it would be most likely that for any cryptocurrency to be listed on an exchange like Coinbase, it must undergo a registration process similar to that of a Security Token Offering (STO), formerly known as an Initial Coin Offering (ICO).
One significant challenge for Coinbase in embracing this approach stems from the potential overhaul of its entire business model. As a cryptocurrency exchange, Coinbase has flourished by not only accruing listing fees for direct listings and participating in various processes like mining, staking, and other consensus mechanisms but also by retaining the flexibility to select and charge any cryptocurrency, even those deemed less reputable (often referred to as "shitcoins"), for activities such as pump and dump schemes. However, if the classification of all cryptocurrencies as securities mandates registration, these practices would be deemed 'illegal.' This shift may necessitate a substantial restructuring of Coinbase's business model, potentially leaving it undercapitalized due to a lack of revenues generated from fees. In this scenario, where all cryptocurrencies must undergo the official registration process for listing, it is evident that Coinbase would prefer to contest and litigate against the SEC rather than opt for simple compliance.
Similar to traditional finance, where listing a security isn't solely at the discretion of a broker-dealer but involves a regulated process, the SEC's position that nearly all cryptocurrencies are securities would transform the listing approval process. This shift would transfer responsibility from Coinbase to the SEC, which would regulate every underlying digital asset as a security. Comparable to Goldman Sachs, which can't freely list any companies but must adhere to a registration process, crypto exchanges like Coinbase would need to undergo a similar procedure. Furthermore, Coinbase itself must be in compliance and register, similar to Prometheum or even more so like INX. Prometheum cannot facilitate the listing of security tokens on its platform or act as an exchange matching buyers and sellers of securities.
In summary, thus, it's not a matter of there being no way forward for crypto; a path exists, but Coinbase seems unwilling to accept these regulatory facts.
Attorney's Argument:
Attorney TuongVy Le (TVL), “Also, brokers are not allowed to offer traditional securities like publicly-traded stocks alongside crypto asset securities. Brokers are also not allowed to transact in non-security crypto assets like BTC. All of this effectively means that even if a broker obtained one of these special licenses, there’d be virtually no crypto assets they could transact in.”
Assessment of Facts:
I believe TVL is misinformed. The SEC doesn't deny a company the opportunity to engage in different businesses if that business is sufficiently licensed and meets the necessary requirements and compliance. For example, Goldman Sachs can engage in various types of activities, including online trading, Investment Adviser services, commodities, and forex trading, among others. Eventually, GS may also offer digital assets such as bitcoin and cryptocurrencies. So, if GS can do so, why couldn't an exchange like Coinbase do the reverse?
Furthermore, it's essential to note that platforms like Robinhood demonstrate that it is possible to offer both traditional securities and crypto asset securities on the same platform. Robinhood provides users with the ability to trade traditional stocks and crypto assets through its subsidiaries, Robinhood Financial, LLC, and Robinhood Crypto, LLC. This example further supports the idea that diverse financial services, including digital assets, can coexist within a regulatory framework.
Attorney's Argument:
Attorney TuongVy Le (TVL), “Even if crypto issuers had a workable path to registration and brokers were allowed to offer trading in crypto commodities like BTC, alone or alongside traditional stocks, the SEC’s Customer Protection Rule makes it effectively impossible for brokers to deal in digital assets. The rule requires a broker to have physical possession or “exclusive control” of a customer’s securities, but the SEC has said very little about what constitutes “exclusive control,” other than “the fact that a broker-dealer (or its third party custodian) maintains the private key may not be sufficient.” By preventing brokers from employing the safe and secure methods of self-custody commonly used by crypto market participants, and with few (and in most cases, no) third-party “qualified custodians” available for crypto assets, brokers would be unable to engage in most crypto asset transactions.”
Assessment of Facts:
Contrary to the assertion, there is indeed a clear and defined path, as outlined above. The SEC’s Customer Protection Rule, or Rule 15c3-3, serves as a regulatory safeguard for customer funds and securities held by broker-dealers. The rule enforces specific requirements to ensure broker-dealers adequately protect their customers' assets.
The SEC’s Customer Protection Rule dictates that broker-dealers must protect customer funds and securities through several key provisions. These include the segregation of customer assets from the broker-dealer's own assets, ensuring protection during financial distress. Additionally, broker-dealers are obligated to maintain a reserve to cover amounts owed to customers, provide regular account statements for transparency, and promptly transmit customer funds and securities upon request. These measures collectively aim to safeguard investors, uphold market integrity, and foster confidence in the security of customer assets within the regulatory framework.
The Customer Protection Rule stands as a pivotal element of the regulatory framework designed to secure investors and maintain the integrity of the securities markets. It establishes standards for the secure storage of assets held by broker-dealers, instilling confidence among investors.
Regarding the rule's requirement for a broker to have physical possession or "exclusive control" of a customer’s securities, this parallels practices in traditional finance. For instance, when Goldman Sachs assumes "exclusive control" of investors’ assets in street names, covering stocks, bonds, mutual funds, and cash. This prompts the question: why couldn’t cryptocurrencies like Bitcoin be similarly held through street names, akin to Robinhood with Dogecoin? Robinhood successfully facilitates the liquidation of Dogecoin holdings for hodlers who lack their private keys. This process is seamless, allowing hodlers to request the wired transfer of cash funds upon selling. If Robinhood can execute such practices, adopting similar measures within the Customer Protection Rule should not pose an issue. Expanding on the traditional side, investors have historically had the option to request a physical certificate from their broker, though infrequent. This option has consistently been available, with investors commonly requesting physical certificates for their Disney shares from brokerage firms.
Attorney's Argument:
Attorney TuongVy Le (TVL), “Mechanical application of existing rules, without considering the unique ways in which digital asset issuance, custody, and trading differ from traditional securities, leaves market participants with no way to comply. The fact that precisely one entity has been able to successfully obtain the special broker license, an entity that currently has no functioning business, makes clear that there is currently no workable path.”
Assessment of Facts:
Once again, I must emphasize the inaccuracies in TVL's assertions, as I have systematically addressed and refuted each of her points. Contrary to her claims, a clear and viable path exists for all facets of digital assets, encompassing issuance, exemplified by INX, custody, as demonstrated by Prometheum, and trading of both traditional securities and cryptocurrencies, akin to platforms like Robinhood. It is crucial to recognize that Prometheum, having secured its SPBD approval in May, may still be in the early stages of implementing its ATS system that’s why there has been no functioning business. However, it is pertinent to note as I have clearly outlined above that Prometheum alone is insufficient, necessitating further registrations and licensings, akin to the comprehensive approval process undertaken by INX, to function as a fully operational "digital asset exchange" comparable to traditional financial institutions like Goldman Sachs.
In summary, if the crypto industry persists in holding up Coinbase as its exemplar, the risk is that others may adopt a similarly myopic perspective, echoing Coinbase's assertion that there is no discernible way forward. However, the truth remains that a well-defined path exists and has been meticulously outlined. The crux of the matter is not that Coinbase lacks the capability to adhere to this established path; rather, it is a deliberate choice stemming from their historical success in the unregulated landscape. The current modus operandi, reminiscent of the Wild West, involves listing a myriad of cryptocurrencies, even those of dubious quality, and profiting from speculative trading dynamics. Given this successful formula, why would Coinbase willingly shift to a more regulated approach with the SEC overseeing token listings? While a regulated approach would undoubtedly lead to a more orderly crypto space, reducing the prevalence of low-quality tokens and minimizing the risk of investor harm, Coinbase's overarching objective has consistently been its bottom line, prioritizing profitability over the broader welfare of the crypto community and its investors.
The facts are, Coinbase: thriving in chaos, not interested in a cleaner crypto. It's all about their bottom line, not the industry's well-being.
Additional Insights
BlackRock's Bitcoin ETF Evolution: Cash Redemptions and Potential Market Impacts
On December 19, 2023, BlackRock refined its proposed Bitcoin spot ETF, introducing cash redemptions to better align with the SEC's preference for settlement procedures over in-kind redemption models. The adjustment, ensuring compliance with the SEC's call for cash settlement and payments, positions the approval of the Bitcoin spot ETF on the horizon. However, a prudent disclosure is expected for those overseeing its implementation.
In evaluating the potential impact on Bitcoin's price, it's essential to consider the 'Buy the rumor, sell the news' principle, which might temper any immediate surge, regardless of the impending halving. Significantly, Bitcoin has historically required at least 1.5 years post-halving to reach a new high. Illustratively, the last halving on May 11, 2020, serves as a pertinent example: Bitcoin achieved its all-time high on November 10, 2021, reaching approximately $68,990.90 (per CoinDesk data) over an 18-month period.
Therefore, even if BlackRock and other companies secure approvals for their Bitcoin or Ethereum spot ETFs around January 2024, considering the halving scheduled for April 2024, Bitcoin's value may encounter volatility, potentially declining to uncharted territories before October 2025, if a similar pattern persists in achieving its all-time high.
Furthermore, the introduction and operation of the Bitcoin spot ETF, particularly by industry leaders like BlackRock, provide a strategic advantage. Profits can be derived from trading the ETF without the need to directly acquire the underlying assets, whether it be BTC or ETH. This approach allows for substantial gains by capitalizing on favorable spreads in the market. In the context of a Bitcoin spot ETF, BlackRock isn't obligated to purchase the underlying assets (Bitcoin or other cryptocurrencies). The ETF structure enables investors to gain exposure to the price movements of the underlying assets without actual ownership. For BlackRock, this means facilitating investors' exposure to Bitcoin's price by trading the ETF on the market, bypassing the necessity to acquire and hold physical Bitcoin. This structure offers institutional and retail investors a more convenient avenue to invest in Bitcoin through traditional brokerage accounts, utilizing the ETF as a proxy for direct ownership of the cryptocurrency.
Stablecoin Forecasts
Clearly, the SEC's push for BlackRock and other entities to embrace cash redemptions, aligning with the call for cash settlement and payments, signifies a calculated effort to guide investors away from stablecoins. This regulatory maneuver marks the inception of a comprehensive approach by the SEC, indicating a focused regulatory emphasis on stablecoins, which is poised to be a pivotal area in the SEC's agenda for 2024.
With the imminent approval of BlackRock's spot Bitcoin ETF, cryptocurrencies designated as 'regulated and registered' are definitely here to stay. In this evolving financial landscape, the inevitability of utilizing Central Bank Digital Currencies (CBDCs) from diverse countries prompts crucial questions regarding the fate of stablecoins like Tether and USDC. What alternatives exist for countries lacking the technological infrastructure for their own CBDCs? An apparent solution arises with the International Monetary Fund (IMF), representing 190 countries, gearing up to introduce a global stablecoin tailored for facilitating international exchanges with specific nations' CBDCs. In June 2023, the IMF's Managing Director, Kristalina Georgieva, announced the IMF's ongoing work on a global CBDC platform. Notably, various central banks worldwide have initiated pilot CBDC programs, including the US CBDC. The IMF's overarching objectives encompass global monetary cooperation, financial stability, international trade facilitation, support for employment, sustainable economic growth, and poverty alleviation.
In considering the future of stablecoins like Tether and USDC, a logical perspective emerges from the global consensus of the financial system. Countries and the IMF are unlikely to depend on privately-owned stablecoins, preferring control over issuance, compliance, and auditing. As CBDCs gain prominence, the demand for stablecoins will likely diminish, leading to their eventual obsolescence. Similar to the fate of 'SafeMoon,' a cryptocurrency that was once popular with one of the largest communities in the crypto space, experienced a surge of more than 55,000% in its token's price within its first two months and garnered celebrity endorsements. However, it recently filed for bankruptcy as the community depleted, implicating not only the CEO, founder, and former employee with conspiracies involving securities fraud, wire fraud, and money laundering, but also revealing the deception of empty promises. Tether and USDC will eventually face a comparable destiny. Countries controlling their own CBDC currency provides essential tools for economic management, enabling policies like interest rate adjustments, crisis intervention, and exchange rate control for international competitiveness. The government's control over its currency symbolizes economic independence. In contrast, private currencies, including stablecoins, present challenges such as regulatory issues, fraud, market manipulation, volatility, and potential impacts on financial system stability.
The proposed IMF stablecoin holds promise for various use cases, focusing on international remittances, capital markets, and eventual consumer payments. Presently, international remittances benefit from the efficiency of digital rails, while capital markets explore tokenization and streamlined settlement within money market funds. The gradual transition toward consumer payments is anticipated, driven by major merchants seeking cost-effective alternatives to major card networks.
As CBDCs are introduced globally, especially in smaller countries lacking technological capacity, the IMF's stablecoin emerges as a viable solution. This development may sideline private stablecoins like Tether and USDC, as governments prefer their own stablecoins and those endorsed by the IMF. Consequently, challenges posed by governments may diminish the sustained demand for private stablecoins, signaling a shift towards more centralized and globally recognized digital currency solutions.
FINAL THOUGHT
Despite my vocal support for regulators like the SEC, I want to reiterate my pro-crypto stance. I've been a builder in the space since 2015-16. Recently, I authored an exclusive piece for a tech media outlet (fingers crossed for its swift publication), outlining why cryptocurrencies are NOT like beanie babies and why blockchain ISN’T a mere spreadsheet. This piece reinforces a statement I made back in June (26 weeks ago) that 'cryptocurrency is here to stay.'
The highlighted decentralized technology isn't the antagonist; instead, it's the centralized management overseeing these decentralized technologies that tends to be either incompetent or self-indulgently selfish. In the vast canvas of life, neutrality prevails; our journey's masterpiece is shaped by the brushstrokes we select and the vibrant colors we apply.
Transformative wisdom
Fantastic overview and an engaging read, especially considering the intricacies of the subjects covered. The inclusion of connections to traditional finance in the example truly simplifies the comprehension of the content.