Reference News Network reported on May 16 that the Bloomberg News website recently published an article entitled "Stablecoins go away, a new token is coming". The author is Andy Mukherjee. The article is compiled as follows
People in the digital currency community are now divided into two camps. Traditional thinkers want public institutions to remain responsible for providing a safe medium of exchange for citizens to settle each other's debts. Otherwise, they say, private money could become as unreliable as wildcat banking before the Civil War, when currency issued by a Tennessee bank would trade at a 20 percent discount in Philadelphia.
Experimentalists, on the other hand, believe that the excitement around central bank digital currencies (CBDCs) is a fad – a bit like the “parachute pants” of the 1980s. Once a state has established a unit of account, it can step aside and allow the non-state sector to use its own stablecoin, an electronic representation pegged to the dollar, euro, yen or pound.
With no resolution in sight to this public-private battle, there is now a third factor – deposit tokens. The germ of this idea was recently validated as part of Project Guardian, a collaboration between the Bank of Singapore and the financial industry to explore the economic potential of asset tokenization. JPMorgan Chase & Co. turned Singapore dollar deposits into digital assets, setting them up to be transactable only with a few known wallet addresses and proving that institutional-level security can be achieved on a public blockchain.
Since 90% of all funds in circulation are bank deposits, the possibility that all this money supports "smart contracts" – self-executing software codes that initiate the exchange of monetary value when certain conditions are met – is a big deal.
Take a real estate transaction as an example. It is fairly common practice to use an escrow account during a conveyancing (i.e., the property changes hands). Less common, but not completely extinct, is the situation where the attorney running the escrow account runs away with the money. Now imagine that the purchase price is taken out of the deposit account and put into a digital piggy bank, and the seller has a key that can only be used when the apartment is sold. This is a smart contract. If the transaction fails, the piggy bank can be smashed.
Let CBDC and stablecoins — both retail products — compete for attention. The spoilers behind the scenes may well be, in fact, lackluster deposits. Savings go a long way. The risk that one party in a trade may not be able to pay what the other party owes is a nightmare that costs $2.2 trillion in cross-border payments every day. Blockchain has an atomic effect: both parties to a transaction either succeed together or fail together. Digital deposits may make settlement risk disappear. According to a report jointly released by Oliver Wyman and J.P. Morgan’s Onyx digital platform, consumers will gain efficiency gains as costs decrease:
In 2020, the capital cost of cross-border transfers of US$23.5 trillion was US$120 billion, and settlement took an average of 2-3 days. While we estimate that a multi-currency CBDC could reduce cross-border transfer costs by 80% to approximately $20 billion, deposit tokens could achieve similar benefits by reducing fees, settlement times, and counterparty risk, as well as allowing more direct fund transfers.
Most stablecoins maintain their fixed value with 1:1 financial backing. Every $1 of tokens minted by Tether or Thriker Internet Finance can (at least in theory) be redeemed by its issuer by paying off U.S. Treasuries or similar high-quality liquid assets. But not everyone thinks they are the future of money. "When everything goes well, most stablecoins trade close to face value. But it doesn't always go well," said Agustín Carstens, general manager of the Bank for International Settlements.
In contrast, CBDC carries a solemn promise from the country’s top money-printing institution to pay at face value.
Tokenized deposits fall somewhere in between. This is the power of the issuing bank, so it is not a true sovereign debt. However, most will still view it as sovereign debt. This is because the careful safeguards of deposit insurance and bank regulation not only give customers confidence that their funds are being deposited with the respective financial institutions, but will also continue to be effective. Unlike stablecoins, token deposits do not require 1:1 financial backing. This may be a good thing. It is more economically efficient to make the world’s limited safe assets freely available to more productive uses than to cram them into the cogs of gray blockchain transactions.
In the ideal world of traditional thinkers, tokenized deposits and CBDC might make stablecoins redundant. Carstens said it is conceivable that in the future commercial bank deposits and central bank funds "will be placed in the same configurable form on a comprehensive platform – a unified ledger".
For now, however, the experimentalists are winning. Silvergate Capital has shut down the Silvergate Exchange Network (SEN), clearing an important obstacle for institutional investors to exchange U.S. dollars for digital tokens. Blockchain analysis company Keco said: "With the death of SEN, stablecoins are likely to become more ubiquitous among traders. Instead of depositing dollars to exchanges, people deposit them to stablecoin issuers, receive stablecoins, and then transfer them to exchanges." (Compiled/Hu Wei)
