Insights and analysis for the professional investor Was this newsletter forwarded to you? Sign up here. |
|
|
Welcome to Crypto Long & Short! This week, Franklin Templeton’s Sandy Kaul explains why digital wallets are so crucial to the future of finance. Then, Nick Philpott of Zodia Markets draws an analogy between ancient coins and today’s stablecoins. As always, get the latest crypto news and data from CoinDeskMarkets.com. – Nick Baker |
|
|
The Blockchain-Based Solution Poised to Improve Our Financial Lives |
While advances in blockchain technology and tokenization often grab the headlines, there is a more mundane concept that nevertheless may end up being the single most important piece of future financial industry (and commercial) infrastructure – the digital wallet. A cryptographically protected, blockchain-based digital wallet is a piece of software that points to an address on the internet where tokenized assets can be stored. There is no identifying information on these wallets other than a long string of letters and numbers. The wallet itself contains a digital key that is required to unlock and access the holdings in the user’s wallet, and such keys are only shared when a wallet owner authorizes a transaction. Today, individuals, many small and medium enterprises as well as institutions operate across a fragmented set of financial accounts that each require separate types of paper-based documentation (often stored in electronic form). For individuals, this includes checking and savings accounts that deal with the entity’s cash; brokerage and investment accounts that deal with retirement, education, healthcare and more; liability accounts that deal with mortgages, loans, lines of credit or credit cards; and a significant number of accounts that relate to the individual’s assets, valuables and collectibles including special documents such as titles, contracts and insurance policies. Navigating this plethora of accounts is rarely enjoyable or easy. Within each of these account categories, a single entity may have multiple service providers or multiple accounts within a service provider. Account owners must remember their usernames and passwords, authorize their devices and oftentimes manually input account numbers and balances to create aggregated views of their holdings across institutions. Tokenization of the assets in these different types of accounts would allow multiple types of instruments to sit side-by-side in a digital wallet and enable every user to see the entirety of their wealth in one location. Cash could become spread across a set of central bank digital currencies (CBDCs), cryptocurrencies and stablecoins. Investments could be comprised of tokenized securities, funds and assets. Liabilities could be represented as tokenized obligations, and assets, valuables and collectibles represented as non-fungible tokens (NFTs) with contractual documents such as the title or insurance policy embedded within the token itself. |
Every asset could be custodied for safe-keeping and the cryptographic keys to lock and unlock the wallet either held individually or protected by qualified providers that offer to guarantee and manage the security of the wallet infrastructure. Moreover, an entity’s digital identity could be tied to this wallet and used interchangeably across all service providers and use cases, removing the need for individual know-your-customer compliance and creating an ease of use that is simply not possible today. Efforts to achieve this vision are already underway. A part of the European Digital Transformation agenda is the creation of a digital identity and wallet system that can be used across the eurozone. Pilots of the European Union Digital Identity Wallet commenced in April. Over 250 private companies and public authorities across Europe are expected to participate. Use cases include financial scenarios but also cover much broader ground such as filing taxes, presenting a driver’s license and showing visas and travel documents. In the not-so-distant future, a digital wallet may very well sit at the center of every investor’s life. |
|
|
Stablecoins: Roman Coins or Spanish Doubloons for the Modern Era |
It is easy to see digital assets as something completely new. However, they represent a return to a longer-term historical trend of money being far more international than it is today. Stablecoins and digital assets are a means of unshackling money from inherently national payment systems and placing it on the open internet. To illustrate the point, we can look back to the 1950s when a hoard of Roman denarius coins, buried by a soldier in 43 A.D., was discovered in Kent, England. What was surprising was that it contained coins from the Roman Republic. This meant that the Roman soldier was being paid in silver coins that were potentially up to 250 years old. The modern equivalent is to pay a U.S. Marine today with Spanish doubloons. |
Roman coins (Wikimedia Commons) |
Modern money has a much shorter lifespan and is far less international compared with Roman times. This longevity and mobility meant that the world was divided into much larger currency blocs. In 1800, the Spanish doubloon, also known as the silver dollar, was used across Latin America, the Caribbean, China and large parts of Southeast Asia. The Indian rupee dominated large parts of Arabia and Africa, while the Ottoman lira was used across the Balkans and the Middle East. By 1900, colonialism had seen the adoption of currencies, or at least local derivations, of the British pound, French franc and others. Latin American independence movements had led to the creation of new nation-states and, with them, their own currencies, thus breaking down these large currency blocs. After World War II, there was another surge in the number of independent nations with their own currencies such as the Indonesian rupiah and the Pakistani rupee. By 2000, the collapse of the Soviet Union and Yugoslavia led to the addition of currencies such as the Serbian dinar and the Armenian dram, resulting in a global total of over 150 currencies. Since then, the trend has started to go into reverse with the euro as well as the dollarisation of countries such as Ecuador. The arrival of digital assets, which allows money to be placed on the open internet, means that the borders that once separated currency areas are breaking down. Stablecoins are one of the first movers in this evolution. They are, unlike fiat currency or many central bank digital currencies, borderless by design. They can be sent as easily and cheaply as sending a text message or an email and can be held by a recipient in a digital wallet. They are currently issued by private companies, but a limited group of nations may have an opportunity to support the international or regional adoption of their currencies by making them available as stablecoins. Stablecoins may lead to a return of the historical norm of the world existing in much larger currency blocs, which in turn would make cross-border commerce much cheaper and easier. |
– Nick Philpott, chief operating officer of Zodia Markets |
|
|
From CoinDesk Deputy Editor-in-Chief Nick Baker, here is some news worth reading: |
| ONLY SBF: All that really seems to matter at the moment in crypto is Sam Bankman-Fried’s fraud trial. (Which is a seemingly telling statement about the state of the industry.) The star witness this week (and maybe for the whole six-week trial) is Caroline Ellison, who ran the Alameda Research trading shop that played such a central role in SBF’s downfall. Since his late 2022 media tour – viewed by many as an attempt to whitewash his record – Bankman-Fried has claimed, among other defenses, that he simply wasn’t paying attention to Alameda when the company collapsed. It was, essentially, Ellison’s fault that things went sideways there. Ellison has pleaded guilty, but the Department of Justice and, now, the words coming out of Ellison’s mouth on the witness stand paint a different picture: Bankman-Fried was pulling the strings. EUROPE STANDS OUT: I don’t need to remind you that the U.S. is making it hard to run a crypto business. That’s been pretty well-covered by now. Europe feels different, though. Take the news that came out this week exclusively via CoinDesk: Bitstamp, the longest-running crypto exchange, is in talks with three European banks that are seeking to offer crypto trading services. That’s a sign the impending European Union crypto regulatory effort called Markets in Crypto Assets, or MiCA, is making it easier for traditional financial firms to embrace digital assets. Meanwhile, in the U.S., crypto remains a partisan issue, with many Democrats opposed and many Republicans supportive – a big obstacle to any regulatory progress occuring before the presidential election in November 2024. (Separately but relatedly, here’s another story about crypto companies suspending service in the U.K.) |
|
|
Hear from Key Lawmakers and Regulators at State of Crypto: Policy and Regulation |
Several lawmakers and regulators shaping the future of digital assets policy have committed to joining CoinDesk’s inaugural State of Crypto: Policy and Regulation, a one-day boutique event uniting key policymakers, regulators and government officials with legal, policy and compliance executives representing the largest and most influential TradFi and DeFi leaders in asset management and financial services. The gathering provides an unprecedented opportunity to evaluate, dissect and ultimately shape crypto regulatory frameworks that support a vibrant, secure and healthy future for the digital economy. Are you a GC, CCO, CLO, COO or head of policy or government affairs evaluating or actively investing in digital assets? Join State of Crypto to help drive crypto policy forward collaboratively. Save 10% with code CLS10. Learn more and register. |
|
|
|
