The Anchored Tide 

The digital age has ushered in a new financial paradigm with the rise of stablecoins. While the volatility of cryptocurrencies like Bitcoin initially captured global attention, a more subtle revolution was underway. Stablecoins, designed to maintain a stable value pegged to traditional assets, are emerging as a powerful megatrend, reshaping finance, commerce, remittances, and humanitarian aid. They represent a fundamental shift in how value is transferred and stored, bridging the gap between volatile cryptocurrencies and the stability of fiat currencies. 

A stablecoin is a cryptocurrency whose value is anchored to another asset, primarily the US dollar, through mechanisms like reserve holdings, algorithmic methods, or cryptocurrency collateral. The appeal lies in combining the speed and borderless nature of cryptocurrencies with the familiar stability of traditional currencies. 

The growth of stablecoins has been substantial, with market capitalization surging from approximately $3 billion in early 2019 to over $200 billion in Q1 2025, and demonstrating resilience even during market downturns. This growth signifies a fundamental shift in value perception and transfer, particularly in regions facing hyperinflation or political instability. In Venezuela, for example, stablecoins have become essential for everyday transactions, protecting savings and facilitating business. Similarly, in Argentina, stablecoin adoption has surged, driven by individuals seeking refuge from economic uncertainty. Beyond individual use, stablecoins are revolutionizing cross-border remittances, offering near-instantaneous, low-cost transfers that bypass traditional intermediaries. This trend is evident in countries like the Philippines, where migrant workers increasingly use stablecoins to send money home, supported by the growing adoption of mobile wallets. 

The gig economy also benefits, as freelancers and remote workers receive payments quickly and securely, circumventing traditional banking challenges. Furthermore, stablecoins are streamlining supply chain management and international trade by tokenizing invoices and trade documents, particularly benefiting small and medium-sized enterprises. In humanitarian aid, organizations like the World Food Programme use stablecoins to distribute aid efficiently to vulnerable populations, ensuring rapid delivery and reducing fraud. 

The European Union's Markets in Crypto-Assets (MiCA) framework exemplifies the growing regulatory recognition of stablecoins. Like the internet's trajectory, stablecoins are experiencing steady and then explosive growth, driven by their inherent advantages. 

The decentralized finance (DeFi) ecosystem, with its reliance on stablecoins for lending and trading, further fuels this adoption. E-commerce, especially cross-border transactions, is being transformed by the near-instantaneous and low-cost payments enabled by stablecoins.

Content creators also benefit, receiving payments quickly and directly, regardless of location. The exploration of central bank digital currencies (CBDCs) contributes to the broader acceptance of digital currencies, paving the way for wider stablecoin adoption. 

In essence, the stablecoin megatrend is a fundamental shift in value perception and transfer, with its transformative potential evident across commerce, remittances, humanitarian aid, and beyond.

Stablecoins' Impact on Bank Operations

The impact of stablecoins on traditional banking is multifaceted, challenging established models and creating new opportunities. The long-term trend of declining branch usage, coupled with the rise of digital banking, has paved the way for the acceptance of stablecoins. Banks with robust digital infrastructure are better positioned to integrate stablecoin services. 

The Bank for International Settlements (BIS) has conducted extensive research on the implications of digital currencies, highlighting both the risks and benefits of stablecoins. While concerns about systemic risk and bank disintermediation exist, the potential for improved payment efficiency and financial inclusion is also acknowledged. Early adopters like Signature Bank, despite its collapse, demonstrated the potential of blockchain technology and stablecoin-related services. The growing trend of banks offering digital asset custody services, exemplified by institutions like BNY Mellon and State Street, indicates a significant revenue opportunity. Traditional correspondent banking faces increasing competition from stablecoins, which offer the potential to reduce cross-border payment costs.

The growth of decentralized finance (DeFi) presents both challenges and opportunities, with banks exploring partnerships to offer stablecoin lending and borrowing. Central banks and financial regulators worldwide are actively exploring the potential risks and benefits of stablecoins, with the pace of regulatory change significantly impacting adoption. A regional bank's pilot program offering stablecoin-based loans to small businesses illustrates the potential for banks to leverage stablecoins for innovative financial products. The impact of stablecoins on banking is evolving, with banks facing both challenges and opportunities as they navigate this new landscape. The potential for disintermediation, the need to adapt to changing customer needs, and the evolving regulatory environment are all factors shaping the future of banking. Banks that embrace innovation and adapt to the changing landscape are more likely to thrive in the age of stablecoins.

Stablecoins and the Next 20 Years

Looking ahead, stablecoins are poised to fundamentally reshape the banking industry over the next 20 years. The convergence of blockchain technology, digital assets, and evolving consumer demands will drive a transformation that necessitates innovation. By 2040, stablecoins could be a standard payment option, particularly for cross-border transactions and e-commerce, forcing banks to adapt their payment infrastructure. The trend towards real-time settlement will accelerate, with stablecoins enabling near-instantaneous transactions and prompting banks to invest in blockchain technology. Stablecoin-based lending and borrowing platforms will emerge, leveraging 

the transparency and efficiency of blockchain technology. 

The future of banking will also see a shift towards programmable money, with stablecoins enabling the creation of smart contracts that automate financial transactions. The development of central bank digital currencies (CBDCs) will accelerate the adoption of digital currencies, creating a conducive environment for stablecoin adoption. Embedded finance, facilitated by stablecoins, will integrate financial services into non-financial platforms, expanding access and generating new revenue streams. The regulatory landscape will continue to evolve, with regulators developing comprehensive frameworks for stablecoins. By 2035, a significant portion of wholesale interbank settlements could be conducted using stablecoins, transforming treasury operations. 

Stablecoins have the potential to accelerate financial inclusion, particularly in developing economies, bringing billions into the formal financial system. The digitalization of trade finance, driven by stablecoins and blockchain technology, will streamline processes and unlock new trade flows. The remittance market will be transformed, with stablecoins significantly reducing fees and speeding up transfer times. The growth of the digital asset market will create new opportunities for banks to offer custody, trading, and lending services. Corporate treasury management will see cost reductions through stablecoin adoption, and the insurance industry will benefit from reduced fraud. 

The metaverse and virtual economies will create new opportunities for stablecoins, and supply chain finance will be streamlined through blockchain integration. The impact of stablecoins on the future of banking will be transformative, with banks that embrace innovation and adapt to the changing landscape thriving in the digital age.

Adapting to the Anchored Tide: Banks' Action Plan

The trajectory of stablecoin adoption necessitates a proactive and strategic response from the banking sector.

 Banks must prioritize the development of robust digital infrastructure, investing in blockchain technology and secure digital asset custody solutions. Proactive regulatory engagement is crucial, with banks participating in shaping regulatory frameworks. Banks should explore the development of stablecoin-based products and services, leveraging stablecoins in payments, lending, and trade finance. Investing in workforce education about digital assets and blockchain technology is essential, as is exploring partnerships with stablecoin issuers. 

Cybersecurity and risk management must be prioritized, with robust security measures implemented to protect customer assets. Banks should explore the potential of decentralized finance (DeFi), engaging with the ecosystem to identify innovation opportunities. Preparing for the coexistence of CBDCs and stablecoins is crucial, with banks developing strategies to integrate both into their operations. Actively monitoring the competitive landscape and adopting a customer-centric approach to innovation are also essential. Banks must understand evolving customer needs and develop stablecoin-based solutions that address those needs. By embracing these strategies, banks can prepare for the future of stablecoins, ensuring they remain at the forefront of the evolving financial ecosystem. The transition will be challenging, but those that adapt and innovate will thrive.

#megatrends #stablecoin #banking #crypto #cbdc 

http://www.FrankSchwab.de

Achilles is a legendary Greek hero of the Trojan War, renowned for his near-invulnerability except for his heel, his sole point of weakness.

Smart contracts, by design, operate in an isolated environment on the blockchain. They can't directly access real-world data or events happening outside the blockchain. This is where oracles come in. They serve as bridges, fetching external data and feeding it to smart contracts, enabling them to interact with the real world. This is essential for many use cases. Respective examples are

The reliance of smart contracts on oracles also introduces risks. Data manipulation can occur if an oracle's data source is compromised or if the oracle itself is manipulated, leading to incorrect information being fed to a smart contract and causing unintended consequences. Additionally, many oracles are centralized, meaning they are controlled by a single entity or a small group, creating a single point of failure and making them vulnerable to censorship or manipulation.Furthermore, if an oracle goes offline, any smart contracts depending on it may be unable to function correctly.

While oracles pose a significant challenge, the blockchain community is actively working on solutions to make them more secure and reliable. These solutions include decentralized oracles that use multiple independent oracles to reduce the risk of manipulation or downtime, reputation systems that allow smart contracts to select oracles based on past performance and trustworthiness, and security audits to identify and fix vulnerabilities in oracle code and infrastructure.

Oracles certainly represent a key challenge, and any vulnerabilities  can have serious consequences for the smart contracts that rely on them. However, with ongoing development and the implementation of security measures, the risks associated with oracles can be mitigated. Therefore, the goal is to create a robust and secure oracle ecosystem that allows smart contracts to leverage real-world data while minimizing the potential for exploitation.

As reported a few weeks ago, I am the proud owner of the first tokenized shares issued by NYALA Digital Asset AG to its shareholders. Since then, many people have asked me about the differences between traditional and tokenized shares. Here is my assessment, and I would like to extend my thanks to Johannes Schmitt for his input and feedback.

For centuries, the stock market has served as the gateway to corporate ownership, connecting investors to companies and fostering economic growth. Yet, the advent of blockchain technology has thrown open the doors to a new frontier: tokenized shares. These digital representations of ownership promise a paradigm shift, but how do they stack up against their traditional counterparts? To navigate this evolving landscape, it's crucial to grasp the key differences between these two modes of share ownership.

I) Beneath the Surface: The Underlying Asset

The foundation of any share is the underlying asset it represents. Traditional stocks offer a clear-cut claim: ownership in a company, complete with voting rights and a share of profits. Tokenized shares, however, can be more diverse. While some equity tokens directly mirror traditional stocks, others, like asset-backed tokens, might tie your investment to real estate or commodities. Still others, known as utility tokens, simply grant access to products or services, distinct from ownership itself. Understanding the nature of the underlying asset becomes paramount when navigating the tokenized world.

It is also conceivable for the near future that holders of tokenized shares, in need of short-term cash, can deposit their shares into a regulated version of MakerDAO, a decentralized lending platform, in addition to their digital identity, in order to obtain a loan that is instantly disbursed without further credit checks. And all of this, within a few minutes. Such use cases are only made possible through the tokenization of shares on a public blockchain, as this technology enables fast, flexible, and transparent lending.

II) Trading Platforms: From Brick-and-Mortar to 24/7 Markets

Traditionally, stock exchanges have served as the physical battlegrounds for buying and selling shares. With their set hours and reliance on intermediaries like brokers, these platforms provide a well-established, albeit sometimes sluggish, system. Tokenized shares, however, operate on decentralized exchanges, leveraging blockchain technology to offer 24/7 accessibility and a potentially faster, peer-to-peer trading experience. This eliminates the need for intermediaries, but introduces a different set of complexities and requires greater technological understanding.

III) Opening the Doors: Accessibility and Fractional Ownership

One of the biggest barriers to traditional stock ownership is the often-significant minimum investment amount. Tokenization breaks down this barrier by enabling fractional ownership, allowing investors to participate in larger assets with smaller amounts. This democratizes access to investments previously out of reach, potentially fostering broader participation in the market. However, the liquidity and regulatory landscape in the tokenized world can still be less developed compared to traditional markets, adding a layer of risk for the less experienced investor.

IV) Liquidity: Finding Buyers Matters

Liquidity, or the ease with which an asset can be bought and sold, is crucial for investors seeking to exit their positions. Traditional stocks, especially those of established companies, often boast high liquidity, meaning buyers and sellers are readily available. Tokenized shares, however, can exhibit varying levels of liquidity depending on the specific token and platform. Less popular tokens may present challenges when it comes to finding buyers, potentially impacting your ability to cash out your investment.

V) From Days to Seconds: The Speed of Settlement

When it comes to settling trades, the difference between traditional and tokenized shares is stark. While traditional systems can take days to finalize, blockchain-based platforms offer near-instantaneous settlement, potentially allowing for quicker access to your investment proceeds. This speed comes at a cost, however, as the underlying technology and regulatory frameworks for tokenized shares are still evolving, introducing potential new risks and uncertainties.

VI) Fees and Friction: Balancing Cost and Efficiency

Transaction fees are an inevitable part of any investment. Traditional systems involve various players, each taking a cut, which translates to higher fees for investors. Tokenized platforms, on the other hand, often boast lower fees due to their streamlined, peer-to-peer nature. However, it's crucial to factor in the potential volatility and lack of standardization in fees within the tokenized space.

VII) Navigating the Maze: The Regulatory Landscape

The regulatory landscape surrounding traditional and tokenized shares is vastly different. Traditional stocks operate under well-established legal frameworks designed to protect investors. Tokenized shares, however, exist in a nascent regulatory environment, with varying levels of protection depending on the platform and token type. While this dynamic offers flexibility and innovation, it also introduces additional risk for investors due to the potential lack of clear legal recourse.

VIII)  Tokenized Shares Come with New Risks

Both systems also present security risks, with traditional systems facing hacking and fraud, while tokenized platforms grapple with smart contract vulnerabilities and exchange security breaches.

Beyond the Basics: Additional Considerations

Several other factors differentiate traditional and tokenized shares. Some tokenized shares may not offer voting rights like traditional stocks, and distributing dividends can be more complex in the tokenized world. Both systems also present security risks, with traditional systems facing hacking and fraud, while tokenized platforms grapple with smart contract vulnerabilities and exchange security breaches.

Example: How Tokenization Can Expand Islamic Real Estate Investment for Smaller Institutions 

Islamic banking banks typically buy building projects and resell them to the buyer with a markup, instead of giving out loans. This process works well but includes an extra asset transfer, making it complex and only feasible for large banks that can afford entire projects. However, tokenizing large real estate projects could also allow smaller and mid-sized institutional investors to enter the market.

Making the Choice: Balancing Innovation and Established Systems

The world of share ownership is at a crossroads. While tokenized shares offer innovation, faster settlement, and potentially lower fees, they also exist in a less regulated environment with evolving technology and higher inherent risks. Traditional stocks, on the other hand, provide established regulations, investor protection, and high liquidity, but with limitations in accessibility and potentially higher fees. Ultimately, the choice between these two modes of ownership depends on your individual investment goals, risk tolerance, and technological comfort level. Thorough research and due diligence are crucial before diving into.

In conclusion, while traditional and tokenized shares share similarities in their function as investment instruments, they diverge significantly in their underlying assets, trading platforms, accessibility, settlement times, fees, regulation, and liquidity. Investors must carefully consider these dimensions when choosing between the two options, weighing the advantages and disadvantages to align with their investment goals and risk tolerance.

1️⃣ A New Era of Global Financial Integration Unfolds

By now, Bitcoin has established its presence in the world's most influential financial hubs, gaining recognition even from global banks and asset managers who were once critical.

2️⃣ Breaking Down Investment Barriers

The introduction of Bitcoin spot ETFs has simplified access to Bitcoin for investors previously constrained by regulatory limitations. Investors of all kinds can now participate in buying and selling, similar to traditional stocks, through regulated platforms.

3️⃣ Navigating the Price Structure of Bitcoin ETFs

While Bitcoin ETFs offer a convenient way to invest, there are additional costs involved, such as bank/brokerage custody fees, transaction costs, and spreads. This cost structure differs from holding one's own bitcoins, which incurs no management or custody fees.

4️⃣ #NotYourKeysNotYourCoins: The Vital Principle of Bitcoin Ownership and Security

The narrative #NotYourKeysNotYourCoins emphasizes the importance of maintaining control over one's Bitcoin. Bitcoin's core principles include decentralization, transparency, and resistance to censorship and manipulation.

5️⃣ Bitcoin is More than Speculation

Bitcoin is positioned as more than just a speculative investment. It can be a valuable asset for people in countries with corrupt leaders, dictators, or fragile financial systems, offering a way to escape currency devaluation and exclusion from the traditional financial system.

6️⃣ Inflation Resistance

Bitcoin's predictable nature as a form of currency without inflation sets it apart from traditional fiat systems. This characteristic gains significance when considering the substantial interest payments made by countries like the USA on their debt.

7️⃣ The Need for Custodial Diversity

Most Bitcoin ETF providers utilize Coinbase as a custodian. Fidelity stands out as the only provider operating with "self custody." Large investors seek diversification, not only in investment products but also in custodial practices.

8️⃣ Unraveling the Complex Factors Behind Bitcoin's Underperformance

Despite substantial capital influx into Bitcoin ETFs, the expected positive impact on Bitcoin's price hasn't materialized as quickly as anticipated. Factors like GBTC sales, low short-term demand for ETF-BTCs, and resistance from traditional financial players contribute to this underperformance.

The cryptocurrency and blockchain industry has the potential to reshape our perspectives on money, ownership, and trust. Cryptocurrencies and blockchain technology facilitate faster, cheaper, and more secure transactions, extending beyond digital currencies to include ICOs, STOs, and NFTs, among others. The current market cap of cryptocurrencies and blockchain tokens is approximately $1.76 trillion, representing nearly 2% of all global money.

As of August 2023, major cryptocurrencies such as Bitcoin, Ethereum, Ripple, Cardano, Dogecoin, and Tron are experiencing over 8 million daily transactions, a significant increase compared to August 2016.

Back in 2015, the World Economic Forum predicted that by 2027, around 10% of the global gross domestic product (GDP) would be stored on blockchain technology. Current trends indicate that this projection is on track. Notably, recent SEC approvals for cryptocurrency ETFs and new regulations like the European MiCA (Markets in Crypto-Assets) regulation are expected to further propel the crypto industry.

While the cryptocurrency and blockchain industry is still in its infancy, it is crucial for members of the board of directors to delve into key themes before these factors impact a company’s business model. It is recommended to gain insights into potential disruptions, new business opportunities, basic concepts and technologies, relevant laws and regulations, potential risks, and the dynamics of an emerging industry.

1. Potential disruption of several industries 

There are several industries that are potentially disrupted by cryptocurrencies and blockchain technologies. Members of the board of directors should observe the following industries and look for signs of disruption.

Supply chain management: Blockchain technology can enable increased transparency and security in supply chain management, allowing for more efficient tracking of goods and materials.

Real estate: Blockchain technology can be used to create a more efficient and transparent system for buying and selling property, as well as for tracking and managing property ownership.

Healthcare: Blockchain technology can be used to securely store and share medical records, as well as to facilitate more efficient and secure communication between healthcare providers.

Gaming & entertainment: Cryptocurrencies and blockchain technology can be used to enable new forms of digital ownership and monetization of in-game assets.

Retail: Cryptocurrencies and blockchain technology can be used to enable secure and transparent transactions between retailers and customers, as well as to improve supply chain management and inventory tracking.

Financial services: Cryptocurrencies and blockchain technology have the potential to disrupt traditional financial services by providing a more inclusive and accessible way for individuals and businesses to access financial services, such as banking and payments.

3. Basic concepts & technologies

It is recommended to introduce the basic concepts and technologies behind cryptocurrencies and blockchain to the members of the board of directors. Decentralization, immutability, transparency, cryptography, smart contracts, distributed ledger, limited supply, anonymity, borderless and digital are the most central ones.

Decentralization: Blockchain technologies and respective cryptocurrencies are decentralized, meaning they are not controlled by any single entity or organization. Crypto currencies are not controlled by any central authority such as a government or central bank. This allows for increased autonomy and control for users over their own funds.

Immutability: Once a transaction is added to a block and the block is added to the blockchain, the information in that block cannot be altered. This ensures the integrity and immutability of the data and crypto currency transactions stored on the blockchain.

Transparency: Blockchain technology allows for increased transparency by providing a public, tamper-proof record of all crypto currency transactions.

Cryptography: Blockchain and crypto currencies use cryptography to secure and protect transactions, making it a secure technology for storing and sharing sensitive information. This also ensures the integrity and security of crypto currencies.

Smart Contracts: Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. These contracts can be stored and replicated on the blockchain network. 

Distributed Ledger: A distributed ledger is a database that is spread across a network of computers. Each copy of the database is identical and is updated simultaneously.

Limited supply: The total supply of most cryptocurrencies is limited, meaning that there is a maximum number of units that can be created. This can help to prevent inflation and ensure the value of the currency remains stable.

Anonymity: Cryptocurrencies can provide a high level of anonymity for users, as transactions are recorded using a public key rather than a name or personal information.

Borderless: Cryptocurrencies can be sent and received from anywhere in the world, and the transaction can be done almost instantaneously, regardless of geographical boundaries.

Digital: Blockchain & cryptocurrencies exist only in digital form and are stored and transferred electronically.

4. Relevant laws & regulations

Members of the board of directors should consider a number of laws and regulations related to cryptocurrencies and blockchain when developing their policies and procedures. It is important to note that the laws and regulations surrounding cryptocurrencies and blockchain technology vary by jurisdiction.

In June 2023, the European Union implemented one of the most advanced crypto regulations: 'MiCA' - The Markets in Crypto Assets Regulation. 

Some of the most relevant general laws are AML, KYC, taxation, securities, GDPR and smart contracts regulations:

Security risks: Cryptocurrencies and blockchain transactions are vulnerable to hacking, fraud, and other types of cyber attacks, which can lead to financial losses for the company.

Compliance risks: Cryptocurrencies and blockchain technology are still largely unregulated, and companies may not be fully aware of the legal and compliance requirements related to their use.

Volatility risks: The value of cryptocurrencies can be highly volatile, which can lead to significant financial losses for a company if they are holding a significant amount of cryptocurrency assets.

Operational risks: Implementing and using blockchain technology can be complex and may require significant resources and expertise, which can lead to operational challenges and disruptions for a company.

Reputational risks: Companies that are associated with cryptocurrencies and blockchain technology may be perceived as risky or untrustworthy by some customers, investors, and partners.

6. Dynamics of the early industry

The early cryptocurrency and blockchain industry sometimes feel like Wild West and has several key dynamics that members of the board of directors should be aware of.

High volatility in prices, as the market is still relatively new and uncertain. 

A high degree of speculation, as many investors buy cryptocurrencies in the hopes of making a quick profit.

A lack of regulation, which has led to a Wild West atmosphere and a lack of protection for investors.

Innovation and experimentation, as many companies and individuals are working to find new use cases for blockchain technology.

Heavy competition, as there are many different cryptocurrencies and blockchain projects vying for market share.

High growth potential, as the technology is still in its early stages and has the potential to disrupt a wide range of industries.

High speed of technological changes with new crypto currencies and different blockchain versions coming up every now and then.

Finally,  it's worth noting that while the crypto-currencies and blockchain industry is still in its early stages, regulations and institutional involvement have been increasing which may change the dynamics of the industry.

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