Silvergate: How Stablecoins Improve The Financial Industry
- Real Vision
- February 12, 2021
- 4:55 PM
The following is a guest post from one of our sponsors: Silvergate
In an increasingly digital world, people expect their money to move at the speed of digital information — in real-time and without borders. This kind of efficiency is difficult in our current environment because traditional banking relies on legacy systems that tie up funds in transit at central and correspondent banks. However, the idea of accelerating the movement of money is becoming real through decentralized finance and stablecoins, which are digital dollars backed by fiat currencies and recorded on a blockchain. With stablecoins, there’s an opportunity to advance the finance industry and digitize commerce through greater distribution, capital efficiency and lower costs to move money.
Stablecoins and Regulation
As with most cryptocurrencies, perhaps one of the most significant challenges facing stablecoin adoption is the lack of education. Last month, the Office of the Comptroller of the Currency (the “OCC”) issued Interpretive Letter #1174, which provided the OCC Chief Counsel’s interpretation for national banks’ use of stablecoins for payment activities. The OCC’s clarity also provides a roadmap for building a regulatory compliant stablecoin infrastructure. With the OCC’s guidance in place, financial institutions can advance stablecoin innovation and consumers can start to realize their full benefits. As the transactional bank for the existing regulated U.S. dollar-backed stablecoins, Silvergate has firsthand knowledge of the benefits of this payment technology, which include:
- Greater distribution and financial inclusion – anyone with a smartphone can use stablecoins
- Improved settlement speed – users can access funds almost immediately
- Reduced costs – no more transactional charges from card companies
Change You'll Hardly Notice
The user interface for stablecoins is virtually the same as existing payments interfaces, which means there is no behavior change required for broader adoption. These benefits make stablecoins attractive to merchants and consumers, as well as the platforms that bring these groups together.
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Scaling Stablecoins
Payment rails require network effects to scale. In the case of stablecoins, payment platforms will play a crucial role in supporting the two-sided commerce network of buyers and sellers. For example, if a retailer uses a stablecoin-friendly platform to facilitate its transactions, it can accept payments from anyone with a smartphone, anywhere in the world. And it can immediately access those funds. The platform enables a network effect, which would allow stablecoins to scale quickly, no different than the existing network effect of U.S. dollars.
Alan Lane is the CEO of Silvergate, the leading provider of financial infrastructure solutions to the digital currency industry. For over 30 years, Silvergate has remained committed to solving problems for its customers and their businesses by innovating solutions that decrease banking friction, mitigate counterparty risk and maximize capital efficiency. For more information about Silvergate, check out one of their prior videos, their website and Real Vision Crypto
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