Cryptocurrency Reaches its Rite of Passage as Ecosystem Matures

Governments around the globe are assessing cryptocurrency strategies to develop their own digital currencies, and those efforts are working to mature, and some may consider, legitimize the DeFi landscape. Referenced with the acronym CBDC (Central Bank Digital Currency,) only two nations, thus far, use a CBDC. The Bahamas’ “Sand Dollar“ launched in 2020 with Nigeria’s “e-Naira“ introduced October 2021.

As other governments take notice and turn their focus to what many considered a fringe trend, the emergence of cryptocurrencies will evolve to include central bank issued digital currencies. Crypto is becoming mainstream and is here to stay.

The White House announced this past week that the Biden administration is drafting an executive order for a government-wide crypto strategy. According to Bloomberg.com, senior administration officials have held multiple meetings as they draft a plan to present to the President in coming weeks. This evidences the maturing DeFi sector and cryptocurrency ecosystem. The directive is supposed to roll out as early as February 2022.

Alkesh Shah, Bank of America’s global research head of digital asset strategy, recently discussed the importance of the U.S. developing its own digital currency on Yahoo Finance. While in the works and inevitable in Shah’s estimation, a U.S. digital currency will likely be a few years off. Shah anticipates a rollout between 2025 and 2030 to allow the government time to resolve complex issues of privacy and security.

The dollar could become less important, Shah warns, if another major central bank issues its own currency that is widely used. The clock is ticking, and the pressure is on, as the U.S. government grapples with issues of infrastructure and regulation while the industry expands exponentially across the globe.

While the Fed lays out its cautious strategy, innovative and nimble state governments lead the charge in building the domestic cryptocurrency infrastructure.

Led by crypto-savvy Republican state Sen. Cynthia Lummis, Wyoming is positioning itself as the U.S. counterpart to the small Swiss canton of Zug; a multinational hub for DeFi. Zug attracted crypto start-ups a decade ago with low taxes, a decentralized government structure and welcoming regulatory environment. The city incubated many powerhouse players such as Ethereum, and others to the region. The success and boom of wealth that followed reinvented this sleepy city reliant on fishing, manufacturing and famous for its “baking nuns” and delicious Zuger Kirschtorte pastry into a prosperous ‘Crypto Valley’ now housing over four hundred start-ups.

Kraken Financial, a wholly-owned subsidiary of Kraken Global Group, is the first institution to be granted the Purpose Depository Institution (SPDI) charter from the State of Wyoming. Kraken Financial has located its headquarters to state capital Cheyenne.

Wyoming’s crypto-friendly regulations and legal framework are attracting digital asset companies, cryptocurrency miners and crypto bank start-ups. Kraken Financial will have an independent governance and operational system from its parent company and offer a bridge between bitcoin and the established financial markets. The bank will have a separate set of regulators from the FDIC and minimize risk by not holding fractional reserve or rehypothecation of collateral. The bank will operate as a custody bank and is not allowed to issue loans using customer deposits. Kraken Financial will be able to provide clients from 49 states with digital asset custody services and help them make payments. If all goes according to plan, bank leadership hopes to begin operations in Q1 2023. 

One of crypto’s major advantages over fiat is its ability to transact payments almost instantly. According to Shah, it is a primary reason why central banks are keenly interested in developing their own digital currencies. While fiat currency cross-border payments may take days for settlement, digital currencies settle in seconds, locked up on the blockchain. McKinsey’s 2021 Global Payments Report, published last October, projects that by 2025 global payments revenue will generate roughly $2.5 trillion.   

In the fast-moving world of DeFi, 2025 to 2030 seems quite far off into the future. So, what will fill the void as the less volatile digital currency until the Fed rolls out its own crypto? Stablecoins can provide the bridge since they offer price stability and are backed by a reserve asset. Stablecoins may be pegged to a currency like the U.S. dollar, British Pound Sterling (GBP) or Australian Dollar, like AUDT stablecoin, or to a commodity’s price such as gold, silver or other metals. 

Many investors have concerns over the dramatic swings in cryptocurrency valuation, making them nervous to transact large payments using the currency.  How can this be mitigated, and investment value protected? It can, through the use of stablecoins. For example, when transacting real estate with crypto, tokens are converted/exchanged into stablecoin before locking up in an escrow wallet via a smart contract. When the property is ready for settlement, authorization from both the buyer and seller is required to move funds from escrow, either back to the buyer or on to the seller. 

Contracoin, an Australian-based property exchange recently expanded to the U.S., follows this process using its dedicated property token CTCN, a secure ERC-20 digital token and mnemonics based mobile wallet to store digital assets. Contracoin accepts CTCN and other cryptocurrencies as payment toward 100% of property ownership. Buyers can leverage their Contracoin tokens to be issued an equity advance to purchase a property within the Contracoin network. Recent listings include a Tesla showroom for sale in Singapore and luxury water view high-rise condominiums on Australia’s famed Gold Coast. 

Although many may not yet be familiar or comfortable purchasing commercial real estate assets with cryptocurrency, it will become more commonplace as vendors, landlords, merchants, property owners, brokers and other businesses accept this form of payment. As Goldman Sachs ex-CEO Lloyd Blankfein stated in an interview on CNBC last week, his views (on crypto) are evolving, as the ecosystem has matured in the past year. Blankfein confirmed with a wry smile, “Crypto is happening, and I would want an oar in that water.”