Stablecoins and Banking Innovation

The Multiplicity of Stablecoins

Once upon a time, there was bitcoin. These days, crypto websites such as CoinGecko track over 17,000 cryptocurrencies. Expand that to tokens created on various blockchains and you reach a figure of 53 million. And once upon a time there was Tether, the original stablecoin, but now there are many stablecoins fighting for supremacy and, more importantly, looking for regulatory approval. You will have read recently of various consortiums of banks and payments companies looking to settle on some kind of coin they hope will become the main player – but stablecoins are based on currencies, so there’s always going to be competition, as not everyone wants to trade only in dollar-based coins. A new consortium is looking to challenge the model of issuer-dominated stablecoins.

Reuters reports that the consortium including Visa, Mastercard and Coinbase last week launched a new joint stablecoin in a bid to broaden the adoption of the digital tokens. “The venture, called Open Standard (or OUSD), brings together more than 140 businesses for the stablecoin network and will issue a new U.S.-dollar pegged stablecoin called Open USD, which is expected to go live later this year.” The interim CEO is Zach Abrams, also head of Bridge, the stablecoin platform acquired by Stripe. Unlike Tether, Ripple, or Circle, Open Standard aims to be more like a shared payment infrastructure, with shared governance and economics. (A Forbes articles mentioned Dee Hocks and his original vision of Visa card as an example of this thinking.) If Open Standard gains wide adoption, it would be a series challenger to the existing stablecoins.

PIX enters the Brazilian elections 

Brazil’s national payments systems PIX has become a political issue ahead of the next presidential election. “Senator Flavio Bolsonaro, President Luiz Inacio Lula da Silva's main rival ahead of Brazil's October presidential election, has proposed barring the country's digital payment system Pix from integration with non-Western cross-border settlement systems, arguing the move would help ease U.S. concerns over the country's hugely popular instant-payment platform,” writes Reuters. US trade representatives believe that PIX is a threat to globally dominant US payments networks including Visa and Mastercard, with a decision due soon from the US trade office that could result in new 25 per cent tariffs for Brazil. Bolsonaro’s proposal addresses US concerns that Pix, if connected internationally, could become part of an alternative payments network involving countries such as China, Russia or BRICS partners. “In a post on X, Lula, who has long advocated reducing reliance on the U.S. dollar in international trade and promoting deeper financial integration among developing economies, described Senator Bolsonaro's proposal as an attempt to ‘hand Pix over to foreign interests’.”

Brazil exits the World Cup

While non-Brazilians blame the decline of the national team on the disappearance of street football, there’s another debate among Brazilians: the rise of neo-pentecostalism is spiritually undermining the team. While Daily Briefing is certainly not getting involved in that debate, we can look at the banking angle. In Brazil, police have opened an investigation into Banco Digimais, which is owned by Bishop Edir Macedo, a prominent televangelist who started the Universal Church of the Kingdom of God. “Authorities allege Digimais overvalued assets to hide an embattled financial situation, with police executing search warrants against top executives and freezing as much as 670 million reais ($130 million) in cash and assets,” reports Bloomberg. “The latest developments threaten to make Macedo an even more polarizing figure in Brazil. The 81-year-old pastor has built a massive religious empire, preaching to an estimated 10 million followers, of which 7 million are in Brazil, according to 2021 figures from the church. The accusations have created ripples through Brazil’s banking industry because of the similarity to another financial scandal that emerged last year as the much larger Banco Master SA was liquidated by authorities over alleged financial fraud.” The bank was acquired originally with the intention of offering financial services to the church’s congregation, and mostly offers payroll and auto loans. Church representatives say the bank is run by executives, with the church having no influence on its affairs. “About 27% of Brazilians now identify as evangelical Protestants compared with just single digits in the 1970s when Igreja Universal was founded. Catholicism in Brazil has fallen from around 90% of the population to under 60% in the same time period, according to Brazil’s national statistics institute IBGE.”

The New Silicon Valley Bank

As we read on Elon Musk’s X.com that Stripe is looking to acquire PayPal, which was itself previously owned by Elon Musk and known as x.com, we’re reminded that Silicon Valley is constantly re-inventing itself. But we have to say, Erebor Bank’s advertising is certainly different. The specialist bank is aimed at the “innovation economy” and like the other enterprises of Palmer Luckey, it draws on terminology from Lord of the Rings. The fast-growing bank got its charter earlier this year and was founded by Palmer Luckey, the US entrepreneur who built and sold the virtual reality headset business Oculus Rift to Facebook for $2 billion at the age of 21. Luckey invested the profits into AI and defence industries business Anduril. “Erebor, named for the treasure-filled mountain in J.R.R. Tolkien’s book The Hobbit, is trying to carve a niche partly to fill the void left by the 2023 collapse of Silicon Valley Bank,” writes Bloomberg. “It is focused on clients in sectors such as defense technology and cryptocurrency, which also aligns it with some top policy priorities of the US government. The bank’s deposit base now totals $4.05 billion, nearly four times the amount it held at the end of March, when the bank disclosed $1.1 billion to regulators, according to other people familiar with the matter, who asked not to be named discussing non-public information. The bank, which added nearly 400 customers in the past three months, expects to be profitable by the end of this year, the people said.”

Silicon Valley Bank was the 16th largest bank in the US before its collapse in 2023, due to poor risk management. Luckey’s focus on new defence technologies underpinned by AI sounds like the plot of every recent spy thriller. (Indeed, an AI agent gone rogue is the actual plot of the last Mission Impossible film.) Anduril said recently it has won a contract to build autonomous fighter planes for the US Air Force. “The U.S. Air Force has chosen Anduril Industries to build production FQ-44 Fury semi-autonomous fighter aircraft, moving one of America’s most closely watched combat drone programs from prototype work toward operational fielding,” said Vozpopuli.com.

Erebor’s promotional material is infused with mystical language, and is not the typical language of a bank with a focus on funding weapons production. Its website notes: “We infuse every service with a touch of magic”; “Cast wise investments with expert guidance, watching your portfolio flourish in our enchanting system”; “Join our community of enchanted clients.”