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What future for stablecoins, web3 and blockchain-based payments?
Blockchain-based payments are showing some promise in their ability to offer seamless payments for everyone. So now, as the space evolves and matures, what can we expect in terms of mass adoption?
Web3 and blockchain expert, author and thought leader Rita Martini he recently wrote the book on the subject, Web3 in financial services. Martins also publishes Web3 Crossroadsa weekly newsletter. He is the former Global Head of FinTech Partnerships, Global Functions for HSBC.
Martins shared his insights with Converge live from Money20/20, discussing the technological changes brought about by Web3 and blockchain, their potential in payments and other financial services, and the obstacles faced in further Web3 adoption and compliance.
Italian: https://www.youtube.com/watch?v=9FwCHNkdolo
Web3 in Financial Services and Cryptocurrency Payments: Ready for Big Success?
“When you watch the news, you still only see the negative side of things. [blockchain technology in financial services]”, says Martins.
“You see the great collapses, FTX problems and so on. So I wanted to write a book that really explained some of the use cases, what it means for someone who works in financial services. It’s still an evolving space, so what are some of the changes or things that need to change within the ecosystem for it to really be adopted en masse by financial services?”
Martins recalls his time at HSBC and trying to introduce blockchain technologies to work with the bank. “When I started looking, it was too early; the technology was too early.”
However, the author says that times have changed and adoption is starting to increase in the traditional banking world.
“Given some of the things that are happening around regulation, banks have already tested this technology. They see the value in it, and you have big names like Black rockfor example, it’s really trying. It’s definitely a change in the blockchain environment and I think it’s really showing the benefits,” he says.
According to Martins, Web3 has now moved “beyond centralization and data ownership to seek a balance between ownership and centralization with protection and security for customer financial services. The decentralized nature of blockchain technology is critical to providing security and transparency, despite the trade-offs involved in deploying tokenized assets on permissioned blockchains.”
Stablecoins and Emerging Markets
The use of stablecoins in emerging markets is an area that Martins pays particular attention to in his book and his appearance on Converge.
He notes that stablecoins are being used for cross-border remittances, highlighting the use of this technology in the Philippines.
“A lot of people go to live and work abroad, but then they send money home to their families and they use stablecoins to send it faster, but also much cheaper for them.”
In emerging marketswhere the financial system is not as developed as in Europe, the UK or the US, there is a unique opportunity for these technologies to have a significant impact in the short and long term.
Tokenization of Real World Assets and a New Form of Collateral
Martins also emphasizes Goldfinch Financethat uses real world activities (RWA) as collateral for lending to companies in emerging markets.
This is part of a broader trend where real-world assets such as real estate, stocks, corporate and government bonds, currencies and other securities will increasingly be tokenized, then traded and borrowed on a blockchain.
Major global financial players, including BlackRock, are putting money to work. BlackRock, the world’s largest asset manager with $10.5 trillion in assets under managementhas released a Bitcoin ETFs earlier this year and recently announced the firm’s “first tokenized fund issued on a public blockchain”: the BlackRock USD Institutional Digital Liquidity Fund (BUIDL).
Martins asks, “The big value in tokenization is not just tokenizing an asset, but what can you do next? Can you use some of those assets as collateral? JP Morgan and Euronext have done some repurchase agreements where you can have more liquidity and reduce costs.”
Tokenization is just one step. The key is to use this progress to create new solutions across asset classes.
Central Bank Digital Currencies: Transparency, Trust Issues
Central Bank Digital Currencies (CBDCs) are gaining ground, but they are developing differently around the world.
One of the biggest sticking points is privacy. Consumers and businesses are unlikely to want to share their spending and payment data. Some governments, like China, are aggressively collecting data, while the European Union collects none.
Martins says one of the biggest challenges for CBDCs will be consumer education. He adds that many central banks are considering a level of privacy, as most people don’t want central banks to see all their data. Additionally, adoption and use face unusual hurdles with international operations.
“If we talk about cross-border payments, there’s the whole issue or challenge of interoperability, but there’s also the whole governance and regulatory space,” Martins points out. “Different countries will have different regulations and will have different governance. How do you bring all those countries together to make sure you have one set of rules?”
Challenges Financial Institutions Face in Implementing Web3 Technologies
Uncertainty and lack of clarity about regulations have paralyzed the industry for years. Martins says most traditional banks will only fully enter the industry when more regulations for wealth management are in place.
He adds, “We still need some development in the technology to be able to use it in financial services. So if you think about public blockchain, one of the key features is transparency, and that’s great for some use cases, but for financial services… you need to have privacy of customer information.”
Transparency is also an issue, as companies don’t want competitors to see this data. While a public blockchain is a key element of a globally interoperable financial system, would financial services firms be open to using one that connects closed systems?
Martins says yes, but it is likely that a public blockchain will evolve and be different from the one in use today.
“There will be layers of privacy and layers of compliance and so on. But before we get there, we will probably have this mesh of different blockchains. They are connecting to each other. And the key thing is interoperability between the different blockchains, but also between the blockchain and legacy systems, leveraging distributed ledger technology.”
ISO 20022: Standards, controls and protections
Many fintech companies are preparing for greater interoperability and are implementing compliance in their registries to ensure they are Compliant with ISO 20022.
Martin says that even within DeFi, projects with a DAO (decentralized autonomous organization) governance structure are looking to register as entities.
After that, they can “connect and collaborate with traditional finance [and] they want to tap into that liquidity. And in order to do that, they need to have the compliance, the privacy level, all the layers to actually start having a conversation with traditional companies.”
The Future of Blockchain Technology and Decentralized Finance in Financial Services
As technology evolves, Martins says consumers won’t know if they’re using blockchain or financial services. He compares this to not knowing if their bank uses cloud or on-premise solutions.
“I think we’re going to stop talking about technology and start talking about what it means. Blockchain and all the tools that go into that work are just going to be part of the tools that a bank and a financial services company will have.”
Want to learn more about the topics that are shaping the future of cross-border payments? Tune in to Convergewith new episodes every Wednesday.
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