Smaller but more flexible community banks have joined forces to launch USDF, a new stablecoin minted by U.S. banks. The consortium will leverage the Provenance blockchain and two FinTech companies with seasoned leadership to facilitate a new ramp of access to digital assets.
Stablecoins instead of CBDC for the global reserve currency?
As time progresses, it looks like the US monetary system will rely more on well-regulated stablecoins for its digital currency needs rather than a central bank digital currency (CBDC). While China has already rolled out its digital yuan (e-CNY) to more than 140 million people, the United States has yet to take the first practical steps to bring a CBDC to life.
This is not very surprising, given that even the World Economic Forum has noted some drawbacks of the CBDC. Moreover, such a development is meeting with growing opposition among members of the United States Congress. As recently as today, Representative Tom Emmer of Minnesota introduced a bill that would prevent the Federal Reserve from issuing a CBDC directly to individuals.
The main purpose of the bill is to keep digital money as close as possible to physical money. This means that it must be open, private and without permission. These are the key attributes of many blockchain projects, including stablecoins. It is therefore not surprising that commercial banks are taking direct steps to issue their own stablecoin.
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USDF Consortium: New Stablecoin Platform
The landscape of commercial banks has significant differences compared to emerging FinTech or crypto platforms such as BlockFi, Nexo, Celsius Network or even Binance. With an average US savings account interest rate hovering around 0.04%, these other emerging platforms offer significantly higher returns.
With hundreds of cryptocurrencies and tokens in play, stablecoins tend to offer the highest returns while providing a haven from crypto volatility. In turn, stablecoins deter people from using bank accounts as anything other than a transitional point in crypto-to-fiat conversion.
However, even that need is fading with crypto banks partnering with Visa and MasterCard for a seamless shopping experience. To further stem this trend, the San Francisco-based USDF Consortium was launched on January 12, 2022 as a network of FDIC-insured banks to provide the first stable coin issued by a U.S. bank – USDF (USDForward). The founding banks of the Consortium have the following total assets to their credit:
- Community Bank of New York (NYCB) – $ 56.2 million
- NBH Bank – $ 6.6 million
- FirstBank – $ 24.4 million
- National Bank Sterling – $ 29.7 million
- Synovus Bank – $ 54.3 million
As you can see, the founding banks of the Consortium are small cap banks, all well below 40th in the United States in terms of asset size. In charge of the development of USDF stablecoins are two FinTech companies – Figure Technologies and JAM FINTOP.
Figure Technologies was founded in 2018 with total funding of $ 447.4 million and is headquartered in Charlotte, North Carolina. The CEO and co-founder of Figure is Mike Cagney. Interestingly, he is also the founder and former CEO of the online lending and investing platform SoFi.
Despite being a relatively new blockchain startup with 476 employees, Figure is owned by HomeBridge Financial Services, a non-bank lender with nearly 3,000 employees, which generated $ 749.45 million in revenue. last year.
Even more impressive, JAM FINTOP is all about implementing new technologies to keep financial institutions competitive. Jam Fintop Network is made up of 79 community banking partners in the United States. Overall, the combined assets of network members are approximately $ 1,000 billion.
Which blockchain will USDF Stablecoin use?
The USDF (USDForward) stablecoin will be based on the Provenance blockchain, an open-source, non-authorization proof of stake (PoS) platform for the launch of DeFi dApps. Provenance raised $ 20 million in 2019. The blockchain itself is public, just like Bitcoin and Ethereum. Unlike private blockchains which are allowed, public blockchains allow anyone to access the network and execute transactions.
Figure Technologies CEO Mike Cagney noted in the press release that USDF Stables can be minted on demand and will be live soon.
“The ease and immediacy of using the USDF for on-chain trading was demonstrated this fall when the NYCB hit the USDF used to settle securities trades executed on Figure’s alternative trading systems. We are extremely excited that NYCB expects to hit USDF on demand and on a regular basis in the coming weeks. “
Based on the veteran FinTech experience employed by the two FinTech companies and the financial might behind them, it can be assumed that the USDF will be as regulated as Paxos (PAX and BUSD stablecoins). If you remember, Paxos is so well regulated and overseen by the New York State Department of Financial Services (NYDFS) that Bank of America joined Paxos’ settlement department last May.
Powered by the Provenance blockchain, USDF Consortium is poised to become Paxos’ close competitor, starting with community banks. Seeing the writing on the wall, Valerie Kramer, chief digital officer of NBH Bank, expects the USDF stablecoin to become the base of customer retention, which is constantly under attack from DeFi.
“The USDF consortium will enable banks of all sizes, and especially community banks, to provide the digital banking solutions that our customers increasingly expect”
Bringing banks into the stablecoin game should go hand in hand with asset management firm NYDIG which integrates 650 small US banks by providing crypto custody service. Based on these initiatives, it appears financial experts aren’t particularly worried about future stablecoin legislation. The blockchain-based financial benefits (less friction, real-time payments, certainty of settlement) are simply too powerful to ignore.
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It would definitely become much more convenient if your bank account became your crypto and stablecoin outlet. Do you think this trend has what it takes to dramatically accelerate the adoption of crypto? Let us know in the comments below.
About the Author
Tim Fries is the co-founder of The Tokenist. He has a BSc in Mechanical Engineering from the University of Michigan and an MBA from the Booth School of Business at the University of Chicago. Tim was a Senior Associate in the investment team of RW Baird’s US Private Equity division and is also a co-founder of Protective Technologies Capital, an investment firm specializing in detection, protection and protection solutions. control.