As you would expect incumbent banks with their vast money transfer earnings have done everything they can to prevent stablecoins from offering interest, which would result in withdrawal of deposits from said banks. As the CLARITY act moves not-so-smoothly forward – and may in fact be timed out – the main US banks have come up with a plan to maintain their deposits and overwhelming position in relation to interest bearing deposits of one sort or another.
Seventeen banks – some genuine behemoths and including even HSBC and Santander – are coming together to offer near instant transfer of funds via a blockchain from early 2027. No one is yet quite sure what that blockchain will be but it’s not that difficult to make one. It’s going to be run by The Clearing House which - you guessed it – is owned by the banks.
What is being offered is a tokenised deposit. It is not a digital asset per se. It remains a bank deposit, still insured, still KYC/AML confirmed, and still very much in the regulated banking system. This token is simply a faster, programmable, immutable method for moving all or part of that deposit. It remains in the bank, hence governed by all the rules of TradFi. It does transfer from one holder to another, but like gold in the Bank of England’s vaults held for a third party, it remains where it is. Thus rather than using ACH or wire transfer which takes forever and doesn’t work 24/7 you will be able to do instant transfers in roughly the same way as stablecoin sends and receives.
You might wonder why it has taken the Banks so long to get it. The answer is while it was small it didn’t matter and they thought it never would. Two years ago the stablecoin market was around $130 billion. Not nothing but bearable. In those two years that figure has doubled and continues to grow. And that means banks deposits are suddenly very exposed if stablecoins get to offer deposits with interest. Hence their massive lobbying effort to prevent stablecoins doing that very thing.
So the banks have decided they now need to do something positive as opposed to merely what they usually do – which is be negative and lobby. In the Brave New World we are already in, Company and Institutional treasurers have to ask themselves -Why would I hold USDC to pay for stuff if my shiny new Bank deposit token does the same thing with FDIC backing?
There is no doubt in my mind that very quickly this will become the norm. After all, Crypto’s great appeal over the banks has always been speed and cost. This initiative will for sure reduce the costs for people making payments but it will also reduce time taken to seconds as opposed to days. And you don’t have to stop at 5pm Friday because everyone wants to go home.
As Citi’s Shahmir Khaliq was at pains to vigorously state: "The network reinforces banking's role as the backbone of financing and capital markets”. And there you have it. The Banks don’t want anyone interfering with their golden monopoly. It’s why they have fought crypto tooth and nail from day one. And it’s why they have now had to actually do something that can compete with it as opposed to the verbal rubbishing they continually heap on crypto.
I suppose I better mention THE IPO. Musk and/or his advisors have done a great job, not least insisting that SpaceX has to be included in all the indices from day one. That means that all those trackers out there HAVE to buy it whether they think it’s a good investment or not. I believe only the S&P 500 has refused to buckle under, so it will be interesting to see how it fares against those trackers who will have included it. Apparently it pulled in over $250 billion which will for sure have distorted some markets here and there. It’s also at a set price ($135). Very much take it or leave it and it appears people have decided to take it. Oh, and everyone involved has to sign up for Grok or you don’t get a slice of the pie – and a very big pie it is at around $500million. From the filings, it’s not entirely clear why it’s worth all that money. It certainly isn’t for its earnings. SpaceX itself is making less than people thought. The AI section is making less than thought (read losing more and costing more). Despite some cheer leaders saying it will grow earnings 100 times over a few years, even that’s a stretch. The received wisdom seems to be its only worth less than half what it will float at. But it’s Musk. He just might pull it off.
And as of its first day’s trading he has broken the $1 trillion value of his wealth. That alone begs questions. It gives him enormous clout and potential for disruption. UK investors have spent nearly £500 million to buy the shares and it will be even more interesting to follow their funds. I can’t help but think a few will take the 25+% profit already on offer. It’s a big blue-sky bet but it might yet work. If I was a betting man, I’d say the AI bit isn’t going to make as much as people think, but Starlink will make more and Space is very definitely where it’s at. So there just might be a better than 50/50 chance it works. And I say again, “And it’s Musk.” A week on and the price has come back about 25odd%, even though it remains at a crazy price. They are already borrowing hard for long term finance and will continue to push for a large part of the available funds going into the market. But it’s Musk….
