Following Senate Hearing on Crypto, Dante Disparte, Circle’s Chief Strategy Office, Shares Stablecoin Myths

Earlier this month, the US Senate Banking Committee held a hearing on stablecoins that involved advocates and those who believe they are bad. The short hearing saw witnesses grilled with the Democrats generally dismissive and the Republicans in support of digital assets tied to fiat currency.

At the hearing, Dante Disparte, Circle’s Chief Strategy Office, told the Committee that Congress should support financial innovation that is an improvement on current services while agreeing there is a need for federal regulation. Circle is an aspiring digital bank and issuer of the second most popular US dollar-based stablecoin, USDC. Disparte stated:

“Emerging policy and regulation for the future growth of stablecoins and the digital assets market in the U.S. should aspire to do no harm, spur responsible financial services innovation and recognize the importance of U.S. states for being our Fintech innovation labs.”

This week, Disparte published a paper on ten stablecoin myths.

Entitled “Internet Wildcat Banking, or Always on Dollars?” – Disparte states that there is a clear “knowledge gap” on how stablecoins are regulated and used. While noting that not all stablecoins are created equally, Disparte says that some countries are pursuing a centralized, government-controlled approach to digital currency and others, like the US, are allowing the private sector to innovate when it comes to transfers and payments.

“To see this activity as an unregulated Wild West of internet banking and payments, misses the ways in which the U.S. states are (and have always been) the laboratory for financial services innovation in the country… The public discourse about stablecoins, or dollar digital currencies in the case of USD Coin (USDC), labors under some common misconceptions .”

So what are these stablecoin myths?

  1. Stablecoins are unregulated: Disparte protests this claim calling it “patently false” stating that USDC is regulated across the US similar to major payments companies and like PayPal, Venmo, Apple Pay, etc.
  2. Stablecoins are unreserved and lack transparency: Again, while not all stablecoins are on equal footing, USDC is backed by dollars in the bank and US treasuries. Circle provides monthly attestations to this fact.
  3. Stablecoins are the gateway crypto to online casinos and crypto trading: Sure, this may be true in part – just like credit cards and other methods of payment, but this market is small in comparison to digital payments now dominated by credit cards – a service that tends to be slow and costly. This is where Circle wants to play in the world of commerce. Faster and less costly, and available to all (no applications needed).
  4. Stablecoins and financial inclusion are not a thing: This one should be obvious to all. To quote Disparte, “of the 1.7 billion people around the world who are unbanked (added to nearly 1.3 billion who are under-banked), roughly a billion of them have access to a low-cost internet-connected mobile device.” If you have the internet, you can transfer value with stablecoins – minus the “7% average cost remittance transfers” currently hoovered up by traditional players.
  5. Stablecoins are stuck on expensive blockchains and costly gas fees: Yes, Ethereum can hold high transfer fees but a platoon of new blockchain networks are poised to address this issue. Think “high-performing, low-cost, and even carbon-neutral blockchains like Solana, Avalanche, and Algorand, which are beginning to reach scale. There are more.
  6. There is no intrinsic value to Stablecoins and may dethrone the dollar: Disparte says the complaints that dollar-based stablecoins will undermine the dollar and threaten monetary policy “ring hollow.” For well-regulated stablecoins, there is zero money creation (unlike what happens in the lending-based banking system).\
  7. Stablecoins are not necessary because CBDCs are on the way and we already have digital transfers: Disparte states that “a retail CBDC would be profoundly deleterious for the U.S.” He adds this debate is far from settled. There has been much written about enabling the government to see every single transfer or replace retail bank accounts because they would no longer be necessary, but beyond all this, stablecoins may become an alternative settlement method boosting competition while preserving U.S. policies.
  8. Stablecoins contribute to ransomware and nefarious activity: First, isn’t cash favored by the criminal class? Should we ban physical cash? Digital assets exist on the blockchain, and while it may have taken authorities a bit of time to catch up, today there are multiple firms that aid law enforcement to trace all crypto transactions as they operate on a public ledger. Sure, ransomware perps have focused on crypto like Bitcoin but as the digital asset ecosystem evolves, it should become more difficult to complete illicit activities, not less so.
  9. The cost of stablecoin transactions is actually worse than transactions using alternative methods: This is a bit repetitive but Disparte points out that efficiencies are “increasingly being transmitted to the customers.”You just need a digital wallet.
  10. Stablecoins are an ecological disaster: Another point that is a bit repetitive but newer and shinier blockchains are addressing this shortfall while Ethereum is moving away from POW to POS. And don’t traditional transfers take use of resources too?

This is an interesting attestation in support of stablecoins. What is missing is the pressing need for Congress to outline federal requirements for stablecoin issuers to provide payments and transfers that ensure transparency and compliance regarding one-to-one reserves. If Congress can accomplish this seemingly simple task, stablecoins may be the future of payments as well as an important factor in improving financial inclusion.

You may read Dispartes stablecoin paper here.

 

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