OCC ruling signals more innovation for stablecoins, CBDCs

The Office of the Comptroller of the Currency said last month US banks can participate in public decentralized networks and use stablecoins for payment settlement; nod from the federal regulator is a huge push for stablecoins and CBDC initiatives, Sky Guo says

by Sky Guo
OCC ruling signals further innovation for stablecoins, CBDCs
Image: Reuters.

(ATF) The Office of the Comptroller of the Currency released a letter on January 7 announcing that US banks are now allowed to participate in public decentralized networks and use stablecoins to conduct payment settlements.

The letter also added that banks under the jurisdiction of the OCC – which is an independent agency under the US Treasury Department – could participate as nodes on the blockchain and store or validate payments, a move towards legitimising the previously ambiguous status of stablecoins as a secure, trustworthy and legitimate payment instrument, equivalent to standard currency.

Blockchain likened to SWIFT

The letter also stated that blockchains hold the same status equivalent to other traditional global financial networks like SWIFT, ACH, and FedWire, which have been integral networks to the global banking system since their inception.

This is a huge development for the regulatory perception surrounding blockchains, stablecoins, and cryptocurrencies.

This began in July 2020 when the OCC first allowed national banks to become custodians for crypto assets. It added further to this in September, when they permitted banks to provide services to stablecoin issuers, including holding stablecoin reserves.

Now legacy services like SWIFT and ACH will be forced to innovate when blockchain payments enter the market. What these rulings essentially do, is to show the endless potential and use that Central Bank Digital Currency (CBDC) protocols like Cypherium offer to investors and transactionary businesses.

Lack of real-time payment systems in US

There is widespread acceptance that currently there are insufficient real-time payment systems in the US, which means "relied on" players within the private sector that create such technologies that might endorse the use of cryptocurrencies, especially stablecoins, will be used as an alternative.

This fact holds true as countries with real-time payment systems like UPI in India have no pressing need for the use of stablecoins as users can transfer funds to other account holders instantaneously in a secure and compliant manner.

Although the OCC's recent announcement will eventually push adoption, we can expect retail and traditional institutional investors jumping overnight into this "new" digital economy currently in the making.

These investors will be looking at the traditional giants of our financial ecosystems to set a precedent and adopt the new technologies before they trickle down to investors and transactionary users alike. The OCC allowing banks to run nodes and stablecoin networks is the first instance of a move that could set a precedent for widespread adoption across the economy.

China's trial of their CBDC, the digital yuan, is a prime example of a nation pushing for adoption of this digital currency.

It is the first CBDC among the major economies to be tested in a public fashion. Although the tests were highly appreciated by analysts in the market, users and shoppers had mixed opinions. Some declared that they preferred to use existing payment applications like AliPay. This might be due to the interoperability issues that CBDCs often face as a hurdle.

To overcome this obstacle, we have created a Digital Currency Interoperability Framework (DCIF), which aims to assist full functional CBDCs to interact with numerous private sector industries, national economic systems, and the crypto industries, which the implementation that our framework enables.

Double-edged sword?

While this development from the OCC will help drive the adoption of cryptocurrencies like stablecoins, for investors there are other downsides to be considered.

Large national banks could hold an enormous advantage over smaller banks and crypto companies as they would not need additional approval from regulators before diving into stablecoins. In contrast, small banks and crypto startups that apply for bank charters will require further approval from the regulators before getting involved.

Another aspect of this development is the security and compliance risks involved when banks and other crypto companies use stablecoins for settlement payments and taking part in blockchain networks.

With the federal acceptance of blockchain, parties must understand all the compliance and security risks involved. This is where Cypherium comes in. We have been developing cross-chain CBDC infrastructure for over three years and have gained immense expertise in this field.

We would be glad to lend Cypherium's technological and legal expertise to banks, crypto firms, and international payments networks alike to facilitate a better understanding of the nuances of using blockchain technologies. Having an established learning and development framework would help participants to avoid falling prey to fraud and other nefarious schemes.

While the OCC's announcement is evidence of the changing perspectives in the traditional financial markets towards digital currencies, banks transacting in multiple assets will still create several on and off-ramps.

Now that the traditional financial markets seem to be taking a step in the right direction, the OCC's decision must fuel innovation to enable a safe, progressive ecosystem for all parties involved to thrive.

# Sky Guo is Chief Executive Officer at Cypherium. His extensive knowledge of blockchain consensus, transaction, and cryptographic algorithms stems from his background in computer science. With a B.S. from Pepperdine University and a degree in Entrepreneurship from Draper University, Sky also serves as a columnist for Caixin, China’s top financial media outlet.

ALSO SEE:

Cryptocurrencies stablecoins CBDCs central banks US OCC Comptroller of the Currency US Federal agency Treasury Department digital currency blockchain Swift Cypherium real-time settlement