Stablecoins and blockchain grab their fair share of separate headlines. But brought together, they can help usher in a new paradigm for global payments.
Circle CEO Jeremy Allaire told Karen Webster that programmable money — money as data, if you will — working in tandem with “smart” contracts has the potential to change the way capital markets and other corners of the economy operate.
The notion of “programmable” money builds on the fact that digital money exists and has existed for a long time. Businesses and consumers, after all, can “set” payments online, scheduling transactions so bills get paid, or bidding on items auctioned online that go through once a “price point” is met. There’s a difference between electronic money and the recent expansions we’ve seen in cryptocurrencies and digital dollars, he cautioned.
Noted Allaire, “Electronic money is sort of someone’s database. It’s some bank’s database, and there’s a user interface on top of that database. But in the case of digital currency, the digital currency is a thing. It’s an actual artifact, and it behaves like a coin, like a physical coin or like a piece of cash.”
With a nod toward stablecoins, he said the most fundamental concept is that the holder has possession of a token that exists almost like a piece of data on the internet, akin to a photo, email message or text message. It’s what people would call a “bearer instrument.”
The Building Blocks
The technical underpinnings of programmable money’s breakthroughs, he said, are composed of a number of building blocks.
At a basic level, the digital tokens can move around the internet in the same ways a photo or text can. Money is effectively “untethered” from the centralized databases that have been the hallmarks of traditional finance.
“Money becomes an ‘actual first-class citizen’ on the internet just like the other types of data,” he said.
Transmitting those digital tokens over open networks and blockchains means added capabilities and functionalities can be built — indeed, programmed — into that money.
Blockchains, he noted, effectively function like computers on the internet and exist as public clouds, where any person or developer can write a piece of code to create new apps and enable new use cases.
“You’re not putting it on some company’s servers,” he told Webster, adding that “the smart contracts as they’re called, or decentralized apps, are on this public infrastructure.”
Against this backdrop, he said, the apps and the smart contracts can give rise to instant execution of any form of economic contract — be it a lending or borrowing agreement. Think of it as finance, truly decentralized, and done via autonomous machines with no banks involved.
That’s an efficient leap to the digital age for the financial industry, which Allaire noted (with its clearing houses and transfer agents and brokers) has been rooted in division of labor and paper records.
DeFi’s Transparent Rules
By way of contrast, with decentralized finance (DeFi), “all of the rules are there for everyone to see,” said Allaire. “The way in which the machine enforces the contract is public and transparent. The state of funds or where funds are is all public and transparent. It’s a really powerful way to have transparency.”
Drilling down a bit deeper then, the bearer takes their digital, tokenized dollars and lends them to autonomous machine. The machine lends them out to someone else (who is paying an agreed-upon rate of interest).
The intersection of the (self-executing) smart contract and the token, he said, can enable more real-world use cases that create new efficiencies in transacting. Businesses focused on the on-demand, sharing economy can execute agreements with parties around the globe and pay them for work completed in real time as funds are unlocked minute by minute.
Continuous, Streaming Payments
The end result, he said, are continuous, streaming payments.
“Smart contracts are mediating those payments and stablecoins that are actually doing the delivery,” he explained. “And since the transaction costs are so low, a business like Instacart can actually foster this super-efficient form of value exchange, with someone who is participating in their particular market or economy.”
The cost-saving and operating efficiencies are magnified for firms that operate on a global scale, he said. More nodes will be connected around the globe to settlement rails, enabling companies to build more innovations on top of those rails.
Looking ahead, he said, firms are discovering the ways that these advanced technologies can lead to wholesale overhauls of their operating infrastructures, creating new networks along the way. That entails enterprises pivoting from blockchain and smart contracts in the service of transactions alone to “infrastructure for business logic.”
He pointed to the shipping industry as one vertical that is using blockchain as one way to overhaul paper-based, complex processes and supply chain activity.
“Anything where you need verifiable records, provenance of materials and goods where you have the unlocking of value along the way … all of those become really, really powerful areas for using this technology,” he said. “What happens with digital assets is effectively all [the labor and paper] just collapses into potentially just a single piece of software.”
As new networks are built out and ignited, Allaire said, true mainstream acceptance will come when the technology effectively disappears and people take it for granted (like email) — where stablecoins are connected in all corners of commerce.
Programmable money, he told Webster, “should be embraced because it leads to greater efficiency. It allows you to create digital asset markets that are 24/7/365, running continuously. They never turn off.”