Stablecoins and Banks

[Stellios 10]

Hello, 

Long time reader first time poster. By way of an introduction, I work for a large UK bank focusing on Trade Finance. As such I have a solid knowledge of the problems in International payments that Ripple are trying to solve. 

Today we had a meeting to discuss the future of trade services tech. During the presentation several R3 projects were discussed (Voltron & Marco Polo). I couldn't resist asking about IP and if Ripple/XRP was in the banks plans. He was of the impression that banks will build their own shared private DLT supported by a universal DA/Stablecoin to facilitate money movements. Ultimately they will present this tech to Swift and charge them with the maintenance of said ledger thus keeping the status quo intact  I know there's been some threads of similar nature but I wondering what the consensus is on this? 

Edited February 6 by Stellios
Typo

[GiddyUp 3,326]

I don't believe I'm the only one who thinks the introduction of so many new "stablecoins" just creates more friction and headaches?

And welcome to the forum @Stellios   

[Stellios 10]

How I interpreted it was that the big banks will just create their own DA and trade it with each other. Why share the spoils when they can maintain the monopoly. Alternatively, it wouldn't take much fiat to buy Ripple and take their infrastructure in house. 

Edited February 6 by Stellios

[GiddyUp 3,326]

36 minutes ago, Stellios said:

He was of the impression that banks will build their own shared private DLT supported by a universal DA/Stablecoin to facilitate money movements.

This has already been done on a much larger scale by Ripple using XRP, IMO banks in pursuit of this goal are far behind what is already in motion...

Creating more and more "stablecoins" just replicates the original issue ie holding/tracking many different currencies. Creating more DAs just muddies the water.

Try searching "walled garden" for previous discussions?

Edited February 6 by GiddyUp

[Konan45 207]

Nobody knows man. There's a lot of banks around the world, what they decide to do is anyone's guess. 

 

I do know it would take significant capital to acquire Ripple, more than any bank would be willing to pay currently.  And as far as I can tell ripple has no intent of selling. 

Edited February 6 by Konan45

[automatic 2,361]

51 minutes ago, Stellios said:

that banks will build their own shared private DLT supported by a universal DA/Stablecoin to facilitate money movements. Ultimately they will present this tech to Swift and charge them with the maintenance of said ledger thus keeping the status quo intact  I know there's been some thread of similar nature but I wondering what the consensus is on this?

That sounds like something a bank chief techie may actually say.  It's a great idea in principle, but in practice banks are not software development shops nor do they have the ability to keep up with software development shops.  They can try - and they frequently do - and the outcome is almost always the same:  good for the resume/CV, not good for the bank.

EDIT:

If I had to profile the person making that statement, I would actually say that their background is in business first and foremost, and in technology second.  They see the opportunity and the means to capitalize on the opportunity, but they do not fully comprehend the effort required nor the caliber of the team needed to pull it off.  Thus, to them the setup is simple - connect a/b/c, license to Swift, everyone will use it, revenues pouring in. 

They are right.  It is literally that simple. 

Edited February 6 by automatic

[VanGogh 643]

Of course smaller banks will use Ripple and XRP to avoid the inevitable fees large banks will charge them just like they do today. 

[NightJanitor 1,088]

Yup, after Davos, I kind of expected a bunch of people to go home with the "we'll build our own!" idea...  It'll take them a minute to realize counterparty risks and scale issues.

Hopefully they don't waste too much time/money on that.  Also, you might not wanna volunteer to be on that team, if you'll take the hit when he figures out it won't work. 

[aavkk 802]

From what I'm seeing in the payments ecosystem what you are describing is likely the route the very largest correspondent banks will take.  These banks stand the most to lose with Ripple gaining market share.  What VanGogh just mentioned above though is playing out before our eyes with the thousands of banks bleeding fees to the largest correspondent banks such as Citi.  My realistic hope is that in 5-6 years 50+% of cross border payments are facilitated through RippleNet and XRP.  Of course, even grabbing 5-10% of this market would be an incredible win for those holding XRP in the long-term.  

[KaaKaRmA 614]

Many will try to build their own, as they think it’s a simple solution. Reality is Ripple and XRP are disrupting the industry, which isn’t always a good thing. The battle Ripple and XRP face is twofold: 1. Get regulation clarity and 2. Get enough liquidity and usage utility to start the snowball of FOMO from other banks. Despite the partnership she and tech, it’s a much harder task than many realize. 

Brad also wrote about a similar topic:

https://www.linkedin.com/pulse/case-against-bankcoin-brad-garlinghouse

 

Edited February 6 by KaaKaRmA

[Stellios 10]

Thanks for the input guys. I'm glad it's opened up a healthy discussion.The work we are doing with R3 around trade finance is in quite an advanced stage.

If agreeing and implementing a universal DA is too big of a task. What's to stop a consortium of big banks of buying Ripple? Taking the infrastructure off the grid and rebadging XRP as the settlement token? 

[zenkert 13,492]

1 hour ago, Stellios said:

He was of the impression that banks will build their own shared private DLT supported by a universal DA/Stablecoin to facilitate money movements.

Who is He?

[GiddyUp 3,326]

18 minutes ago, KaaKaRmA said:

Brad also wrote about a similar topic:

https://www.linkedin.com/pulse/case-against-bankcoin-brad-garlinghouse

Yes! this is exactly what I was saying... Thanks @KaaKaRmA for this link 

Brad Garlinghouse from the article:

"Scenario one: all banks around the world put aside competitive and geopolitical differences, adopt the same digital asset, agree on its rules, and harmoniously govern its usage. Fat chance."

"Scenario two (the more likely scenario): banks not in the issuing group issue their own digital assets with their own sets of rules and governance."

"We’re kinda seeing this already, as the FT points out, with Citi’s Citicoin and Goldman Sachs’ SETLcoin. The result would be an even more fragmented currency landscape than what we have today. If banks of different digital asset groups want to settle trades with one another, they’ll have to make markets between their unique digital assets or trade between their digital assets and a common fiat currency. What a mess!"

"The second big problem with the “utility settlement coin” is it seems it’ll be backed by a basket of currencies. Once backed by cash, it’s no longer an asset; it’s a liability. Trading liabilities then ultimately requires moving cash across borders, re-creating today’s system but adding more friction!"

Edited February 6 by GiddyUp
quote

[lysistrada 38]

1 hour ago, Stellios said:

Hello, 

Long time reader first time poster. By way of an introduction, I work for a large UK bank focusing on Trade Finance. As such I have a solid knowledge of the problems in International payments that Ripple are trying to solve. 

Today we had a meeting to discuss the future of trade services tech. During the presentation several R3 projects were discussed (Voltron & Marco Polo). I couldn't resist asking about IP and if Ripple/XRP was in the banks plans. He was of the impression that banks will build their own shared private DLT supported by a universal DA/Stablecoin to facilitate money movements. Ultimately they will present this tech to Swift and charge them with the maintenance of said ledger thus keeping the status quo intact  I know there's been some threads of similar nature but I wondering what the consensus is on this? 

3

Thank you for bringing this up. I have heard some version of this before as a criticism of Ripple/XRP.  It's - in my opinion - one of the better ones.  

I think it depends upon the culture of the bank itself.  My experience with banks - which is extensive, though admittedly skewed in favor of banks in the US - is that they tend to like to depart the least from their core business, which if not just straight up traditional usury is some variant of using money to make money (intentional oversimplification).  There are many, many exceptions to this.  Goldman has a tremendous legacy of principal investing within its iBank, for instance.  But at the end of the day, most banks just want to make money with their money.  I don't think most of them want to be in the business of developing and maintaining complex technologies including and especially distributed ledgers and cryptocurrency.

Does that mean there aren't banks who will strike out in this way?  Of course not.  But I think most of them will not want to.  Banks have massive sums of money and they can do a lot of things if they wanted to depart from their core mission of simply being a bank.  I don't think this technology is any different and - in the end - it's better left in the hands of developers like Ripple, R3 and others.  

But in deciding if I truly wanted to longterm hold XRP, this thought experiment was definitely one I focused on a lot and I think this is one of the better areas of exploration in looking at Ripple and XRP's long-term viability and I would strongly encourage counterpoints to this.  Not just exceptions, mind you, or instances of banks going outside of what is typical, but rather a reason why it makes more sense for the banking industry itself to handle this rather than a third party of largely development talent.

At the same time, I will note that Ripple's recent reply to Fed's RFI related to faster payments seemed to indicate that Ripple would be very into the idea of the US Central Banks building out their own DLT and - ideally - with use of the interledger protocol which, of course, would then provide another wonderful avenue for XRP use.  That begs the question of why these banks would use a stablecoin rather than the most prominent cryptocurrency (me forecasting XRP to surpass bitcoin in short order).

Edited February 6 by lysistrada

[thetamind 336]

The only question I have about banks creating their own currencies and using them for everything without touching cryptocurrencies.... Is.... How will they get their liquidity?

Without a liquidity pool, a global market buying and selling a currency, banks will be back to their prefunded digital nostro accounts.  Which in the end doesn't solve the problem. So It's all fine and dandy that banks create their own coins, but where will the liquidity come from? If they can't provide their own liquidity pool for all corridors around the globe, then, they're gonna need a coin like XRP. XRP can get instant liquidity anywhere, thus no friction no matter where you want to send money to/from. 

So my question stands.... How will banks get their liquidity for their own digital currencies?  If someone comes up with an answer that scares me... I'm selling my XRP lol