D.C. FINTECH WEEK 2021: How Stable are Stable Coins?

D.C. Fintech Week brings the best and the brightest together for discussions spanning the fintech ecosystem. These topics include open banking, cybersecurity and AI as well as crowdfunding. Since its inception, DC Fintech Week has had a simple objective: “to democratize information and allow everyone–from nonprofits and technologists to entrepreneurs and regulators–to engage one another in a meaningful dialogue about fintech and the future of finance.”

Launched as an annual event by Georgetown University’s Dr. Chris Brummer, it is one of the few forums open to the public where top officers from the Bank for International Settlements, U.S. Treasury Department, and SEC can engage in meaningful dialogue with economists, Bitcoin traders, academics, civil rights activists, and digital infrastructure providers. The conference is designed to challenge the dominant paradigm of most cryptoconferences which are profit-oriented, industry-focused.  This year’s event took place in Washington D.C. from October 18-21, 2021, and was hosted by the Institute of International Law, Georgetown University, The Institute for Financial Markets, and the Bank for International Settlements. 

Virtual events were an excellent way to learn about the expanding fintech industry. Many of them were moderated and hosted by Dr. Brummer. These events saw participation from many prominent diplomats, regulators, academics and others. Kristalina Georgiaieva (current Managing Director of International Monetary Fund), Augustin Cartstens (General Manager of Bank of International Settlements), Reza Bair (Governor of State Bank of Pakistan) and Nellie Liang, President Joe Biden’s Under Secretary of Treasury. 

On Day 4, a moderated panel hosted one of the most fascinating conversations. Dr. Chris Brummer. Discussions focused on stable coins, and the responses of different regulators and banks to them. Caitlin Lang (Founder, CEO of Avanti Financial Group), Peter Kerstens(Advisor to European Commission), Tomicah tilleman (Global Head of Policy Andreessen Horowitz), Emma Butterworth (Bank of England) were other panelists.

A stablecoin, a type of cryptocurrency that is supported by a reserve asset, offers price stability. They are more popular than native cryptocurrencies such as Bitcoin because they have a faster settlement time and less volatility. 

Yet despite their ostensible promise, key stakeholders in the world of finance, from venture capital firms to consumers and regulators, are pondering over the question of just how “stable” stablecoins really are. The market capitalization of cryptocurrencies is $130 billion. This has the potential to have a significant impact on the wider financial system. Therefore, regulators are working to create regulatory frameworks for cryptocurrencies. This will improve investor confidence and reduce risk. Dr. Brummer opened the floor on Day 4 by asking a question that is on everyone’s mind. Is it right? What are the regulator’s main concerns regarding stable coins? Caitlin long says that regulators are most concerned about the disclosure of risks. A second concern is US-centric. How to categorize this particular class of cryptos so they fit within the regulatory framework. Are they a security or are they a new kind of banking? These questions will be crucial in helping to decide how regulations should be implemented. 

Caitlin assured Dr. Brummer, too that capital costs are an important part of discussions regarding stable coins. Capital charges help to reduce default risk in the payment system. As a precaution against default risk, she was insistent in suggesting that central bank payment system access will only be granted if stable coin issuers accept capital charges. 

Emma Butterworth also answered Dr. Chris Brummer’s questions about Bank of England views regarding the popularity of the stable coin. Emma stated that the Bank of England is keen to learn more about the use of stable coins for payment. Financial stability and economic growth depend on the ability for individuals and companies to move money smoothly and safely to purchase goods and services. Stable coins are a welcome innovation that can help drive payments innovations. This is why it’s a key focus in the G20 cross border payment roadmap.

A second important thing for the Bank of England to do is ensure that stable coins are held to comparable standards to private money. This will give the public confidence and financial stability.

Dr. Brummer asked participants for their thoughts on financial inclusion. This is something he considers a significant consideration as he formulates policy to ensure stable coins become mainstream.

Tomicah Tilleman joined the discussion to talk about a report from Andreessen Horowitz regarding stable coins, stability and financial inclusion.

Three key priorities that regulators should keep in mind when approaching stability were outlined by the report:

1. Equitable Access: There are many people in the US without banking access, and billions around the world. To ensure these people are included in the new system, it is necessary to set clear goals. 

2. Integrity of Stable Coin Issuers and Reserves: It is important to maintain transparency and accountability among stable coin issuers. Many different solutions for stabilizing coins are being proposed. There are fiat-backed stable coins and crypto collateralized safe coins. Then there is the algorithmic stable coin. Each will require a slightly unique regulatory approach.

3. Stable coin networks must be resilient. Maintaining trust in this asset type is important. It’s crucial to make sure that technical networks supporting these solutions can support payments at scale.

In a world that is constantly changing, conversations like these are vital. Within a little over ten years, the digital revolution has transformed the financial markets worldwide. We witness the remarkable rise in cryptocurrency. These digital innovations have become trillion-dollar technologies.

Chris Brummer (Dr. Chris) is no stranger to the world of fintech. A leading thinker in digital technology, international finance, and financial services, Dr. Brummer lives in Washington, D.C., along with Rachel Loko, an internationally recognized securities attorney who is also an expert in regulation and financial innovation. Dr. Brummer’s many past roles include serving as a member of the Commodity Futures Trading Commission’s Subcommittee on Virtual Currencies, and a member of the Consultative Working Group for the European Securities and Markets Authority’s Financial Innovation Standing Committee. A serving professor and faculty director of Georgetown’s Institute of International Economic Law, Dr. Brummer has not only taught at several leading universities but also recently finished a term as a member of the National Adjudicatory Council of FINRA, an organization with powers invested by Congress, tasked to regulate the securities industry. He was seen as a vital part of promoting investor protection.

To be a part of more interesting conversations like this you can join in on ‘Fintech Beat Podcast’ – where Dr. Chris Brummer brings together brilliant minds every Tuesday to tackle the challenges erupting at the intersection of finance, tech, and policy.