OCC’s Stablecoin Announcement Affirms unFederalReserve’s Concept
SAN FRANCISCO - January 12, 2021- The United States Office of the Comptroller of the Currency (OCC) recently confirmed that the use of stablecoins for bank-permissible functions like payment settling is permitted. The impact of this announcement on the U.S. economy, the banking system, and the unFederalReserve project cannot be understated. We discuss our thoughts and the applicability below.
In 1899, Auten v. U.S. Nat’l Bank of New York concluded, “The very object of banking is to aid the operation of the laws of commerce by serving as a channel for carrying money from place to place, as the rise and fall of supply and demand require.” The sole function of a bank is to help move money from one place to another.
Currently, banks use antiquated systems to connect and transfer money between each other. The OCC now says that banks can use new technology to make money transfers more efficient; namely, banks can validate, store, and record payment transactions made with blockchain, including the use of stablecoins, for “permissible payment activities,” as long as the activities abide by applicable laws and safe banking practices.
The use of stablecoin will drive an increase in monetary velocity and the amount of spending and transfer over a given time period; that alone could grow an economy. unFederalReserve hopes to contribute to that broader economic growth.
Our own banking product will use stablecoin as a credit vs. cash spot market intended to help smaller bank-and-non-bank lenders cover cash deficits while also earning on cash excesses. The user experience will remain the same as it would with existing banks, whereby a key user like a Treasurer would have access and authority to deposit, wire and borrow money.
The banking product maintains an order book of makers or takers, based on members’ or account holders’ available balance or funds requested. The orderbook is then governed through a decentralized node network or stablecoin record-keeping system.
The stablecoin we have selected is the Circle USD Coin (USDC) that is attached to the United States dollar. Each USDC is backed by a dollar held in reserve and is managed by a consortium called Centre that also manages cryptocurrency exchange Coinbase and Bitcoin miner company Bitmain. As of January 2020, over $3 billion in USDC was in circulation.
We are also seeking to partner with Algorand, the official chain for USDC, and are currently in conversations with their development team, so that our handling of the protocols results in a secure and efficient money transfer platform.
Account deposits in U.S. dollars will immediately be exchanged for USDC, allowing for near instantaneous maker/taker activity. This will serve as a gateway for other products where near-instantaneous settlement provides benefit.
U.S. dollar to USDC and USDC to U.S. dollar conversion latency will be covered through a micro-term facility between the Special Purpose Vehicle (SPV) and its bank owners. Because USDC will now be a universal, allowable settlement utility, if parties outside the unFederalReserve use USDC for payment settlements, funds out of the SPV will not face a USDC/USD conversion latency challenge.
The OCC letter clarifies its position on a critically important aspect of blockchain technology adoption. In doing so, the OCC validates our use of stablecoins to handle intra- and intercompany transactions. Lastly, by selecting USDC as the product’s stablecoin, unFederalReserve’s platform will keep banks compliant with the OCC letter, while providing lightning fast settlement capabilities.