Abstract : It is difficult to sustain the long-term liquidity expansion of the entire crypto industry only with derivative and arbitraged assets. So where will the next feast come from?
As everyone judged, financial transactions became the first domino in the bull market for blockchain and crypto. Credit expansion and liquidity self-driving, spurred an explosion of interest rate agreements, mortgage lending agreements, and decentralized trading agreements in the process of the nascent financial infrastructure on the chain. Under the background of the global liquidity flood expectation and current situation, the crypto market has grabbed the first primitive accumulation of crypto financial derivatives in the heavy increase of Wall Street and retail investors.
I had a conversation with a friend who worked in Bank of America Merrill Lynch as high management, trading assets for more than 20 years, on how long the current Defi liquidity party would last. She and some of her peers thought there would be a big pullback in the rapid growth of derivatives around the middle of this year. The reason is very simple, from the inherent risk-return thinking of Wall Street, assets with no visible subject matter or anchor, there will be a problem in the medium and long term. For Wall Street people, the allocation of the target options is far greater than the currency circle, the configuration itself is also the appearance of a dynamic stage strategy. Despite the current round of macro easing and stimulus-based monetary conditions, regarding assets of crypto DEFI derivatives, which were previously used to allocate hedging strategies, there has been a shift in allocation to core crypto assets (such as BTC) and other traditional financial assets. Even in the case of credit expansion along the chain, the system that sustains credit remains fragile when it is not supported by the underlying assets of a broad mainstream consensus. Moreover, layer upon layer nested design, the solvency of the underlying mainstream assets is in doubt. In particular, as the cornerstone of the market value of BTC, ETH itself is also experiencing large fluctuations of normalcy.
It is difficult to sustain the long-term liquidity expansion of the entire crypto industry only with derivative and arbitraged assets. So where will the next feast come from?
New entrance of industrial capital and resources into the market——
A field where market value data and market data to explode
"Cross-border Payment Agreement" may become an important entry point for industrial capital and resources. Hereinafter, this question will be answered from dual perspectives of industrial demand and financial capital.
The inspiration here comes from a voice conversation these days with Velo Protocol CEO Tridbodi Arunanondchai. This Thai entrepreneur, graduated from Stanford, majoring in information engineering with more than 10 years of banking experience, gave me a figure: "Currently, the global market share of cross-border transfer payment exceeds $1 trillion, and the market value of Southeast Asia alone reaches $150 billion. At the same time, more than 170 million people in Southeast Asia still do not have cards, bank accounts or access to basic financial services." And he and his team are using blockchain cross-regional payment technology to address this pain point, starting in Southeast Asia.
To summarize the protocol and token of the current cryptographic market with cross-border payment function, I found a group of data. Market value comparison from January 1, 2020 to February 9, 2021. Ripple (XRP), one of the major cross-border payment protocols, grew "only" 150% amid a cloud of SEC litigation.Terra increased by 3,299.64%; Reserve (REV) increased by 1,079.84%; Stella increased by 846.06%. Among the major stablecoins (some of which have cross-border payment transfer capabilities), USDC grew by 1,155.67%; USDT increased by 599.92%; DUSD increased by 287.75% from the known data in October 2020 to February 9, 2020. Compared with Defi, the cross-border payments scene has also risen sharply, but without much fanfare.
The Velo agreement itself is a financial agreement capable of issuing digital credits that can be anchored to any fiat currency. These digital credits are then used for business transactions, interactions and operations between trusted partners. Velo offers a glimpse of some of the typical features of the growing trend towards "Cross-border Payment Agreements". So take Velo, for example, to think about Cross-border Payment Agreements, which are not what they used to be.
Unfortunately, only "aristocratic" entrepreneurs are allowed here
Cross-border Payment Agreements have attracted early-stage start-ups such as Ripple and R3. Based on bank accounts, SWIFT, the traditional cross-border transfer and payment system has many contradictions, such as high cost, slow speed, insufficient transaction transparency, and inability to meet the demand for transfer and payment without bank accounts. These pioneers have been trying to solve these problems. But that was in the early days of on-chain technology and ahead of the birth of crypto stablecoins. The first movers are faced with regulatory compliance risks, limited on-chain technology capabilities, crypto digital asset audience bottlenecks, undiversified payment scenarios, large price fluctuations of bridged assets, stiff banking barriers, and low recognition degree of blockchain industry. Progress on a Cross-border Payment Agreement has been stymied.
Stablecoins, which are compliant for transfer payments, are now ubiquitous in the crypto market. The assets they anchor or bridge are not only fiat currencies, but also mainstream native digital asset portfolios such as BTC and ETH, with more protocol capture value, more autonomous selection, and more flexible on-chain transaction path.
Built on the Stellar public chain, which was developed specifically for instant payment transfers, Velo's blockchain network is already capable of completing 1,000 transactions per second, far outperforming Ethereum in terms of application for remittance payment scenarios. Velo also has cost advantage on transfer compared to Bitcoin and Ethereum.
But these are not the most important things. The cruel reality is that when industry demands and resources seek entry into the blockchain start-up market, "Cross-border Payment Agreement" is destined to be an "aristocratic" start-up racing track. Companies with small teams or small industry backgrounds have little chance of survival. Whether it is transfer and remittance at C end or cross-border payment business for companies, only those who have strong industrial fund support, various payment landing scenarios, existing compliance background, and the ability of the solution driving when facing financial institutions have the conditions to break through.
Velo was founded in 2018 by the Chinese multinational giant CP Group, the largest business group in Thailand. CP Group invested $20m directly in Velo when it was founded. In addition, Velo has gradually been used for fund management, trade financing and settlement, and has provided support for Velo through Charoen Pokphand Group in many business lines such as finance, retail, supply chain, telecommunications, real estate, media, pharmaceutical, agriculture, animal husbandry and food. These include 12,000 7-Eleven convenience stores, several banks, Charoen Tai Plaza, Charoen Tai, Charoen Tai e-commerce and other re-payment scenarios.
For example, after investing $1.5 billion via Tesla to drive Bitcoin, Musk still brings a long-term blessing to Bitcoin on the demand side of the industry -- he will consider allowing Bitcoin to buy cars. It all comes back to the original value vision of blockchain, a peer-to-peer electronic payment network.
The Federal Credit Exchange in the Lab of Velo is a distributed network with access mechanisms. Inside the network, there is no central node, and all data is sent from one user to another via the shortest path available. Trusted partners issue digital credits tied to any stablecoin for day-to-day operations. The settlement of these digital credits is secured by Velo tokens. As a result, Velo tokens bridge the value of different asset types and enable liquidity to flow in and out of the Velo credit exchange network.
Given the technical path, local application scenarios, and the injection of industrial capital and resources, will the commercial "Cross-border Payment Agreements" like Velo follow in the steps of Libra and other early payment projects in terms of policy pressure and market size? The answer is no. Because sovereign digital currencies bring new space.
Market dividends from sovereign digital currencies
One of the core competencies of sovereign digital currencies is in cross-border payments. In the game process of the new system of digital finance, both China and the United States are using the influence of their currencies to compete for the right to speak, building cryptographic infrastructure of cross-border payment scene and educating the market. Last month, the Federal Bank of the United States and the Federal Savings Association allowed the use of public blockchains and stablecoins for verification, storage, recording, and settlement. Although the United States has never officially issued its sovereign digital currency to the public so far. As long as the participants in encryption market can be compliantly brought under the regulatory framework traceable, through market-oriented idea, CBDC, with the dollar as its ultimate anchor of value, will be popularized globally where US dollars circulates quickly. Therefore, USDT, USDC and DAI have gradually entered the payment settlement transactions of the banking system and can be regarded as compliant cross-border payment stablecoins.
China's CBDC is based on the digital transformation of the existing fiat currency. In China, the experiment of consumer payment scene based on M0 is also accelerating the public's cognition of digital currency. It's actually not very obvious to the public. But it is a different story when it comes to cross-border payments. At present, there is a time difference between the two sides of cross-border payment. No matter how fast the transaction is, there is always middleman matchmaking. However, the cross-border payment agreement based on blockchain can truly realize peer-to-peer payment, real-time account arrival, and reduce the payment cost.
If a multinational holding company with large ecological business forms has thousands of suppliers and tens of thousands of customers, all of which need cross-border business-to-business, the whole financial system can be completely separated from banks when conditions are ripe. If this multinational holding company takes advantage of its own ecological business to establish a multi-party credit transaction network, or even issue its own digital tokens anchored with fiat currency, this is the point of penetration that Velo build its base on the cooperation with Charoen Pokphand Group of Thailand.
In current situation, when some digital currency sovereignty is inflexible, sovereign credit is not solid of free trade is difficult to be implemented in the short term for regulatory reasons, many cross-border enterprises may directly use CBDC of other countries’ in their registered countries and regional consortium may settle with foreign business partner with stablecoins, no longer via banks. For example, companies in some countries, gradually, will entirely use stablecoins to do business with each other. In some Southeast Asian countries, Velo will eventually be used for cross-border settlement.
The sovereign stablecoin game among big powers will not completely drown out cross-border payment agreements on a global scale. Instead, in the era of digital self-finance, which is driving the spread of non-bank account systems, acceptance and infrastructure will accelerate as never before. In addition to the dollar, the yuan, the euro, and other powerful sovereign digital currency, in the ocean of global stablecoins liquidity, commercial cross-border payment agreement like Velo and Rayleigh wave, will play as high seas excluding city division of sovereign, and bridge assets linking different kinds of assets value, promoting the financial efficiency of regional business between ecologies .
The vision of "Cross-border Payment Agreements"
No matter how decentralized payment and settlement networks develop, the bank account system will continue to dominate business for a long period of time. Therefore, it is decided that "Cross-border Payment Agreements" can not be separated from the business development of banks. In November 2020, Velo partnered with Visa Global to jointly develop payment solutions for micro, small and medium enterprises loans in Asia, using Velo tokens as collateral digital assets in its financial solutions. Velo and its eco-company Lightnet then announced a partnership with Thailand's first local bank, SCB, to provide cross-border remittance services for the trillion-dollar cross-border remittance market, and to use blockchain technology to provide remittance services for millions of foreign workers in Southeast Asia. In January 2021, Velo and Asia Digital Bank began developing cross-border business solutions.
In the vision of a "Cross-border Payment Agreement", an inclusive financial network disconnected from all bank accounts, a decentralized network for corporate settlement and cash flow, a network of financial transactions that can be programmed and derived from sovereign and commercial digital credit, every step forward can bring great changes in the digital society. From the 2017 bull market initiated by ERC20 to the bull market initiated by DEFI in the second half of 2019, the nature of the bull market is the on-chain expansion of credit that has triggered a liquidity feast in the industry. ERC20 generates streams through coinage projects and DEFI generates streams through asset bridging. To go back to the above example for "Cross-border Payment Agreements" : if they work so well that companies in several Southeast Asian countries are more willing to settle with each other using decentralized on-chain credit tokens, the expansion will be unprecedented.