Fintech Daily Digest

Timothy Massad, former Chair of the Commodities and Futures Commission (CFTC), has provided a detailed critique of the STABLE Act, the U.S. House of Representative's stablecoin bill. (The Senate also has the GENIUS Act Bill which is somewhat similar.) https://docs.house.gov/meetings/BA/BA21/20250211/117872/HHRG-119-BA21-Wstate-MassadT-20250211.pdf

This article explores how central banks can use central bank digital currencies (CBDCs) as a monetary policy tool in countries with rigid exchange rate pegs. One potential consequence of monetary policy under these conditions is an excess of reserves in the banking system, which can be amplified by sudden influxes of foreign capital. irst, it puts pressure on the currency peg. To relieve this pressure, the central bank absorbs foreign liquidity by increasing its foreign reserves. However, this injects local currency into the economy, increasing the money supply and potentially pushing inflation above the target level. Additionally, consistent excessive reserves in the banking system can seize up the interbank market, as banks opt to place excess funds in deposits with the central bank. This dynamic pushes the interbank rate toward the base (policy) rate, creating a stable but sub-optimal situation.

In the rapidly evolving world of digital currencies, ISO 20022 emerges as a critical framework that could revolutionize how CBDCs communicate, ensuring seamless interoperability, robust security, and efficient cross-border transactions. By providing a flexible, standardized approach to financial messaging, ISO 20022 holds the potential to transform the global financial landscape, making digital currency exchanges as smooth as sending an email (but with monetary value attached).

The Commodity Futures Trading Commission will hold a CEO Forum of industry-leading firms to discuss the launch of the CFTC's digital asset markets pilot program for tokenized non-cash collateral such as stablecoins. Participants will include Circle, Coinbase, Crypto.com, MoonPay and Ripple. Further information on the CEO Forum will be released once details are finalized.

A discussion draft of the Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Bill was tabled in the U.S. House of Representatives by French Hill and Bryan Steil. It is substantially similar to the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Bill published by the Senate earlier in the week. For example, GENIUS Bill requires that stablecoins with more than $10 billion outstanding be federally regulated, unless the relevant state framework is substantially similar to the federal one, but the STABLE Bill allows large stablecoins to remain state regulated. https://files.constantcontact.com/9f2b5e3d701/6c1f8aa0-095c-4a22-9982-2f4380d0b531.pdf

R3 has partnered with IDEMIA Secure Transactions (IST) to integrate offline payment capabilities into its digital currency platform. The collaboration aims to support the development of central bank digital currencies (CBDCs) by enabling secure transactions both online and offline on R3's Corda blockchain-based system. According to R3, the integration allows users to maintain network control while ensuring interoperability across different digital financial networks. https://r3.com/r3-partners-with-idemia-secure-transactions-to-transform-cbdc-payments-both-online-and-offline/

In the wake of President Trump's January 26 executive which hinted at establishing a U.S. sovereign wealth fund and incorporating Bitcoin into the national strategic reserve-it is crucial to pause and weigh the tradeoffs involved. Instead of stockpiling Bitcoin-a move that might undermine confidence-the U.S. could integrate it into its financial system, allowing the government to shape the emerging ecosystem by setting standards and guiding innovation. The upside is a more transparent financial system in which the U.S. continues to leverage its most powerful asset: the dollar. Similar to how tech leaders open-source critical components to establish industry norms while monetizing other areas, the U.S. can expand its dollar platform and ensure seamless interoperability with Bitcoin and stablecoins. (Christian Catalini)

In December 2022, Charlie Geffen was appointed to chair the Accelerated Settlement Taskforce to explore the potential for faster settlement of securities trades in the UK. The taskforce's report was published on 28 March 2024, which recommended that the UK should move to a T+1 settlement cycle no later than the end of 2027. Following this, the government appointed Andrew Douglas to chair a Technical Group to take forward the next phase of the work. The group was asked in its terms of reference to develop a detailed implementation plan for the UK transition to T+1 and to recommend a date before the end of 2027 for this to take place. The Technical Group's report recommends 12 'critical' and 27 'highly recommended' actions to facilitate a successful transition to T+1. It also recommends that the UK move to T+1 on 11 October 2027.

Telcoin Bank has become Nebraska's first Digital Asset Depository Institution to be conditionally approved by the U.S. state's Department of Banking and Finance. If approved, Telcoin Bank claims that it will be the first regulated crypto bank in the United States. Telcoin also claims that because the Nebraska charter creates an actual bank charter, it will gain access to the Fed payment system (i.e., a master account). How this banking charter is different from the Special Purpose Depository Institution charter granted by Wyoming's Division of Banking to Custodia Bank and two others, is not clear to me. The Wyoming banks have all been denied access to a Fed master account. The regulation of banking in the United States is quite arcane. https://www.federalreserve.gov/newsevents/pressreleases/orders20230127a.htm

The U.S. Federal Deposit Insurance Corporation (FDIC) released 175 documents related to its supervision of banks that engaged in, or sought to engage in, crypto-related activities. They show that such requests from banks were almost universally met with resistance, ranging from repeated requests for further information, to multi-month periods of silence as institutions waited for responses, to directives from supervisors to pause, suspend, or refrain from expanding all crypto- or blockchain-related activity. Looking forward, the FDIC is actively reevaluating its supervisory approach to crypto-related activities, including replacing Financial Institution Letter (FIL) 16-2022 required prior approval before banks can offer crypto-related services, and providing a pathway for institutions to engage in crypto- and blockchain-related activities while still adhering to safety and soundness principles. https://www.fdic.gov/news/financial-institution-letters/2022/fil22016.html

Current bond markets face many challenges and inefficiencies, resulting in high transaction costs (TAC). In recent years, technological advancements like blockchain technology have enabled the possibility of reducing TAC in bond markets. Even though practice experiments with such solutions, academic literature lacks generic design knowledge under the TAC lens to design blockchain-based bonds. Thus, our research follows the design science research (DSR) paradigm to design and develop a bond prototype using the Ethereum blockchain protocol. The results of this paper highlight the capability of blockchain-based bond markets to reduce TAC in the three dimensions of asset specificity, uncertainty, and transaction frequency. Further, this research provides design principles to contribute to both practice and the academic discourse on developing blockchain-based bond markets with reduced TAC.

The Bank of Papua New Guinea (BPNG) presented the results of its digital kina central bank digital currency (CBDC) proof-of-concept (POC) experimentation. The POC simulated the core functions of a digital currency system and staff from the BPNG, Japan International Cooperation Agency and the Japanese Embassy tested digital payments, and transaction security, under controlled conditions. Further studies will broaden the scope to engage more financial institutions and explore cross-border payments with neighboring countries. https://www.bankpng.gov.pg/central-bank-digital-currency-cbdc-proof-concept

Central bank digital currency reference architecture The International Telecommunications Union (ITU), a specialized agency of the United Nations responsible for matters related to information and communication technologies, published a report that I co-wrote on a central bank digital currency (CBDC) reference architecture. Its aim is to work towards standardizing how different CBDCs can be evaluated and compared. The report was derived from the ITU's earlier work on digital currency ontological work and is organized around the IMF's "ASAP" model that describes digital asset systems in terms of four functional layers - access, service, asset, and platform. The resulting reference architecture is based on, and informed by, recent CBDC launches, pilots and proofs of concept (i.e., it does not consider prospective future architectures).

Head of the SEC's Crypto Task Force Hester Pierce, outlined her crypto plans, including ending the regulator's practice of regulation by enforcement. She remarked that the SEC's handling of crypto has been marked by "legal imprecision and commercial impracticality" resulting in "many cases remaining in litigation, many rules remaining in the proposal stage, and many market participants remaining in limbo". She added that "it took us a long time to get into this mess, and it is going to take us some time to get out of it". At the same time, the CFTC will reorganize its enforcement division to stop "regulation by enforcement" and refocus on fraud. https://www.sec.gov/newsroom/press-releases/2025-30 https://www.sec.gov/newsroom/speeches-statements/peirce-journey-begins-020425 https://www.cftc.gov/PressRoom/PressReleases/9044-25

The National Bank of Georgia (NBG) is inviting supervised entities to participate in its Regulatory Sandbox's tokenized deposits project, the goal of which is to create a regulatory framework with the involvement of stakeholders. The country's financial ecosystem does not currently regulate the use and offering of distributed ledger technology (DLT) based deposits and certificates of deposit (CDs). This project will potentially contribute to the creation of new financial products, the diversity of the financial ecosystem, the development of a CD secondary market, greater flexibility and diversification of deposit products, and optimization of product-related costs.

U.S. Senator Hagerty introduced the Bill for the U.S. Stablecoins (GENIUS) Act, in collaboration with co-sponsor Senators Tim Scott, Kirsten Gillibrand (Democrat) and Cynthia Lummis, aimed at regulating stablecoins by establishing clear issuance procedures and designating federal and state regulators based on the issuer's size. For example, the Bill allows state regulators to supervise payment stablecoins of under $10 billion. Reserve requirements would limit the type of backing collateral to commercial bank deposits, short-term Treasuries, repo and reverse repo involving short-term Treasuries, similar money market funds and central bank reserve deposits. https://www.hagerty.senate.gov/wp-content/uploads/2025/02/GENIUS-Act.pdf

U.S. President Trump's crypto and AI czar David Sacks unveiled plans for U.S. leadership in digital assets, emphasizing that keeping innovation onshore is a top priority. To advance this initiative, he announced a joint working group between the House and Senate dedicated to crypto legislation. It will aim to harmonize regulations across different oversight agencies like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), and eliminate regulatory uncertainty and provide the crypto industry with clear guidelines on compliance, operations, and legal obligations. https://www.youtube.com/live/_MOfL6iq6Eo?t=1588s

The Journal of Financial and Quantitative Analysis will be publishing a paper by Gary Gorton and others on how stablecoins can maintain a constant price even though they face run risk and pay no interest. Stablecoin holders are compensated for stablecoin run risk because they can lend the coins to levered traders. Levered traders are willing to pay a premium to borrow stablecoins when speculative demand is strong. However, when speculative demand falls, stablecoin issuers can keep their debt trading at par only by moving to a safer portfolio or allowing redemptions. Stablecoin issuers will need to make these adjustments quickly to avoid the risk of collapse, which may cause disruptions in the markets they invest in, such as Treasuries, commercial paper, and repos. [Read more at SSRN]

The Eurosystem's distributed ledger technology (DLT) settlement trials in digital central bank money was associated with a spike in German tokenization, according to Deka Bank. German digital securities issuance in the second half of 2024 totaled €615 million, compared to a total of €235 million cumulatively in up until then. Cashlink and Smart Registry (Nyala), who tend to use public blockchains (mostly Polygon) , were the most prolific issuers, with almost 90 issues between them in 2024. However, in terms of volume, Deka Bank dominated. Deka Bank hosts its tokenized issuance on the SWIAT platform that uses the permissioned Hyperledger Besu blockchain. https://www.deka.de/site/dekade_deka-gruppe_site/get/params_E-283343169/22365381/Deka%20Digital%20Asset%20Monitor_2024.pdf

"Over the last couple years, I have taken to characterizing the expected future returns of Bitcoin price appreciation as "levered NASDAQ with a call option on being the next world reserve currency". That still makes sense to me. It's been generally trading like that for years and I think it will continue to trade like that." (Travis Kling)