The Breakdown - Visa Goes Deeper on Stablecoin Settlement

Episode Date: September 6, 2023

Yesterday Visa announced an expansion of their ability to settle cross-border transactions with USDC, adding support for the Solana blockchain. According to some, even the fintech folks who aren't interested in crypto are excited about it. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Wednesday, September 6th, and today we're talking about big news from Visa. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link of the show notes or go to bit.ly slash breakdown pod. So yesterday's episode started with a very brief discussion of a nominally big thing for Solana that didn't push the price at all. What we're going to do today is talk about that thing, which is much bigger than just

Solana, and also talk about what it says about the general state of the cycle that we're in. The specific news was that Visa has announced an expansion of their stable coin settlement to include the Solana network. Visa will now settle some cross-border payments using USDC on Solana. The payments company began experimenting with USDC for treasury operations in 2021. The pilot began with Crypto.com's crypto-linked visa cards issued in Australia. Visa set up a cross-border settlement channel with Crypto.com, which allowed the exchange

to finalize customer purchases using USDC over Ethereum. The expansion of the USDC settlement pilot is being done in collaboration with merchant acquirers, World Pay, and Nuve. This will allow merchant customers to select USDC stablecoin settlement as an option instead of receiving fiat currencies. Now, the upgrade to Visa's systems is entirely a back-end improvement, and it's designed to cut settlement times and costs. In a statement, they explained that, at the moment, quote, when consumers use Visa cards

to make a purchase at any of the millions of Visa accepting merchant locations around the world, they can experience the convenience of nearly instant payment authorizations. But what they don't see is that the funds used for their purchases need to move between their bank, the issuer, and the merchants bank, the acquirer. This is where Visa's Treasury and Settlement systems enable the clearing, settlement, and movement of billions in transactions a day, making sure the correct amount and the preferred currency is received from the issuer and sent to the acquirer. Now currently, cross-border card payments rely on the SWIFT system, which can take several days to finalize. By switching to crypto rails, merchants can receive cleared payments much faster, which is obviously a huge boon when it comes to cash flow management. Visa head of crypto, Kai Sheffield said in a Twitter thread,

World Pay and Nuvei enable card acceptance for a diverse set of merchants across the world, including a growing number of merchants interacting with the blockchain and crypto economy, who may prefer to use USDC within their corporate treasuries over traditional fiat banking. Visa can now settle these payments to World Pay and USDC, enabling world pay to more flexibly manage their own treasury infrastructure and route the USDC directly to their merchants, with less worry about wire cutoff times and bank holidays. It's still early days, but Visa has already settled millions of dollars of USDC

over the Ethereum and Solana blockchains between our clients. clients. We are committed to continuing to innovate around how we move money and provide our clients modern options for settlement." End quote. Circle CEO Jeremy Aller noted that the paradigm shift enabled by using USDC as a settlement currency and not just a payments currency. Also on Twitter, he wrote, One of the things that I am most excited about regarding this new expanded use of USDC by Visa is the fact that USTC is being used as a core settlement layer within the Visa network, a more real-time global alternative to traversing Swift and various ACH rails. More often than not, everyone focuses on the purely retail uses like the Shopify-USDC plugin, when in reality,

USDC is a generic digital dollar protocol that spans from retail to wholesale across commerce and finance. Our existing mental models for payment systems are dated. An internet native digital dollar and stablecoin network protocol scales from tiny micropayments in p-to-p transactions to multi-hundred million dollar capital market transactions. End quote. Now, while Visa has been experimenting with faster USDC settlement on the card issuer side of the business for some time, this pilot extends that functionality over to the merchant settlement side. Now, to Bulls, this move seems like a significant step forward in the adoption of crypto networks as a global public and neutral end-to-end value transfer system. Visa currently settles 11.6 trillion in global payments annually, and this

settlement use case is precisely what research firm Bernstein envisioned when they made their call in August, that stable coins could become a $2.8 trillion market over the next five years. So in terms of community reactions, obviously for the Solana Bulls, this was a huge deal. And atolli Wai Acovenko, the founder at Salana Labs, said, I want Salana to be so cheap that it saves Visa money to use it over its own in-house infrastructure, and I want Salana to be so fast that it improves the user experience as well. Lily Lou, president at the Salana Foundation, said, we've had a long-standing thesis around payments being only possible on Solana,

15 years into the conception of cryptocurrencies and the gradual progression of this use case from forum post to proof of concept to defy adoption. Solana meets users where they are today. Click a button, something happens immediately, and with impintessimal cost. This is going to be demonstrated at scale with Visa building on Solana. Now, others focused on the significance from the Visa side of things. Terry Angelo's who formerly worked on crypto at Visa said, Visa is an authorization network and not a payment network.

Merchants pay for real-time authorization, security, and guaranteed payment. Settlement post-transaction is when Visa moves dollars from issuers to merchants, and that can happen on wires, ACH, and now Crypto Rails. Nick Carter writes, this is a huge deal. writing on the wall, stables would become de facto interbank settlement solution via card networks. Even my non-crypto fintech friends are fired up about this. This is one of the most important news items of the year. Caitlin Long puts it even more catchily saying, Visa debanks the banks, by going around them to settle U.S. dollar payments outside the U.S. banking system and outside

traditional U.S.D payment rails. Pilot programs for now, but... Dennis Porter, the CEO of the Satoshi Action Fund, wrote, Bitcoin only people will hate this, but it needs to be said. Stablecoins will play an important role in the next wave of financial technology. The dollar isn't going anywhere anytime soon. In fact, Stables will strengthen the dollar. Banks will adopt quickly. Now, I could and maybe will at some point do an entire show about why Bitcoin and Stablecoins aren't at least in the short-term competitive. One offers an improvement on the system that exists. The other offers an opt-out of the system as it exists. In other words, they are far from incompatible. Finally, Mert, the CEO at Helius Lab says,

The Visa news today isn't just good for Solana. It's awesome news for all of crypto. Slowly, the Overton window is shifting and more financial activity is moving on chain. So this must have caused a huge price run-up, right? I mean, this is big news. Nick Carger called it one of the biggest pieces of news of the year. Alas, Salano was up just 2%. Cryptotrater Gumshoe wrote, in a bull market, Salana would have jumped over 100% with all the crazy news of the past two weeks, lull. Now, the other news that he's referring to was Salonapay integrating with Shopify two weeks ago. Trader Horse writes, The sole response is a good indication of the current market environment. Imagine what this post

would lead to during any other point. Instead, prices listless. This is not a supply issue. We just don't have any buyers. The news should excite long-term investors, however. Teams that are still grinding in the bear get rewarded in the bull. Now, I weighed in on this yesterday as well, tweeting, people looking for prices to move up on good news right now are totally missing the part of the cycle we're in. Until new buyers come in, it's sideways or down only. Doesn't mean good news isn't still good. It's just not going to show up in price. Now, in the particular case of Solana, there is a general and specific context. The general is what we just talked about in where we are in the cycle.

The specific is that Solana is dealing with the overhang of the FTX estate having $1.1 billion worth of Solana in their coffers right now. That's something like 13% of the total supply. Now, reinforcing the contrast between news and energy, even as all this was happening, Solana's daily active addresses fell to around $204,000 at the end of all. That's the lowest level for the metric since the block began tracking it in late 2020. Rebecca Stevens data analyst at the block research put the reasons pretty crisply saying, The Solana ecosystem was already seeing a decline in active users prior to the collapse of FTX,

but the fact that the blockchain had such strong ties to the exchange in Alameda Research hurt its reputation a bit. The SEC alleging that Seoul as a security also hurt the tokens price and has caused it to be delisted in the U.S. on several platforms like E Toro and Robin Hood. Now, overall, the block's monthly exchange volume measurement hit its lowest point so far during this cycle in August. Just $423 billion in volume was moved through centralized exchanges last month, falling below other recent low points in May and December. The lack of trading on exchanges was punctuated by Binance falling below $200 billion in monthly volume for the first time since November

2020. Now, this lack of activity extends to Bitcoin as well. Dylan LeClair tweeted, As a percentage of circulating supply, Bitcoin moved in the last 30 days is at an all-time low of 5.4%. Meanwhile, spot volumes are at levels not seen since 2019. Saying this market is thin currently is an understatement. Reflexivity research co-founder Will Clemente writes, crypto aggregated trading volume is the lowest that it's been since 2020, Google's search trends for Bitcoin and Crypto at multi-year lows, realized volatility, implied volatility, weekly bollinger bans, all near record lows. This is exactly what Abathy looks like. Now, Kaleo pointed out that although this is brutal, it's not necessarily out of sync with the cycle. He wrote,

Centralized exchange volumes haven't been this low since December 2020. Daily average volume is down from 164 billion at peak to around 13 billion now, a 92% decline. For reference, the peak in the 2017 bull market was around 28 billion, with an average of 2.5 billion per day six months prior to the 2020 halving, a 91% decline. So after all of the centralized exchange trauma we've seen over the past year, we're still in line with a similar trend to what we saw last cycle, despite how rough it may feel. Still, I think it's worth noting comments from Kobe, during the height of the bull market. On the up-only show, he said, quote, you need to have the same level of interest when everything is really boring. The main way you

have to make it is to try to perpetuate your interest through the boring bit. The boring bit is where the opportunity is. Now, of course, one of the things that people anticipate could bring some new blood in is that fabled Bitcoin Spot ETF. So, an update on that front as well. After winning a comprehensive victory in court last week, lawyers for Grayscale have written to the SEC to ask them to get moving. According to Grayscale, the court ruling was so comprehensive that the SEC has, quote, no grounds for treating the Grayscale Bitcoin Trust differently to Bitcoin futures ETFs. They wrote, quote, there is no available rationale that would distinguish a Bitcoin futures ETP from a spot

Bitcoin ETP under the legal analysis previously adopted by the commission in rejecting spot Bitcoin ETPs. Now, the letter anticipates a change in tactics from the SEC who may choose to introduce new reasons to prevent Grayscale from converting GBT into an ETF. The letter stated that, quote, if any other reason could be offered in attempting to differentiate spot Bitcoin ETPs from Bitcoin futures ETPs, we are confident that it would have surfaced by now in one of the 15 commission orders that rejected spot Bitcoin filings even after Bitcoin futures ETPs began trading. Grayscale pressed home the importance of resolving this conversion in a timely manner given the number of rival products clamoring for approval. The letter noted that

the SEC may have now exceeded the time allowed to refuse an application, reserving their right to argue in court that the conversion should now be deemed approved. Grayscale argued that, quote, the best use of resources now is for the commission to issue an order approval. the conversion to an ETF. Finally, they requested to meet with the SEC as soon as possible to discuss the path forward. James Safart, ETF analyst at Bloomberg said, Grayskill's letter to the SEC from their lawyers can be summarized as, yo, what's good? Call us back. Now, even as the ETF situation works to be resolved, there is clearly some jockeying for positioning as it relates to renewed or new institutional

interest in the crypto space. As a for example, Coinbase has launched a new crypto lending service aimed at U.S. institutional clients. The service looks to fill in the gap left by the Genesis in BlockFi bankruptcies. An under-the-radar SEC filing made last week, disclosed the program already has $57 million in client funds. According to a person familiar with the service, clients can lend out their crypto assets on an over-collateralized basis to Coinbase. The firm can then extend those crypto assets as loans to institutional trading firms. This is essentially the same business as prime brokerage in the traditional finance space. Now, unlike the canceled Coinbase Lend program, retail customers are explicitly excluded from this service. By catering

exclusively to accredited and institutional clients, Coinbase is able to offer the service under less onerous regulatory requirements. Honestly, one of the big takeaways is just what a big gap has been left by Genesis in the U.S. institutional environment. However, as you'll hear in an interview coming out later this week, or maybe even later today, with Hennie Rashwan from 21 shares, that institutional interest may be far less gone than it might currently seem. However, is going to do it for today's episode. I appreciate you listening as always, and until tomorrow, be safe and take care of each other. Peace.