The Convergence of Money & the Internet

Written by

Jeremy Fox-Geen

Chief Financial Officer

See Bio

Kash Razzaghi

Chief Business Officer

See Bio

Key Takeaways

  • Digital currencies and the blockchains on which they travel can offer unparalleled utility as a new, unified infrastructure for payments, commerce and capital markets built directly into the internet.
  • Circle’s USDC can be the dollar’s next form factor as it evolves beyond the electronic “ACH dollars” that financial institutions send back-and-forth privately across computer infrastructure designed decades ago.
  • This infrastructure lays the foundation for a new “internet of money” that enables financial value to move around the world at any time, almost instantly and with less cost than traditional payment systems.

Digital Currency and the Evolution of Money

The dawn of the utility phase

The rise of digital currency beginning with Bitcoin’s launch in 2009 has taken the world by storm. But the past decade’s focus on price speculation and boom-and-bust volatility have distracted attention away from what we feel are the most promising aspects of this major breakthrough in money and technology. 

In our view, digital currencies and the blockchains on which they travel offer unparalleled utility as a new, unified infrastructure for payments, commerce and capital markets built directly into the internet. 

Together, they lay the foundation for a new “internet of money” that bypasses today’s fragmented, outdated settlement systems that impose trillions of dollars in costs per year and immeasurable delays on people and businesses around the world. 

This new internet of money enables financial value to move anywhere, at any time, almost instantly, at less cost, in a permissionless way so that everyone with an internet connection can access it. 

As more businesses and institutions recognize the transformative cost and speed benefits of internet settlement, we expect more existing payments, commerce and trading will shift to this new layer. This could help to release trillions of dollars in trapped value and unleash major changes that eventually spread throughout society. 

Within a few years, these changes could begin to transform the broader economy in ways that resemble what took place during the rise of the original internet in the late 1990s and early 2000s as millions of people — and then billions — gained access. 

EvoutionlMoneyInternet-01a

All of these trends could accelerate the next wave of “software eating the world,” as Marc Andreessen wrote in 2011 about the way the original internet disrupted books, music, video, advertising and other industries by making them faster, cheaper and easier to consume and operate while reducing barriers to entry 2.

 

Revenue decreases in traditional industries, 2002-20203

EvoutionlMoneyInternet-06

To put the opportunity in perspective, we think digital currencies and blockchains could begin eating significant portions of the $35 trillion market for global payments4 and the $130 trillion M2 money supply5, just as previous internet iterations devoured many legacy industries through digitized creative destruction.

The tokenization of everything

While immense, today’s financial flows are just the start of what we think this new internet layer could eventually subsume. Past internet history is not only marked by the radical reshaping of existing industries, but also by the creation of entirely new business models that weren’t possible – or even conceivable – prior to the advances in tech and connectivity.

One of the biggest blockchain breakthroughs is that it enables “real-world” assets like houses, cars, office buildings, factories, concert tickets, customer loyalty points, stock certificates and countless others to be represented online as uniquely identifiable digital tokens. These tokens can make it easy to track, transfer and store ownership proof of the corresponding assets online in a digital wallet. 

Embedding ownership of these assets onto the internet — directly alongside their accompanying financial flows — could open up a potential future where almost anything can be tokenized, financed and traded by anyone, anytime, anywhere, all without the need for traditional financial intermediaries (in Part 3 of this series, we go deeper into how the decentralized nature of blockchain makes this possible).

This new world of tokenized finance can effectively reduce the settlement time for friction-filled transactions like property sales from months down to just seconds (see Part 5 of this series for a deeper look at today’s nascent tokenized markets). 

In its early state today, most tokenized commerce revolves around digital art. But we see a strong potential for tokenization to create deeper market liquidity and greater transparency for many types of real-world assets that are historically illiquid and opaque.

As the physical and digital worlds converge across this 24/7, permissionless, blockchain-based financial internet layer, the business opportunities could be truly immense.

The stablecoin breakthrough

Stablecoins, discussed in-depth throughout this series, are a major key to unlocking this potential future on a global scale. They have enabled dollars and other government-issued currencies to finally migrate online, just as most other forms of data have already done throughout the past few decades. 

This true digitization of usable money means it can travel like email, text messages and video files— ubiquitously, globally, almost instantly and with less expense. 

Paired together, stablecoins and blockchains represent a significant evolution in the history of money that can bring the scale and speed benefits of the internet to today’s global payments realm and unleash a potential future where both finance and real-world assets are broadly tokenized. 

Traditional businesses, multinational corporations, individual merchants, governments, blockchain-native companies, institutional investors and billions of people globally could benefit from this faster, more inclusive financial system. 

How it could play out

In 1995, no one dreamed of streaming a movie on a mobile device while riding a subway or walking through a crowded city. Yet for countless people around the world, it’s now impossible to imagine daily life without it. 

Today we’re on the cusp of a similar leap in regards to what’s possible with money, now that it exists as internet data. The next FAANGs are already hard at work creating a new generation of internet services and apps that will reshape our lives in ways we can only begin to imagine. Digital currency and ubiquitous internet availability are fueling a future where money can be made to do practically anything, anytime.

 

The evolution of Amazon6

EvoutionlMoneyInternet-07

All info in footnote 6 from CNN, except where noted

 

While widespread adoption will likely play out over a number of years, many major payments use cases are primed for disruption right now, including merchant and supplier payments, global remittances and settlement of financial asset trades (see Part 4 and Part 5 for a deeper look). 

Businesses can use this technology to stream payroll in real time to employees. Homebuyers and sellers can instantaneously sell and settle residential property transactions. Artists and musicians can create ownership contracts that automatically entitle them to a share of secondary market sales. International suppliers can receive cross-border payments almost instantly and cheaply, providing crucial working capital to keep global supply chains running smoothly. A coffee shop can get paid irrevocably in near-real time, and without interchange fees eating up several percent of sales. Institutions can trade tokenized versions of real government-issued assets on-chain, with the trades finalized in moments rather than multiple days later.

These scenarios all represent the release of value and productivity that are needlessly trapped by antiquated settlement technology. They could become commonplace in the near future, just as mobile push notifications have unshackled the news from its legacy forms so that it can reach people in seconds on a smartphone screen, instead of a day later on the front porch. 

And these scenarios could all happen in a permissionless, trusted way through apps where the counterparties can securely verify their identities using decentralized credentials — without disclosing personally identifiable information.

This could be just the start. Most digital currencies and blockchains are open-source and programmable, which provides businesses and developers with entirely new levels of creativity. Despite the slowdown, developers armed with $50 billion in recent venture funding8 are accelerating this major evolution in how economic value is created, transacted and stored globally, and their products and services are likely to blow our minds in ways we can’t yet anticipate, much as the idea of mobile streaming movies would have back in 1995.  

Where Circle fits in

Circle is a financial technology company at the epicenter of these massive changes. Our mission is to increase global economic prosperity through the frictionless exchange of value. We are dedicated to using the breakthroughs of this next internet layer to help money flow freely, making the world more equitable and prosperous. 

In 2018, we launched USDC, a programmable stablecoin that has grown past $40 billion in circulation as of January 16, 2023. Because it is widely trusted and easy to work with, USDC is powering many of the rapid developments in internet-native finance. USDC is emerging as the next form factor of the U.S. dollar as it evolves beyond banknotes and legacy electronic money that only circulates on a closed loop among traditional financial intermediaries. 

The emergence of stablecoins like USDC means this evolution could quickly reach mass adoption, just as the birth of the smartphone and the global embrace of mobile took the desktop internet era to new heights. We think this future is inevitable, and we’re committed to making these benefits widely accessible for businesses everywhere.

 

USDC growth over time

EvoutionlMoneyInternet-05

For many business leaders, the world of digital assets consists of little more than coins with dog faces and cartoon monkey pictures. This article series is designed to help you look beyond the hype, differentiate the meaningful innovation from the ephemeral noise and prepare for this major turning point in the evolution of money and the internet.

Throughout the next four articles, we take you through many aspects of this unique moment so you can evaluate the opportunities as the traditional and digital asset economies converge. We explain where blockchains fit in the broader history of the internet, how to obtain and store stablecoins and other digital currencies, ways to use them for B2B and merchant payments, how they are rewiring capital markets and other essential concepts. 

First, let’s take a closer look at how USDC transforms regular bank dollars by equipping them with the cost and speed superpowers of the internet.

USDC: The Dollar’s Next Form Factor

The stablecoin era begins

In the first part of this series, we explored the impact that blockchains and digital currencies could have on the economy and society. It’s now possible to send value across the internet in the same way as email, video files and JPEGs — ubiquitously, globally, almost instantly and cheaply — to eliminate the significant economic friction that exists in today’s fragmented, antiquated payments systems. 

And in the future, real-world assets like cars and property could be broadly owned, financed and traded on-chain, creating deeper liquidity and reducing the time, effort and costs historically associated with such transactions.

Here in part 2, we take a look at the recent rise of stablecoins with a close focus on USDC, issued by Circle. The U.S. dollar has taken many forms since the Coinage Act of 1792, but has evolved very little beyond the electronic “ACH dollars” that financial institutions send back-and-forth privately across computer infrastructure designed decades ago. 

USDC is a digital asset that has price parity to the U.S. dollar. It supercharges traditional dollars with the cost and speed advantages of the internet without the volatility of other digital currencies.

The importance of being stable

Most digital currencies are created to reward the people who confirm blockchain transactions. Bitcoin miners receive Bitcoin (BTC), Ethereum validators receive Ether (ETH) and so on. But the prices of these digital assets can be extremely volatile, making them unsuitable so far for mass commercial adoption. 

Blockchains that are smart-contract enabled allow developers to introduce other digital assets into their ecosystems (read more on smart contracts in Part 3 of this series). This is where stablecoins like USDC enter the picture. “Programmable” stablecoins that live on multiple blockchains at the same time can help eliminate this price volatility and lay the foundation for truly rewiring global commerce.   

Not all stablecoins are created equal, and it’s important to distinguish between the different types. USDC is a “full-reserve” stablecoin that is always redeemable 1:1 for U.S. dollars. More recently, we also began issuing EURC, a euro-denominated stablecoin that’s managed using the same full-reserve model as USDC.

Other stablecoins are reserved with riskier assets or rely on complicated, algorithmic relationships with other digital currencies to try to retain their peg. USDC avoids these complications with its easy-to-understand, straightforward structure. 

The majority of the USDC reserve is held in the Circle Reserve Fund (USDXX), an SEC-registered 2a-7 government money market fund. The Circle Reserve Fund can contain cash, short-dated US Treasuries and overnight US Treasury repurchase agreements with leading global banks. These are commonly used assets in money market funds because of their liquidity and stability. Daily, independent, third-party reporting on the portfolio is publicly available via BlackRock.

The remainder of the reserve is held in cash, mostly among a handful of the world's largest banks with the highest capital, liquidity and supervisory requirements in the world. The reserve is designed to provide holders with ready liquidity, even under extremely stressed conditions.

USDC reserve holdings are fully disclosed on a weekly basis, along with associated mint/burn flows. Additionally, a Big Four accounting firm provides monthly third-party assurance that the value of USDC reserves are greater than the amount of USDC in circulation. The reports are prepared according to attestation standards set out by the American Institute of Certified Public Accountants (AICPA).

 

Global availability, deep liquidity

 

EvolutionMoneyInternet_EvoutionlMoneyInternet-16

*Circle internal data

 

Crucially, Circle is also regulated in the U.S. under the same money transmitter licenses that govern other widely used payment institutions, including Apple Pay (which is compatible with USDC) and PayPal. The U.S. Congress is making progress on a national stablecoin framework that could codify many of our USDC risk management practices into Federal law. 

Circle is also licensed in the U.K. by the Financial Conduct Authority (FCA) and by the Bermuda Monetary Authority (BMA) in Bermuda. In late 2022, we also received in-principle regulatory approval in Singapore from the Monetary Authority of Singapore (MAS).

 

Circle’s world-class ecosystemEvoutionlMoneyInternet-17

USDC also offers another key advantage: interoperability across many blockchains. It’s the leading stablecoin on Ethereum — today’s dominant smart contract platform — as of January 16, 2022, and it also flows seamlessly across many other blockchains that are newer, faster and cheaper. This interoperability makes it easy to transact in a blockchain-agnostic way across a broad swath of the digital asset ecosystem. Circle is building infrastructure to handle cross-chain transfers in the background, so it can happen automatically without users even noticing.

Let’s take a look at USDC’s programmability, which makes it easy for businesses to adopt and build with. 

USDC: A “Dollar API” to speed digital transformation

While the digital currency era accelerates, the corporate finance tech stack is simultaneously undergoing significant changes. Fueled by the rise of treasury APIs, open banking and regulations like PSD2 that unbundle payments and account services, today’s finance teams have more freedom than ever to create a bespoke set of financial solutions that are customized to their company’s unique needs.

But digitization strategies focused on AI, machine learning and banking APIs fall short of achieving the largest benefits. Despite data visibility improvements and some rudimentary real-time capabilities, these technologies still apply only to transactions that run on the costly, antiquated, friction-filled legacy financial system.   

USDC, on the other hand, can help take the most sought-after benefits of treasury digitization and API connectivity to a whole new level. You can think of USDC itself as an API that enables companies to transact in dollars — directly across the internet — with customers, suppliers and any other counterparty. Although sending and receiving USDC is easy to do “off the shelf,” you can also build with it and create customized, automated workflows for mass payouts and receivables that are free from most of the cost and friction of traditional global payments.

Since USDC uses open-source code on smart contract blockchains, it’s easy to program it for simple “if/then” business conditions, whether the recipient is down the street or across the globe. These programmable, internet-based payments represent a major breakthrough in how businesses can transfer value.

How to get and store USDC

Any business, institution and individual with an internet connection can create a free wallet where they can store and transact with digital currencies. In addition to these free options, many providers — including Circle — offer enterprise-grade solutions with extra layers of security, utility and protection.

Circle’s account infrastructure offers businesses a fast, safe way to do business with digital currency. It enables free, direct access to USDC through a corporate treasury portal-like user experience that makes blockchain complexity fade into the background, just as card terminals eliminate interchange complexity for merchants. Circle Mint infrastructure offers powerful payments and receipts capabilities, including the ability to settle Bitcoin and Ether transactions as USDC. We also offer industry-leading, enterprise-grade digital asset custody in-house, plus compatibility with third-party custodians and many blockchain-based markets and services (explained more in Part 5 of this series). 

Perhaps most importantly, Circle is helping to nurture and strengthen a powerful ecosystem of third-party services built around USDC to help it become, in essence, a new global operating system for money. There are already thousands of available apps that make it easy for businesses to use USDC, and we expect this ecosystem to grow over time.

Understanding the new settlement layer

Blockchains are what makes it possible for USDC to turbocharge regular U.S. dollars with programmability and the same cost and speed benefits as other forms of internet data. While it’s not necessary to have a computer science degree to use USDC, it can help to have a basic understanding of how blockchains operate and where they fit in the history of the broader internet.  

In Part 3, we explore how this new digital infrastructure has evolved thus far and what it could mean for global commerce going forward.

Blockchains and the History of the Internet

Demystifying the tech behind digital currency

Earlier in this series, we laid out the vision for how society and commerce can change as digital currency gains mass adoption. We also looked at how USDC can bring the benefits of digital currency — internet-based payments that are nearly free and instant, on-chain financing for real-world assets, and more — to people and businesses by eliminating the volatility. 

Here in Part 3, we turn our attention to the underlying infrastructure of this next internet layer. It’s not essential that you master the technical details in order to transact across blockchains, just as card users don’t need to memorize the byzantine inner workings of clearing and interchange. But an overview of where they fit in the internet’s ongoing evolution can provide useful context to help you gauge the magnitude of potential change for both commerce and society.

Blockchains and “Web3”

Blockchains can seem intimidating at first and hard to understand.  But the concept behind them is actually very simple. A blockchain is just a digital ledger that multiple computers maintain simultaneously to keep a shared transaction history over time. This eliminates the need for a third-party intermediary — typically a bank or clearinghouse — to confirm transactions. 

As these digital ledgers increase in number and grow more powerful technologically, they are essentially turning into a connected network and forming a brand new financial layer of the internet. 

Here’s one way to think about it. The original internet, or “Web 1”, grew out of the 1990s as a highly decentralized, peer-to-peer, read-only network. “Web 2” arose out of the dot-com era by enabling read/write interactions, leading to things like social media and user-generated content along with primitive eCommerce capabilities. “Web3” — which blockchains make possible — is a new underlying architecture that directly embeds money into the internet, so it can travel like other forms of data that moved online during earlier internet eras. 

Crucially, Web3 also enables real-world assets to be represented on the internet via unique — or non-fungible — digital identifiers. This combination — non-fungible “tokens” that represent real-world assets, paired alongside stablecoins like USDC — could open up a world where almost anyone, anywhere, can use dollars to buy, sell, finance and trade almost anything at any time.

Web3 enables people to own tokenized versions of property in a personal wallet — whether related to purchased art and music, voting rights in a digital group, real estate and even their individual online identities — in a way that’s not been possible during other internet eras.

The breakthrough: Financial value on the internet

Web3 is a continuation of this decades-long trend of the internet subsuming more and more of our daily lives. Today, we take for granted that news sites, music and video files, daily communications and countless other forms of data can travel the world almost instantly via the internet. 

One reason that money and finance have resisted this trend until now is that the original commercial web browsers lacked payments functionality. At the time, the internet did not have a way to confirm transactions without a trusted, third-party intermediary. This shielded incumbent, decades-old payments and settlement systems from competition and eliminated their motivation to undertake a significant overhaul. 

As a result, since the dawn of the commercial internet, money has been forced to travel on a separate, parallel path where transactions are often measured in days and hundreds of basis points.

 

Cost of traditional payments

EvoutionlMoneyInternet-12

Most bank and fintech payment advances of the past 20 years have simply offered new user interfaces that plugged into the legacy financial system. Blockchains, by contrast, tackle this blind spot head-on by directly embedding funds into the fabric of the internet — bypassing these legacy rails — so that value can move with the same cost and speed advantages as other internet-native forms of data.

Blockchains are evolving rapidly

“Blockchain” is not a one-size-fits-all category. Their individual designs can be extremely diverse and their capabilities are evolving rapidly, to the benefit of both network developers and users. 

Early blockchains designs, including Bitcoin, were based on mining — or “Proof of Work” (PoW) — to confirm transactions. PoW mining requires miners to solve extremely difficult computational problems, making these networks too slow to process institutional-scale transaction volumes while creating a significant carbon footprint due to their massive energy consumption. 

Ethereum, the world’s second largest blockchain by value, was launched in 2015 as an improved version of Bitcoin that introduced the idea of programmable “smart contracts” that automatically execute transactions based on pre-set parameters. Like Bitcoin, Ethereum transactions were initially confirmed by PoW mining. But in September 2022, with the goals of reducing its carbon emissions and improving network throughput, Ethereum successfully eliminated its reliance on mining in favor of “Proof of Stake” (PoS) transaction validation that has shrunk its carbon footprint by more than 99% while paving the way for higher transaction volume and lower fees.13

With the Ethereum “Merge” in September 2022, Bitcoin is the only major blockchain that relies on Proof of Work (PoW) mining.

Inspired by Bitcoin and Ethereum, more blockchains have emerged in the past few years that are designed from the ground up for smart contract programmability, carbon neutrality, settlement speeds measured in seconds, miniscule transaction costs and enterprise-grade throughput. 

Algorand, Avalanche, Flow, Hedera, Solana, Stellar, TRON and other “third-generation” blockchains went live between 2014 and 2021 and are already widely used for sending and verifying many types of transactions, from digital asset trades to flows of payments and ownership of tokens tied to digital and physical goods.

 

Third-gen blockchain settlement speeds

select-USDC-settlement-speeds
This data is intended to be a reference to when Circle Account recognizes settlement, it is not meant to imply an absolute limit of a given blockchain network's capabilities.

Continued evolution

Blockchain infrastructure is likely to grow stronger and more resilient in the coming years, just as the original internet evolved from dial-up and Netscape to broadband, mobile 5G and the industrial scale Internet of Things (IoT). In 1993, modem access limited internet users to 56kbps.14 Today, speeds can approach 2,000 Mbps.15

 

Average internet connection speed in the United States from 2007 to 2017 (in Mbps), by quarter16

EvoutionlMoneyInternet-03

While it’s too early to forecast the exact path of blockchain development, Part 4 of our series explores what businesses can do with this infrastructure right now and how to think about a future where billions of people could begin using digital currency every day.

Digital Currency in Payments and Commerce

What business leaders need to know now

Throughout this series, we’ve explored how society and commerce could change as blockchains and digital currencies go mainstream. We’ve also situated where blockchains fit in the broader history of the internet and delved into how stablecoins like USDC make it possible to bypass legacy settlement systems by supercharging U.S. dollars with the same cost and speed advantages of other forms of internet data.  

In Part 4, we take a deeper look at the digital currency opportunity for businesses, from multinational corporations down to small merchants. While we are very early in the adoption curve, there are things business leaders can do right now to begin taking advantage. 

In many ways, business adoption of blockchain could mirror the steady migration to the cloud that has picked up pace since the mid 2010s. Once seen as a novelty and potential risk, business embrace of the cloud is now widespread with additional adoption likely inevitable.

Importantly, mass adoption of blockchain will not happen overnight, and companies don’t have to choose between blockchain and traditional settlement. USDC can integrate with existing finance software, so you can start leveraging it alongside card, ACH, wire and even checks, giving you a wide range of options for every merchant and B2B counterparty, including intercompany accounts and subsidiaries.

Ways to use USDC

Traditional payment systems are fragmented by region, which makes it very slow, expensive and opaque to send value across borders. The internet, by contrast, is global and borderless. Digital currency eliminates banking hour restrictions, so businesses no longer need to tie up capital during non-banking hours. These factors can make it an ideal settlement infrastructure for companies with cross-border flows. USDC lives natively on this infrastructure, helping companies connect with both B2B and merchant counterparties in near-real time, and at practically no cost. It can supplement — or replace — payments made today via wire, ACH and card (both physical and virtual).

 

B2B Flows

  • Supplier and cross-border payments

Overseas suppliers are an ideal use case for USDC payments, due to the near-instant settlement and extremely low costs compared to traditional cross-border payments. To receive a USDC payment, the supplier only needs to create a free digital wallet that is compatible with USDC. 

Paying suppliers faster and with less expense can deepen ties with strategic partners and potentially help buyers negotiate better pricing. It can also be particularly effective when paying suppliers in emerging economies who lack access to the banking system.

 

  • Intercompany payments

USDC and Circle Mint infrastructure enable easier cash concentration that’s not limited by banking hours and settlement systems. Eligible businesses can set up separate sub-accounts for different subsidiaries and move funds when necessary, without the friction associated with traditional bank-based rails. 

 

  • Payroll

USDC enables companies to issue dollar-based payroll to gig, hourly and salaried employees. Unlike traditional ACH payroll that’s issued every 2 weeks, USDC makes it very easy to create “streaming” payments that automatically reach workers continuously throughout the day. Paying employees in near-real time can help businesses attract and retain talent in a highly competitive labor market.

 

  • Trade

Trade finance, with its complex flows of funds, goods and paperwork across oceans and jurisdictions, is another area where USDC can create significant efficiencies for both importers and exporters. Moving on-chain can help participants bypass fragmented cross-border payments, automate payment issuance based on certain shipment milestones and get greater invoice visibility.

 

  • Forex

With Circle’s launch of Euro Coin, it’s possible for businesses to grow customers by accepting euro-denominated payments and improve relationships with suppliers in the eurozone by invoicing them in their native currency – all while managing their dollar-euro FX risk.

 

EvoutionlMoneyInternet-09

Merchant uses

Although not yet mainstream, there are signs that USDC use in merchant payments could grow widespread. In our view, the main factor holding this trend back is that most digital currency wallets are still developing robust payment functionality. We expect this will greatly improve in the next 1-2 years, just as early web browsers, mobile operating systems and app stores grew more powerful and easier for mass audiences to use over time.

Growing retail momentum17

EvoutionlMoneyInternet-08

In addition to stablecoins like USDC, many consumers and businesses are showing interest in payments denominated in Bitcoin, Ether and other digital assets. Luxury brands such as Gucci18 and Tag Heuer19 are already leading the way.  Circle’s account infrastructure makes it possible for merchants to accept Bitcoin and Ether and either hold on to those currencies once the transactions settle, or to convert them into USDC prior to settlement.

 

NFTs in brand engagement and customer retention

Web3 enables users to “own” digital data through non-fungible tokens, or NFTs, which they can store alongside USDC, Bitcoin and Ether in a personal digital wallet. Traditional businesses are embracing NFTs to deepen customer engagement, enhance loyalty and create new revenue streams. There are unlimited possibilities to build new customer retention strategies in this “token economy.”

Nike, for example, has already generated $185 million in revenue and more than $92 million in royalties across its NFT collections.20 Adidas earned $23 million by selling out a single collection of 30,000 NFTs. 21

Other traditional brands are forming partnerships with new “blockchain-native” businesses that are already reshaping commerce, just as today’s internet giants arose out of the dot-com era. Dapper Labs has become a driving force in bringing real digital ownership to the masses, partnering with sports leagues on officially-licensed digital video collectibles including NBA Top Shot – its flagship product – along with NFL ALL DAY and LaLiga Golazos. NBA Top Shot has already built a following of more than 2 million users who have generated 22.4 million transactions totalling more than $1 billion.22 It has achieved this growth, in part, by adding real utility to the fan experience and making it easy for customers to transact via familiar payment methods like credit cards, which it settles as USDC, as well as cryptocurrency.

While these collectibles can be a massive revenue opportunity in their own right, digital payments and NFTs can ultimately become a much more strategic way to create brand engagement. Businesses can use NFTs to reward customers in innovative, personalized ways that can create differentiated experiences and stickier relationships.23

Stablecoins and NFTs can also make “closed loop” loyalty programs cheaper, easier and more engaging. Card payments can settle as USDC, which means customers don’t need to change behavior at the point of sale, and businesses can create token-based experiences that are more tailored and meaningful to customers. For companies that haven’t yet built this type of loyalty program due to costs and lack of scale, this can be a powerful entry point.

We are very early in exploring the use of payments and tokens to deepen customer engagement, and now is the time to begin formulating a strategy.

 

NFTs in gaming and entertainment

The global gaming industry is one of the largest sectors in entertainment, with 3.2 billion players and more than $180 billion in annual revenue.24 Gaming studios are beginning to find creative ways to use NFTs to offer ownership of in-game assets to generate new revenue and increase retention. In addition, some games are expanding and growing into one another, offering players the opportunity to port their purchased NFT assets with them from game-to-game. We anticipate this trend will continue as more games merge together into a connected, open “metaverse.”

Prior to the 2021-2022 pandemic, revenue from live music events in the U.S. totaled more than $25 billion per year.25 Tickets to these events present a breakthrough opportunity for organizers and artists to use NFTs to learn more about fans and engage with them through unique, gated experiences.26

In both cases, USDC can act as a stable-value settlement layer to facilitate these types of transactions.

 

Live music industry revenue worldwide from 2014 to 2025 (in billions of dollars)27

EvoutionlMoneyInternet-02

Putting it all together

A seismic shift in the history of both digital assets and the broader internet is underway, with continued tech advances and clear regulations fueling mass adoption for everyday transactions in the next few years by corporations, merchants, institutions and individuals. Traditional businesses, blockchain-native companies and billions of people globally can benefit as money and the internet converge and cross-pollinate.

In the last part of our series, we explore how digital currency is helping to create a brand new decentralized capital markets infrastructure and potentially bring the benefits of internet settlement to traditional trading venues.

The Rise of Software-Based Financial Markets

The impact of blockchains on capital markets

So far in this series, we’ve covered the potential for blockchains to rewire global commerce and the internet, along with the role of stablecoins in reducing legacy payments friction. In Part 5, we turn our attention to capital markets, including the market structure breakthroughs of “decentralized finance” (DeFi), along with ways that traditional venues could potentially use blockchains to improve efficiency for market participants while reducing risks. 

Decentralized infrastructure

Centralized digital currency providers can often be destinations in their own right. But for many institutions, centralized providers are merely stations along a deeper journey toward the fully decentralized potential of Web3, where much of the work usually done in traditional markets by large financial intermediaries is automated with code. 

To fully grasp the world of automated markets, it’s essential to understand the significance of Ethereum’s 2015 introduction of smart contracts. Within just a few years, smart contracts had given rise to “programmable” commerce and capital markets that run completely on software. These DeFi markets —“protocols,” in industry parlance — bring the efficiency of blockchain to borrowing, lending, trading and other transaction types. 

USDC is already a dominant asset in DeFi.28 Market participants value its utility as a means of settlement and frequently use it as collateral in borrowing/lending protocols. Based in large part on USDC’s utility, there is growing momentum behind the use of DeFi to finance real-world economic activity, from trade invoices to real estate and projects in regions that lack access to traditional financial services.

 

Immense growth potential

EvoutionlMoneyInternet-01

DeFi’s paradigm shift goes well beyond the creation of new assets and enhanced accessibility. Blockchain-based capital market infrastructure enables trades to settle almost instantly — rather than legacy T+2 settlement windows — and traders can avoid the need for costly intermediaries and nostro/vostro accounts. On-chain exchanges don’t need central clearinghouses such as the Depository Trust and Clearing Corporation (DTCC), and most USDC-compatible blockchains deliver miniscule transaction costs, along with near-real-time visibility into fund flows for reporting and auditing. 

At this early stage, many DeFi markets are protected by overcollateralization. This overcollateralization has reduced DeFi’s capital efficiency for now, but has helped decentralized markets survive during extreme digital asset volatility throughout 2022. This stands in sharp contrast to the many notable centralized providers that disappeared, perhaps due to their failure to properly risk-manage certain positions. 

There are already signs of progress toward solving this capital inefficiency. Circle and others are rapidly advancing “decentralized identity” solutions that can enable businesses to verify their identities on-chain while maintaining user privacy. This space is likely to evolve significantly in the near future as more traditional institutions seek DeFi exposure.

Other recent structural advances are making DeFi more suited to institutions, such as binding legal agreements that mirror standard off-chain debtor/creditor arrangements.

Here is a deeper dive into several DeFi market types.

 

Trading

Automated Market Makers (AMMs) replace the human aspect of traditional market making with code and smart contracts to provide liquidity and set prices. They are driven by simple arbitrage to maintain equilibrium. Uniswap pioneered the AMM model when it launched the open-source, decentralized Uniswap Protocol on Ethereum in 2018. It has since become the world’s biggest decentralized exchange.31 The protocol has handled more than $1.2 trillion in trades, including more than $85 billion at its peak in November 2021 alone32 and between $30 billion - $50 billion each month throughout late 2022 even as digital asset markets cooled. USDC is widely used on Uniswap protocol, supporting always-on liquidity even in thinly traded assets.

 

Borrowing/lending

Compound is an algorithmic interest-rate protocol built on Ethereum that uses USDC and many other digital assets and is focused on adoption by both traditional and blockchain-native institutions. Compound Treasury became the first DeFi protocol to obtain an S&P credit rating in May 2022.33

Other borrow/lend protocols are creating the building blocks required for on-chain lending that moves beyond over-collateralized asset swapping toward partially and even unsecured credit extension.

 

Real-world asset finance

Goldfinch is a credit protocol that connects DeFi to real-world private debt markets with a goal of expanding financial access. Investors lend USDC to Goldfinch's borrowers, who put it to work toward vetted SMEs and fintechs that would otherwise face challenges accessing capital, demonstrating how DeFi can help tackle problems for growing business sectors in emerging markets that are often overlooked by legacy financial providers.34 

USDC-powered real estate finance is also becoming a reality. In October 2022, a USDC-based tokenized property sale took place through Origin Story, an NFT marketplace, with financing provided by Teller Protocol.35 Instead of costly, months-long sales and settlement, the transaction for the South Carolina-based property closed instantaneously. 

We anticipate DeFi protocols will see increasing use in the financing of real-world assets, due to the significant time and cost savings and increased transparency in markets that are historically friction-filled and opaque.

EvoutionlMoneyInternet-11

Private markets on public blockchains

Some institutions may prefer to combine the benefits of a public blockchain with a private trading venue where permissioned access is granted for a curated set of trading firms. This type of trading venue can help bring the benefits of software-intermediated markets – near-instant settlement, minuscule costs, immutability and real-time transparency – while enabling strict counterparty curation. 

Carefully selecting counterparties could also help lower margin requirements compared to many permissionless DeFi markets that, as outlined above, often require traders to post collateral amounts of up to twice the size of the position. 

This type of venue could potentially be used not just for trading digital assets like BTC and ETH, but also tokenized versions of equities, fixed income, currencies, commodities, real estate and other asset classes. Several blockchains that offer USDC liquidity, including Avalanche and Polygon, enable the creation of this type of public/private hybrid infrastructure.  

Asset managers could also benefit from using this type of permissioned architecture to settle both internal and customer flows with new levels of speed, transparency and cost-efficiency.

USDC as margin collateral

Traditional derivatives – including options and futures – represent an $18 trillion market36 that is primed for structural transformation through adoption of stablecoins like USDC. Holding an open derivatives position typically requires the posting of significant cash collateral, up to 35% of the notional value for some common near-dated futures.37 In total, nearly $300 billion of collateral was held just at U.S. Futures Commission Merchants as of October 2022.38

While the value of derivatives positions can change from moment to moment, the accompanying collateral adjustment usually occurs on a delay, given the friction inherent in traditional payments. Additionally, some assets are traded in multiple venues around the world, while others have futures prices that trade 24/7 globally outside of the trading hours of the underlying asset. In these cases, the fragmentation and limited hours of global banking systems can create harmful delays for counterparties that need to settle collateral adjustments across borders. 

USDC can play a large role in eliminating this longstanding structural inefficiency from derivatives markets. Its global, always-on nature means it’s always available – even across borders – for margin top-ups and payouts. For institutions that trade on multiple exchanges, the ability to concentrate liquidity into a single pool eliminates the need to keep separate liquidity at each individual venue and manually rebalance. And its simple programmability means that market participants can automate margin maintenance.

Blockchain settlement at equities venues

The potential benefits of blockchains and digital currency are so immense that stock trading venues are also exploring how to achieve these cost and time savings.

In 2021, the SEC added plans for next-day settlement to its work agenda39 and the DTCC — which processes $1.7 trillion in daily trading volume — announced completion of its “Project Ion”, a proof-of-concept private blockchain to significantly shorten equities settlement from traditional “T+2”, or two days after the trade is agreed upon.40

Project Ion successfully launched in 2022 and has begun a test run in which it processes an average of 100,000 trades per day.41 The DTCC is working on Project Ion in collaboration with many traditional markets firms, including Barclays, BNY Mellon, Charles Schwab, Citadel Securities, Citigroup and Credit Suisse.42

While not as fast as the near-instant settlement available in decentralized markets, even a move to T+1 could drive major improvements in equities market structure and release an entire day’s worth of trapped margin. The DTCC notes that T+1 could significantly reduce collateral requirements for broker/dealers while enhancing market resilience and reducing systemic, operational and other risks.43

Until open blockchains are widely accepted, much of this activity may take place on fully private, permissioned blockchains. USDC could be well positioned to play a role here as well.

Your institutional-grade partner

As you navigate the new world of digital assets, it can be difficult to find trusted information to help you separate substance from hype. The Circle team has decades of experience building and running global, publicly traded companies and is actively working alongside policymakers around the world to help shape the future of stablecoins and digital currency. We can help you power your firm across this next phase of the internet with solutions designed specifically for businesses and institutions. Reach out to us anytime to explore how we can help. 

 

Sincerely,

Jeremy and Kash

Written by

Jeremy Fox-Geen

Chief Financial Officer

Jeremy brings 25 years of experience in corporate finance and financial services, as an strategic advisor, operator and finance officer, with previously held senior leadership roles at iStar and Safehold, McKinsey, PwC and Citigroup, as CFO, management consultant and finance officer.

LinkedIn

Kash Razzaghi

Chief Business Officer

Kash oversees Circle’s global revenue operations including sales, customer success, alliances, and client solutions. Previously, he served as SVP, Sales at Brightcove where he was responsible for all revenue and customer success in the Americas. Prior to Brightcove, he served as CEO of Fancred, a sports-focused digital media platform.

LinkedIn | Twitter

Download the PDF

convergence-money-internet-cover
  1.  “Technology Adoption.” Our World in Data. Hannah Ritchie and Max Roser. 2017. Retrieved from: https://ourworldindata.org/technology-adoption#internet-access-technology
  2.  “Why Software is Eating the World.” The Wall Street Journal. Marc Andreessen, August 20, 2011. Retrieved from: https://www.wsj.com/articles/SB10001424053111903480904576512250915629460
  3. “Internet Crushes Traditional Media: From Print to Digital.” U.S. Census Bureau. Adam Grundy, June 7, 2022. Retrieved from: https://www.census.gov/library/stories/2022/06/internet-crushes-traditional-media.html#:~:text=There%20was%20a%20pronounced%20shift,and%20the%20Pew%20Research%20Center.
  4. Juniper Research, 2020 forecast of 2022 B2B payment flows
  5. The World Bank, as of 2019
  6. “Amazon’s Extraordinary Evolution.” CNN Business. Lydia DePillis and Ivory Sherman, October 4, 2018. Retrieved from: https://www.cnn.com/interactive/2018/10/business/amazon-history-timeline/index.html
  7. Amazon Prime Timeline: 2005–Today.” Pattern. Rebeca Brown, December 13, 2022. Retrieved from: https://pattern.com/blog/amazon-prime-a-timeline-from-2005-to-2020/
  8. "What winter? Crypto VCs continue their spending spree.” Fortune. Kevin Kelleher, July 27 2002. Retrieved from:  https://fortune.com/2022/07/27/crypto-winter-crypto-vc-investments-fundraising/
  9. “Blockchain in Payments.” Insider Intelligence. David Morris, Daniel Van Dyke, Julia Woolever and Ali Young. April 2021.
  10. Bank of America Online Banking Service Agreement: Business Services Addendum. Retrieved from https://www.bankofamerica.com/onlinebanking/online_business_suite_addendum.go#:~:text=Next%2DBusiness%2DDay%20ACH%20transfers,transfers%2C%20the%20fee%20is%20%2425
  11. “How Much Are Credit Card Processing Fees?” Nerdwallet. Billie Anne Grigg and Whitney Vandiver, October 27, 2021. Retrieved from: https://www.nerdwallet.com/article/small-business/credit-card-processing-fees#:~:text=Credit%20card%20processing%20fees%20will,in%20credit%20card%20processing%20fees.
  12. “Blockchain in Payments.” Insider Intelligence. David Morris, Daniel Van Dyke, Julia Woolever and Ali Young. April 2021.
  13. “How Ethereum’s Merge Promises Much Greener Crypto.” Bloomberg. Olga Kharif, August 23 2022. Retrieved from: https://www.bloomberg.com/news/articles/2022-08-23/what-are-crypto-proof-of-work-and-proof-of-stake-quicktake-l768gkg3
  14. “An Accelerated History of Internet Speed.” Entrepreneur. Brian Patrick Eha, September 25 2013. Retrieved from: https://www.entrepreneur.com/science-technology/an-accelerated-history-of-internet-speed-infographic/228489
  15. “What Is a Good Internet Speed?” US News & World Report. Kristin Shaw, Onjeinika Brooks and Rachel Hisle, May 23 2022. Retrieved from: https://www.usnews.com/360-reviews/services/internet-providers/what-is-a-good-internet-speed
  16. “Average internet connection speed in the United States from 2007 to 2017 (in Mbps), by quarter.” Statista. S. O’Dea, July 22 2020. Retrieved from: https://www.statista.com/statistics/616210/average-internet-connection-speed-in-the-us/
  17. Nearly 75% of retailers plan to accept cryptocurrency payments within the next 2 years.” CNBC. Cheyenne DeVon. July 29, 2022. Retrieved from: https://www.cnbc.com/2022/07/29/deloitte-75-percent-of-retailers-plan-to-accept-crypto-payments-in-2-years.html
  18.  “Gucci Leads In Crypto Transactions.” Forbes. Walter Loeb, August 4 2022. Retrieved from: https://www.forbes.com/sites/walterloeb/2022/08/04/gucci-leads-in-crypto-transactions/?sh=79554677135b
  19. “TAG Heuer Is Now Accepting Cryptocurrency For US Online Purchases.” Hodinkee. James Stacey, May 19, 2022. Retrieved from: https://www.hodinkee.com/articles/tag-heuer-is-now-accepting-cryptocurrency-for-us-online-purchases
  20. “Nike, D&G, Tiffany Top List of Brands Generating Revenue From NFTs.” The Fashion Law. August 23, 2022. Retrieved from: https://www.thefashionlaw.com/nike-dg-tiffany-top-list-of-brands-generating-revenue-from-sales-of-nfts/
  21.  “Adidas Earn $23 Million From Its Metaverse NFT Series.” The Crypto Times. Vismaya V, December 18 2021. Retrieved from:  https://www.cryptotimes.io/adidas-earn-23-million-from-its-metaverse-nft-series/
  22. Source: https://www.dapperlabs.com/#products
  23. “Solana Pay ushers in new payments era.” Sheraz Shere. February 2 2022. Retrieved from: https://solana.com/news/solana-pay-announcement
  24.  “Report: Video game revenue shrinks in 2022, snapping growth streak.” Axios. Stephen Totilo. November 15, 2022. Retrieved from: https://www.axios.com/2022/11/15/global-video-game-market-decline-2022
  25.  Source: Statista, 2021. Retrieved from https://www.statista.com/statistics/1096424/live-music-industry-revenue-worldwide/
  26.  “NFT Tickets Are the Future of Live Music. Here’s Why.” nftnow. Langston Thomas. October 26, 2022. Retrieved from: https://nftnow.com/features/nft-tickets-are-the-future-of-live-music/
  27.  Source: Statista, 2021. Retrieved from https://www.statista.com/statistics/1096424/live-music-industry-revenue-worldwide/
  28.  “USDC flips Tether on the Ethereum network.” Cointelegraph. Brian Newar, January 19 2022. Retrieved from: https://cointelegraph.com/news/usdc-flips-tether-on-the-ethereum-network
  29. As of August 2022. Source: DeFi Llama dashboard. Retrieved from: https://defillama.com/
  30. “DeFi can be 100 times larger than today in 5 years.” Cointelegraph. Artem Tolkachev, November 6 2021. Retrieved from: https://cointelegraph.com/news/defi-can-be-100-times-larger-than-today-in-5-years
  31.  “Cryptocurrency Exchanges.” Corporate Finance Institute. Andrew Loo, August 30 2022. Retrieved from: https://corporatefinanceinstitute.com/resources/knowledge/other/cryptocurrency-exchanges/
  32. “Uniswap Hits $1T Trade Volume Milestone.” Blockworks. David Canellis, May 25 2002. Retrieved from: https://blockworks.co/uniswap-hits-1t-trade-volume-milestone/
  33.  “Compound Treasury Receives S&P Credit Rating.” Medium. Reid Cuming, May 9 2022. Retrieved from: https://medium.com/compound-finance/compound-treasury-sp-credit-rating-897aff3a6f8c
  34.  “Starting With Emerging Markets.” Medium. Goldfinch Foundation, July 27 2022. Retrieved from: https://medium.com/goldfinch-fi/starting-with-emerging-markets-cf494038fb97 
  35.  “Roofstock onChain Sells First Real Estate NFT Purchased with USDC through On-Chain Home Financing.” The Circle Pressroom. October 18, 2022. Retrieved from: https://www.circle.com/en/pressroom/roofstock-onchain-sells-first-real-estate-nft-purchased-with-usdc-through-on-chain-home-financing
  36.  “Global OTC derivatives market, BIS. Retrieved from: https://stats.bis.org/statx/srs/table/d5.1?f=pdf
  37.  Crude Oil Futures – Margins, CME. Retrieved from: https://www.cmegroup.com/markets/energy/crude-oil/light-sweet-crude.margins.html
  38.  Selected FCM Financial Data, CFTC. Retrieved from: https://www.cftc.gov/sites/default/files/2022-12/01%20-%20FCM%20Webpage%20Update%20-%20October%202022.pdf
  39.  “DTCC plans 2022 go live for blockchain stock settlement Project Ion.” Ledger Insights. September 15 2021. Retrieved from: https://www.ledgerinsights.com/dtcc-plans-go-live-of-blockchain-stock-settlement-project-ion-in-2022/
  40.  Ibid.
  41.  “Wall Street Giant DTCC Launches Private Blockchain in Big Crypto-Milestone for TradFi.” CoinDesk. Oliver Knight, August 22 2022. Retrieved from: https://www.coindesk.com/business/2022/08/22/wall-streets-dtcc-launches-private-blockchain-platform-to-settle-trades/
  42. Ibid.
  43. “Building the Settlement System of the Future.” DTCC. September 2021. Retrieved from:
    https://www.dtcc.com/-/media/Files/Downloads/WhitePapers/DTCCs-Project-ION-Platform-Moves-to-Development-Phase-Following-Successful-Pilot-with-Industry.pdf