Chris Colson is obsessed with how Americans are paying for stuff.
As the Federal Reserve Bank of Atlanta’s payments guru, he labours deep in the belly of the bank’s research department.
During the Covid-19 pandemic in 2020, for instance, Colson and his colleagues painstakingly documented the dramatic shift to contactless payments from cash and cards.
So when data began flooding his office that retailers like Regal Cinemas and Whole Foods were turning to stablecoins — cryptocurrencies pegged to the dollar — he perked up.
He saw that the total stablecoin market had exceeded $230 billion, which is close to the annual GDP of Greece or New Zealand.
The most striking revelation, however, was that stablecoins were outgrowing their original purpose as a hedge for traders ducking crypto’s notorious volatility.
“It’s going to be a new payment method,” Colson, who said his views and opinions don’t reflect those of the bank, told DL News.
“It’s going to happen because it’s already happening.”
Well, sort of.
Stablecoins at the movies
Colson and a colleague recently went to the movies on a Sunday afternoon and — nine excruciating steps later — paid for their tickets using stablecoins.
They had to download an app, set up a crypto wallet, transfer bank funds, convert them to stablecoins, and explain to the bewildered cashier what was going on.
Clearly, stablecoins still have a long way to go. But that’s normal.
It took ApplePay years of development and legal work to get regulators and banks on board.
‘The fact that the Atlanta Fed is talking about stablecoins is extremely bullish.’
Kevin Lehtiniitty, Borderless.xyz
And the Fed plays a crucial role in approving changes to how we pay for things.
The central bank and its network of 12 regional banks are responsible for making sure emerging payment rails are secure and that dollars circulate through the economy, and the financial system, with as little friction as possible.
Every time an innovation comes along — Apple Pay, Venmo, or stablecoins — Colson and his colleagues at the Fed roll up their sleeves and study the impact they’ll have on consumers, businesses, and financial institutions.
“Is this a good thing? Is it a threat? Is it an opportunity?” Colson, who also teaches at the University of North Georgia’s MBA program, said.
“I don’t have any decision-making power. I just go out, and I find information. If somebody’s interested, it gets passed along.”
Turning heads
Colson’s research on stablecoins is already turning heads in crypto.
“The fact that the Atlanta Fed is talking about stablecoins and casting them in a positive light is extremely bullish for forecasting how the incoming administration is going to treat this sector,” Kevin Lehtiniitty, CEO of the stablecoin liquidity network Borderless.xyz, told DL News.
Colson has plenty of company inside the august institution.
Christopher Waller, one of the seven members of the Federal Reserve’s Board of Governors, also sees benefits in the instruments, especially in bolstering the utility of the US dollar.
“I believe that stablecoins have the potential to maintain and extend the role of the dollar internationally,” Waller declared at an industry conference in San Francisco in February.
This month, Fed Chair Jerome Powell testified before Congress that stablecoins may benefit consumers but that rules must also be in place to ensure they operate smoothly.
Indeed, Colson said stablecoins still need to clear several hurdles before they become as ubiquitous as Apple Pay or Venmo.
First and foremost, stablecoins will have to win acceptance from all the other players in the payments system, including banks, credit card issuers, and regulators.
‘It took ten years for Apple Pay to finally catch on.’
Chris Colson, Federal Reserve Bank of Atlanta
Another challenge is that stablecoins, like any cryptocurrency, are transmitted on a blockchain, so reversing the transaction is virtually impossible.
That’s a problem. Thanks to the Fed’s consumer protection regulation, banks can reverse erroneous and fraudulent transactions for customers.
Early adopters
The good news is that fintechs, as well as the likes of Visa and MasterCard, have been working with stablecoins for some time now.
Stripe, one of the largest payment infrastructure providers for small businesses, splashed out $1.1 billion to acquire stablecoin business Bridge in October.
Since PayPal launched its stablecoin in 2023, PYUSD has grown to $715 million, according to CoinGecko.
At the same time, Revolut, the $45 billion British neobank, has been mulling the launch of a native stablecoin.
Moreover, Lehtiniitty said companies such as Elon Musk’s Starlink and Scale AI, an artificial intelligence infrastructure provider, already use stablecoins to exit volatile fiat currencies for the stability of the greenback.
Starlink and Scale AI are Bridge customers, and Bridge is part of the Borderless network of companies.
The biggest challenge for stablecoin adoption may be getting banks on board.
Biggest challenge
Major lenders such as JPMorgan Chase and Bank of America still operate at the heart of the payments ecosystem in the US. And they are subject to numerous tests and rules to ensure they do not take on undue risk that can harm their depositors.
Before they get comfortable with stablecoins, a slew of new rules and regs need to be established for the new instruments.
That’ll take time.
“There aren’t any regulatory guidelines that dictate what these organisations have to do,” said Colson. “Until that point, yes, there are potentially some concerns.”
Tether, which issues the largest stablecoin on the market, USDT ($1.00), has shunned complying with the European Union’s MiCA rules, which are being implemented this year.
The company, which is in the process of moving its global headquarters to El Salvador, has also relied on “attestations” rather than conventional independent audits to disclose the reserves it maintains to support USDT.
Circle, the second-largest stablecoin issuer, has opted for a different strategy. Deloitte, a Big Four accounting firm, has been auditing the reserves supporting USDT since 2022. Moreover, Circle, which is backed by Goldman Sachs, is complying with MiCA.
In the meantime, two key stablecoin bills are worming their way through Congress. The legislation would bring stablecoin issuers under federal supervision if passed, which would probably bolster their chances of being adopted as a payment method.
In the long run, consumers just need time to learn more about how stablecoins work.
From cold wallet storage to phishing attacks and wallet drainers, the industry must still address user safety and security.
Colson, ever the optimist, said that’s fine.
“It’s like any payment method,” he told DL News. “It took ten years for Apple Pay to finally catch on.”
Liam Kelly is a Berlin-based reporter for DL News. Got a tip? Email him at [email protected].
