Paxos, Senate hearing June 30, 2020
Disclaimer: This article is not intended as investment advice. Seek a duly licensed professional for investment advice.
Paxos CEO & Co-founder just finished testifying at the US Senate Banking Committee hearing on “Digitization of Money and Payments”. The hearing was positive and most senators seem to agree that a digital dollar is in the unforeseeable future. Several senators gave urgency to the digitization of money because they worry that it will affect the dominance of the U.S. dollar. Senator Tom Cotton of Arkansas talked about the proposed regional stable coin that is in development for Asia.
The US government is slowly waking up to the fact that the US banking industry is outdated. COVID-19 stimulus payments showed how difficult it is to distribute funds to Americans during emergencies. If universal basic income were to become policy in the future, the easiest way to distribute payments would be through a form of a digital currency. Most commodities like oil, natural gas and soy beans are all priced using the dollar. In order for the dollar to remain competitive with other currencies it also has to digitize.
Stable coins and transaction fees
The leading decentralized platform that allows stable coins is currently Ethereum. The major issue is that gas fees from the Ethereum network are unsustainable. Ethereum 2.0 which will transition the protocol from proof-of-work to proof-of-stake will reduce transaction fees but the update is yet to launch. Digital peer-to-peer transactions only make sense if the fees are minimal. Luckily there are new blockchain protocols that will be able to support Paxos stable coins that have low transaction fees.
BUSD x Harmony
BUSD is a stable coin created in partnership between Binance and Paxos. It is 100% backed by U.S. dollars held in FDIC-insured U.S. banks. Stable coins built on Harmony are a solution to the high gas fees that are encountered with the Ethereum blockchain. Harmony will allow peer-to-peer transactions that make sense due to virtually non-existent gas fees. The Harmony protocol is still in its infancy and its network has not been tested with heavy traffic, but if it can maintain its fast finality with more users it can easily power the economy of the future.
