The future of money

One of the most important changes of the past thirty years is the advent of a digital and globalized economy. Thanks to that, we could finally write and read content generated by random users from all over the planet, on top of the official channels and traditional media. Information was democratized and decentralized.  

One piece was missing, though: money. Until companies like PayPal gave the whole internet movement an additional purpose: commerce. Websites switched overnight from vitrines to profit and data centers. Trading could be done 24/7, and the world was introduced for the first time to the idea of digital money and to a global marketplace that was increasingly more open and liquid. Total Marketing needs full liquidity of data and money flows. Are we there yet?

In 2023 PayPal introduced its first stable coin, anchored to the US dollar (called PYUSD,) and in 2024 the coin was added to Solana, another blockchain, on top of Ethereum. The coin is available to the US market, as we are writing this, and the move has brought over 300 million wallets on chain and reached more than $1 billion market capitalization within three weeks from launch. While in the old days, you would need to have a bank account to use PayPal (which is, to buy and sell anything online,) a blockchain-based currency opens up new entry points into the global economy. PYUSD, indeed, is exchangeable with other crypto currencies and functions exactly like one.

The addition of Solana, which has been designed for high throughput and security, allows PayPal to compete, for example, with the Visa network, head to head. Is the financial sector ripe for disruption? Are we going to witness some kind of Star Wars, where financial giants must defend their kingdoms and fight for brand new territories, unveiled by exponential technologies?

This is why we speak to Tom Rieder, serial entrepreneur and Managing Director at Tokengate, a platform that allows tokenization services, for example for real world assets (RWA,) or financial instruments. Tokengate is a major player in the Zug district and the whole blockchain global scene.

“Especially for cross-border transactions, there are a lot of middle men, filters and frictions. Technologies like blockchain make financial transactions frictionless. The potential and the tech capabilities have been built and are there. We have, however, the old banking and financial system, which still works and wants to keep their interests and fees intact. A financial revolution will not happen immediately,” says Rieder.

“The financial sector, by definition, is a labyrinth of regulations, and they differ at a market and nation level. Regulation is fundamental. We need strong anti-money-laundering laws, and we must eradicate large-scale criminality, which thrives in new and unregulated channels. The main point, however, of the whole decentralized finance movement (DeFi) is inclusion. We need to take care of those who are unbanked today, and have no chance to participate in the global economy, as the traditional system (Web2) cannot afford to let them in. All we are saying is to lower hurdles and costs, granted we need trust and safety, but we need everyone to join, which is not the case today,” highlights Rieder.

Looking at the PYUSD case, a stablecoin could be a good bridge between the traditional and the new finance worlds. It will drive adoption of digital assets thanks to its lower volatility, especially if tied to the likes of the US dollar. But, at the same time, it has all the advantages of crypto: safety, transparency, access, interoperability with top chains and tokens, perfect for micro-transactions and programmability, making trading almost like a commodity, therefore open to whoever has an internet connection. Are PayPal and the new digital financial players going to kill established banks?

“Commercial banks were born as local consultants, at the service of the community and fully trusting of their clients. They do have a pivotal role in our society, which is their trust and the proximity, thanks to their retail outlets. New banks have a very compelling edge, of course, but they need to gain the trust of fans and institutions. In the end, trust remains the only currency, so to speak, that any financial institution has to achieve, protect and nurture. There is room for innovative financial platforms in the future, especially for use cases where users are willing to be in control and need no help. These services will become commodities. But, things like wealth management, tax advisory, inheritance, investments will continue to need assistance, and most likely that human touch that we all need with managing our assets and shaping our future,” remarks Rieder.

Basic finance, which is also what the periphery of the world needs most urgently, will be outsourced to machines, with zero fees and rents. Traditional banks will adjust and focus on value added services. New banks will need to pass the stress tests of regulators to eat at the adults’ table. Technology will serve an economy that needs higher liquidity of data points and money flows. Same question as before: are we there yet? What are the experts expecting?

“The next few years will be critical, so we are not there yet. However, the signals indicate we could get there within five years. Traditional banks are experimenting with new tools. New players are getting the needed banking licenses. Markets are slowly increasing their confidence in the digital arena, and culture and literacy is improving. The future of money is a few years’ away from us, and it has the taste that money always had, since its invention: trust and inclusion,” closes Rider.

Money is a tremendous enabler and liberator of resources. In a world where every bit of data and number will be tracked, we need to make sure payment rails are secure, transparent and fit for the macro and the micro. Traditional banks have a natural preference for the macro pools of profits. Technology can monetize the micro, unlocking the largest economic opportunity of human history, its people’s lives, wants, desires and data.

Written by Frank Pagano.
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