Arguably, Brian Brooks has done more than anyone to spur DeFi's epic bull run in recent months. The former head of the Office of the Comptroller of the Currency (he served from May 2020 to mid-January 2021) paved the way for US banks to adopt cryptocurrency, while also allowing federally regulated banks to hold digital assets and even to act as stablecoin nodes.
Some saw these choices as critical for banks to embrace the move to a decentralized and open source economy. Brooks envisioned a future with "autonomous banks" in a Financial Times editorial. However, there is good reason to think that banks will proceed with caution in adopting cryptocurrencies and stablecoins in particular.
In the beginning
The first banks to enter the stablecoin space will also reap the most significant benefits, both in terms of customer adoption and cost savings by reducing fees and relying on third parties such as clearing houses.
Therefore, it seems likely that at least some of the big banks will attempt to launch their own stablecoins. These will likely focus on back-end efficiencies rather than offering direct customer exposure.
Doing so would offer maximum control, data capture, the opportunity to control reserve resources and achieve long-term cost savings. It would also offer the ability to create value-added products on top of these resources.
However, banks are unlikely to have this type of experience internally. Even before the OCC was announced, it was already in the public domain that banks, including Goldman Sachs and Bank of America, were opening job positions for blockchain and digital asset experts.
Ultimately, any stablecoin issued by a bank will need wide adoption to be successful, which requires some degree of cooperation between entities. For this, banks will need to make sure they run their stablecoins in a similar way to how cryptocurrency projects gain adoption, creating an active community of users and partners.
Adopt stablecoins in bank payment channels
On the contrary, taking into account Brooks' predictions of “self-driving banks”, it seems very likely that banks will be able to adopt stablecoins as part of their payment channels. They will want to reduce transaction costs and the time it takes to move assets into custody if they agree to work with existing suppliers and allow users, for example, to buy Bitcoins.
This will give them the best opportunity to connect to the vast infrastructure already built in decentralized finance (DeFi). However, such an employment relationship would involve mutual cooperation to ensure that stablecoin suppliers comply with the OCC reminder requirements and offer acceptable counterparty risk mitigation for banks.
On the banks side, it would mean that they must be willing to accept some of the risks of being the first to move into the cryptocurrency ecosystem, adopting a partnership rather than a controlling mentality.
