Paul Brody is global blockchain leader at professional services firm EY and co-author of a 2023 book, Ethereum for Business: A Plain-English Guide to the Use Cases that Generate Returns from Asset Management to Payments to Supply Chains. He speaks with Global Finance about blockchain technologyâs impact on everything from routine payments to cross-border remittances to the future of banking and the CFO and treasurer roles.
Global Finance: If we look at what people are transacting on blockchains today, itâs not primarily bitcoin but stablecoin, a type of cryptocurrency designed to maintain a stable value over time. Does this surprise you?
Paul Brody: The ability of people to pay each other in dollars is hugely valuable. And to give you a sense of how big stable- coin dollars have become, last month the ethereum blockchain ecosystem did $2 trillion in stablecoin payments, over 99% of which were in US dollars.
GF: Who is actually using them?
Brody: By far the most popular initial use case for stablecoin is in emerging markets. Countries without independent central banks often experience high inflation or even hyperinflation, and so demand for US dollars is really high among the local population.
GF: And theyâre being used for cross-border remittances too?
Brody: A lot of traditional cross-border systems take days to execute, and they cost a fair amount of money. If both participants have smartphones and cryptocurrency accounts, you can send dollars across borders in a matter of seconds for almost nothing.
GF: Lately, the US Treasury Department seems to be saying that the US doesnât need a central bank digital currency [CBDC], i.e., a digital dollar. It can use stablecoin. Is that your read too?
Brody: What we need is well-regulated stablecoin. We need some regulatory safeguards to make sure that if you say thereâs a dollar on-chain, thereâs also a dollar in the bank account to back that up, or its equivalent in assets.
CBDCs have been flopping, mostly because central banks donât really know why theyâre doing them. Iâve talked to many central bankers, and they generally have no idea why theyâre doing this other than Facebook wanted one.
GF: How will blockchain technology change things for corporate CFOs and treasurers?
Brody: CFOs and treasurers have some questions to ask themselves: Am I plugged into the crypto and blockchain system? Can I make stablecoin payments? Should I include bitcoin in my corporate treasury alongside US dollar-denominated bonds? Going further, can I automate my business contracts? My procurement? How can I run my business operations more efficiently? And if a customer wants to pay me in stablecoin, can they do so? The answer for most companies today is, no, they canât.
GF: If youâre a stablecoin issuer, how do you make a profit on that business?
Brody: You make money with transaction fees and, potentially, your float on the interest rate. But that depends on interest rates. If rates go down really low, itâs going to be a painful business. Fees are pretty small because itâs such a competitive environment.
GF: What does all this mean for banks generally going forward? Is it going to lessen their importance?
Brody: Itâs going to change banksâ role, and may diminish it. It depends on how a bank makes its money.
Banks that make their money processing credit card transac- tions are the most at risk because blockchains represent a new, more efficient way to process transactions. You swipe your credit card in a store, and you donât see the cost of the payment, but itâs real and itâs substantial, like 3% to 4%. International wire trans- fers are usually a fixed fee, as much as $50. Stablecoin transfers cost almost nothing by comparison.
But if youâre a regional bank that does a lot of corporate finance, blockchain probably doesnât change your business that much.
GF: What about major custody banks, such as BNY Mellon, JPMorgan, etc.? Is their business at risk?
Brody: Major custody banks are in an interesting place. They have a ton of assets, and if youâve got assets and you control and custody those assets, youâre then in a position to help people tokenize them.
So, this new technology is certainly a threat, but itâs also potentially a substantial opportunity. At the end of the day, if youâre custodying assets and youâre now helping people tokenize them or manage them in different ecosystems, that represents the additive potential to your business.
GF: In your book Ethereum for Business, you highlight the importance of blockchain-based smart contracts. With these, one can define not only dollars but all sorts of things, even coffee mugs. Why arenât more corporations using smart contracts?
Brody: The answer is that blockchains donât yet have privacy built into them, and this is a huge problem. But itâs being fixed. Itâs like the early days of the internet, when we didnât have encryption. Most companies donât feel comfortable doing business without privacy.
Itâs why private blockchains have never worked. If companies had a private blockchain, they thought it ensured privacy. What they didnât realize is that inside that walled garden thereâs still no privacy. If youâre a big company and you have all your suppliers in your private blockchain, you still canât run your procurement process there, because supplier A can see how much youâre paying supplier B, and also how much youâre ordering from them.
GF: How deep are banks going to go in providing blockchain services?
Brody: Every single bank is going to offer some kind of DLT [distributed ledger technology] service. You have stocks, you have bonds [to offer clients], and now you may add crypto. Other institutions may send cash to an ethereum address for you, instead of setting up a wire transfer to a bank address. There will be new versions of money transfer and payments, and some of them are going to be quite sophisticated.
GF: Skeptics are asking when they will see blockchainâs âkiller appâ: meaning an application thatâs universally used, along the lines of what email did for the internet?
Brody: Stablecoins are the killer app, the one that gets everybody on-chain. The stablecoin market is about to get crazy competitive, and yield-bearing stablecoins will be widely available soon.
âCFOs and treasurers have to ask themselves: If a customer wants to pay me in stablecoin, can they do so?â
GF: All in all, is blockchain a niche innovationâuseful but not earth-shatteringâor is it something that can fundamentally change global finance?
Brody: Itâs not only going to change global finance, but it will transform all global commerce.
Blockchain is going to become the plumbing by which all B2B transactions are done.
And the reason itâs so transformational is that historically, money, contracts, and âstuffâ [i.e., goods] all were in different systems. Companies still spend huge amounts on reconciling money, stuff, and contracts. For example, it costs the average large company about $100 to pay a bill. And the reason is, somebody in procurement has to say, Iâve got this bill. Does it match the purchase order that I sent out? Do the terms on the bill and the purchase order match the terms of the contract? And so on. Imagine a future where the money, the stuff, and the terms of the contract are all in the same digital system and they all reconcile with each other. Itâs done instantly. In 10, 15 years, the whole process will be universal and invisible. Back-end plumbing, right?
