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Forbes
7 days ago
- Business
- Forbes
Stablecoins And The Banking System: Opportunity Or Threat?
The launch of a space rocket grabs everyone's attention, yet few are aware of the steadily growing number of satellites that silently circle the globe, enabling much of life as we know it. Similarly, crypto currencies may dominate the financial news today, but it is stablecoins that are subtly on track to transform banking. Stablecoins are simply the digital version of the cash in your wallet. Like cash, they don't earn interest, and they are pegged one-to-one to a currency, like a dollar. They have major advantages – efficiency, accessibility, transparency, and security – and can be exchanged back into your currency. As with the satellites overhead, most people would be surprised to learn how indispensable stablecoins have become: Opportunity or threat? Stablecoins could flatten the world of finance and allow banks to offer clients a vastly improved money transfer service that is both quicker and cheaper. This is already happening despite the lack of bank involvement as stablecoins account for a greater share of international money transfers than Visa and Mastercard combined. The use of stablecoins for payments could soon pick up, with Worldpay announcing that it will let customers in Europe and the U.S. make stablecoin payments and Stripe acquiring stablecoin payment platform Bridge. Another opportunity, pending regulation, is the use of stablecoins as an interest-free deposit source. Which bank would not be interested in a deposit product that incurs no cost? Brian Moynihan, CEO of Bank of America, said earlier this year: 'If they make it (stablecoins) legal, we will go into that business.' Regulators have emphasized their intention to give the industry the clarity it needs, with Congress proposing the GENIUS Act to establish a regulatory framework for stablecoins. On the flipside, stablecoins could pose a substantial risk to banks and the banking system as a whole, particularly if they are allowed to pay interest (which remains unsettled with regulators). Incumbents that are slow to add stablecoins could struggle to retain customers seeking to benefit from what could be a high rate checking account. More broadly, if stablecoins continue to grow without oversight they could drain critical reserves – sucking deposits out of the banking system and, ultimately, leading to a slowdown in bank lending. This liquidity drain isn't lost on US regulators, who have rejected narrow banking charters that focus strictly on payments to the exclusion of lending. The network is the key Most banks lack the readiness to launch a stablecoin today. The biggest hurdle will be solving distribution – creating a network effect that results in a coin being widely adopted. For example, Circle pays Coinbase $900M per year to distribute USDC broadly and to achieve this network effect. Banks will need efficient API structures to transfer stablecoins and switch back and forth between fiat and digital currencies. These on- and off-ramps are crucial to integrating with multiple third-parties. Metcalfe's Law says the value of any network grows proportionally to the square of the number of users. This was best illustrated when Edison launched the telephone. Many failed to grasp its potential, asking 'Who am I going to call – nobody I know has one!' So a stablecoin that fails to develop a network could end up being a road to nowhere. Plus, if every bank issues their own, we're back in the wildcat banking system from the 1800s. And who wins in that game? The player that creates the automated market maker that facilitates the exchange of wildcats. There may, instead, be safety in numbers by working together. Fit for purpose There is broad recognition that traditional financial rails, as well as the older crypto currency tools, cannot fully meet the demands of modern finance. Many believe stablecoins offer banks and their clients the prospect of significantly better performance. We could be on the precipice of a new era in banking, akin to when everyone was using BlackBerrys but the iPhone was rapidly coming around the corner. But creating an effective set of products and services won't be easy. Striking the right balance of KYC and risk management standards will be critical for building trust and navigating the many, often diverse, regulatory regimes that affect international banks. Lower standards may win the network game initially, with things being sorted out later. The big risk for banks is that they are so thoughtful about KYC that they develop a stablecoin that no one wants to use. However, while these considerations and hurdles may slow some banks' entry into this market, it's unlikely to prevent it. This may not be the Wild West, but it could prove to be a goldrush. With many in the industry enamored with crypto, bitcoin and the other shiny objects on the hill, stablecoins could actually change the game in banking. Are you ready for it?
Forbes
02-06-2025
- Business
- Forbes
Who Owns The Algorithm? The Legal Gray Zone In AI Trading
Brian Moynihan, CEO of Bank of America, is spending $4 billion a year on new technology initiatives ... More such as AI. As artificial intelligence continues to reshape financial markets, it brings with it a core legal and strategic dilemma: who owns the algorithm? A recent Bank of England report raised alarm bells over the systemic risks posed by increasingly autonomous AI trading systems. While much of the concern has focused on market volatility, the equally urgent yet less discussed question is who controls, protects, and is accountable for the intellectual property these systems generate. Under current law, AI systems lack legal personhood and cannot own anything, including copyrights. This means that any code, model, or strategy generated entirely by AI may not qualify for copyright protection unless there is clear human authorship involved. The U.S. Copyright Office has reinforced this position, ruling that non-human authorship cannot enjoy statutory protection. As a result, if an AI independently develops a novel trading strategy, the entity deploying that AI could be exposed, without patent protection, copyright coverage, or a clear paper trail. This creates a competitive vulnerability, especially in algorithmic trading, where uniqueness can deliver billions in edge. Firms have to rethink their IP strategy to make sure human review and oversight are part of the development loop. Firms are increasingly turning to a mosaic of legal mechanisms to protect their proprietary algorithms: Patents can protect novel and non-obvious algorithms with demonstrable utility. However, because algorithms are often deemed abstract ideas, patent eligibility is hard to secure and even harder to enforce internationally. Copyrights protect the specific software implementation and expression of an idea, not the algorithm itself. Crucially, human authorship must be demonstrable, meaning that fully AI-generated code is unlikely to be eligible. Trade Secrets are the most common and practical form of protection for algorithmic trading. Firms treat not only their code but also training datasets, model weights, and even failed strategies ('negative knowledge') as trade secrets. However, this protection is fragile and requires strict internal access controls and documentation procedures. Trademarks, while not protecting the algorithm directly, safeguard the brand identity associated with algorithmic trading services, helping firms establish market dominance and trust. For financial institutions, the strategic implications are clear. If your algorithm is your edge, and the edge isn't legally defendable, you've built a business on shaky ground. The rise of generative AI complicates these protections further. As Dan Bosman, CIO at TD Securities, explained in a company podcast, 'You're not just protecting source code anymore. You're protecting the logic, the training data, the biases, some of which are inherited from external datasets you may not even fully control.' In a McKinsey report, financial executives cited intellectual property uncertainty as one of the primary reasons they have not scaled generative AI pilots beyond internal sandboxes. The fear isn't just regulatory, it's losing control of a core business differentiator. In parallel with these challenges, regulation is catching up. The EU's AI Act, adopted in May 2024, introduces a tiered approach to risk classification for AI systems. High-risk systems, including those used in trading, must include clear human oversight, transparent decision-making, and documented model lineage. While this doesn't solve the ownership question outright, it does pressure firms to ensure there is a traceable human role in the development and operation of trading algorithms. On the U.S. side, policymakers are more fragmented. The SEC, CFTC, and FTC all have overlapping interests in how AI affects financial products, consumer protection, and market fairness. But none have yet addressed IP protection for AI-generated investment strategies head-on. In the absence of a clear legal framework, here's what financial institutions and fintechs should be doing right now: 1. Build Human-in-the-Loop (HITL) Processes: Ensure that even if an AI system generates a new strategy or model, a human analyst or engineer reviews, modifies, or approves it. This not only improves quality control but can establish a stronger case for human authorship. 2. Audit and Document Model Development: Create a transparent pipeline showing how AI-generated content was developed, what data was used, and what decisions were made by humans. This 'model provenance' will be essential for IP protection and regulatory compliance alike. 3. Layer Your Legal Protections: Don't rely on a single form of protection. Use trade secrets to lock down internal know-how, copyrights for implementation, and patents where feasible. Also, enforce NDAs and internal security policies to preserve the defensibility of those protections. 4. Engage Legal Counsel Early: Too many firms involve IP counsel only after a product is market-ready. In the AI era, your legal strategy must be part of your R&D process, especially when AI outputs blur the lines of authorship and originality. 5. Monitor Regulatory Signals: Watch for updates from the U.S. Copyright Office, EU Parliament, and financial regulators. AI policy is moving fast, and what isn't protected today could be covered tomorrow, or vice versa. As the financial sector races ahead with AI, the law is lagging behind. The institutions that succeed in this environment will not be those with the smartest algorithms, but those with the foresight to protect, document, and defend what their systems create. In a world where the next billion-dollar trading edge might be written by a machine, the real competitive advantage lies in knowing who truly owns the outcome and making sure you can prove it. For more like this on Forbes, check out The Legacy Banks Quietly Building The Future Of Finance and The 3 Innovation Challenges Keeping Bank CEOs Awake At Night.
Forbes
06-05-2025
- Business
- Forbes
Why Stablecoin Issuers Could Displace Japan And China As The Biggest Buyers Of U.S. Treasury Securities
B rian Moynihan, the chief executive officer of $2.6 trillion (assets) Bank of America, doesn't usually make headlines for his crypto opinions. But in February, he did just that: 'If they make that legal, we'll go into that business.' He was talking about stablecoins—blockchain-based tokens typically pegged to the U.S. dollar and, increasingly, the plumbing of global payments. 'They' are Congress, which is now racing to lay down the rules of the road for these crypto creations. The STABLE Act in the House and the GENIUS Act in the Senate are dueling bills with a common goal: to bring stablecoin issuers into the regulatory fold, spelling out exactly how much capital, liquidity and risk management is enough. They also aim to clarify which federal or state agencies get to play referee. But there's another, less flashy subplot: how will widespread acceptance of stablecoins among traditional institutions globally affect the $28 trillion United States Treasury market? Here's the thing: Treasurys are the backbone of stablecoin reserves because not much else comes close in terms of safety and liquidity. If you're offering a digital dollar, you need to back it with assets that are as close to risk-free as possible. This sounds a lot like hundreds of money market mutual funds, which are issued by giants like BlackRock, Fidelity and Vanguard and hold over $6 trillion in assets, mostly in U.S. Treasury bills. The big difference is that unlike a money market fund, say, from Fidelity, which might pay you an annual yield of 4%, most stablecoin issuers have so far resisted offering any kind of yield or income to their holders. That's one reason why Tether, the largest of them, has extremely high margins and reported over $1 billion in operating profit in the first quarter of 2025. Right now, the dozens of stablecoin issuers that exist—though mostly Tether, based in El Salvador, and Circle, headquartered in New York—hold an estimated $150 billion in U.S. government debt, primarily short-term T-bills. That's a rounding error in the $28 trillion Treasury securities market and a fairly insignificant portion of the $6 trillion in Treasury bills outstanding. Most Treasurys are still held by the U.S. government itself, think Social Security and federal pension funds. U.S. mutual funds, banks and insurance companies are the next biggest holders, with foreign investors accounting for about 30% (roughly $8.8 trillion), led by Japan and China. But Britain's Standard Chartered Bank, an $874 billion (assets) institution that offers custody for cryptocurrencies, projects that the global stablecoin market could jump from $240 billion to $2 trillion in just three years. Both current drafts of the stablecoin bills explicitly identify Treasury securities with maturities of 93 days or less as one of the few acceptable reserves. That could mean an extra $1 trillion in demand for T-bills in the near term, according to an April 30 presentation by the Treasury Borrowing Advisory Committee (TBAC), a group of senior bankers, asset managers and hedge fund representatives that advises Treasury officials each quarter. Citi's research team goes further, suggesting that by 2030 stablecoin issuers could surpass any single foreign country as holders of U.S. government debt. Despite its controversial history, Tether, with $120 billion invested in U.S. Treasurys already, could become the largest holder if it falls into compliance with new regulations. Citi T his market upheaval could unfold as the U.S. national debt climbs past $36 trillion, swelling by another trillion roughly every 176 days. Meanwhile, creditors like China and Saudi Arabia are quietly trimming their Treasury holdings. China's dropped to $761 billion earlier this year, its lowest since 2009, while Saudi Arabia's have fallen to a year-and-a-half low of $126 billion, reflecting a global rebalancing of reserves and rising skepticism about U.S. sovereign debt. Enter crypto users around the world, in places like Buenos Aires and Nairobi, using stablecoins for everything from paying their rent to hedging against local currency volatility and simultaneously stepping up as a new, eager class of lenders to Uncle Sam. The Trump administration has already made its stance on stablecoins clear. Crypto and AI Czar David Sacks has argued that they could help secure the dollar's global dominance, and President Trump has pressed Congress to get a bill to his desk before the August recess. 'Stablecoins have the potential to ensure American dollar dominance internationally to increase the usage of the U.S. dollar digitally as the world's reserve currency, and in the process create potentially trillions of dollars of demand for U.S. Treasuries, which could lower long-term interest rates,' said Sacks during his first press conference in February. Additionally, the Trump family's crypto venture, World Liberty Financial, announced plans for its own stablecoin, which is now apparently complicating the fate of pending regulation. On May 1, World Liberty announced that the token would be used by MGX, an Abu Dhabi government-backed firm, to invest $2 billion into Binance, the crypto exchange whose founder is reportedly seeking a presidential pardon. A couple of days later, nine Senate Democrats, including four who previously backed the stablecoin 'GENIUS' bill, issued a statement saying they would oppose the legislation in its current form, Politico reported. But lawmakers had been promoting the idea of stablecoin issuers as ultimate Treasurys buyers even before Trump took office. Congressman Ritchie Torres of New York wrote last fall that more stablecoin adoption means higher demand for Treasurys and, in turn, lower U.S. borrowing costs. Earlier, former House Speaker Paul Ryan floated stablecoins as a buffer against a future wave of foreign selling: if traditional buyers retreat, dollar-backed token issuers could fill the gap. Christopher Perkins, president of crypto-focused investment firm CoinFund, puts it bluntly: 'You couldn't invent a better innovation for the U.S. dollar than a stablecoin. It makes the dollar more available globally. It reinforces it as the global reserve currency. If it gets into the wrong hands, there's due process by which the government can freeze and seize assets. It checks so many boxes: creates buyers for your debt, brings your interest rates lower.' Y esha Yadav, a professor at Vanderbilt University whose research focuses on the Treasury market, is decidedly less enthusiastic about a crypto takeover of the government securities market. She believes that embedding stablecoins into it creates new vulnerabilities. 'If the U.S. Treasury market becomes, for whatever reason, stressed, if there are doubts about the U.S.'s ability to make good on its payments, then for stablecoin issuers, it's no longer a safe asset that can substitute as a money claim,' she explains. And if a major stablecoin issuer collapses, it could be forced to dump Treasurys en masse, destabilizing the market. Unlike foreign central banks, stablecoin issuers face genuine run risk: panicked customers can pull funds instantly, triggering immediate selling pressure. Of course, this risk applies to money market funds as well. In 2008, after Lehman Brothers collapsed, the $65 billion Reserve Primary Fund, which held less than 2% of Lehman's commercial paper, experienced a run and 'broke the buck', forcing it to liquidate its assets. 'For the first time, the Treasury market is supporting the moneyness of a payment system by becoming a backstop of an entirely new monetary claim,' Yadav notes. If a crisis hits, will the government have to bail out stablecoin issuers to honor the dollar claims they've issued? Policymakers haven't fully grappled with these questions, and they should, she says. Arthur Wilmarth, a law professor at the George Washington University, raises another concern: 'The creation of major new demands for Treasury bills and Treasury-backed repos and reverse repos by stablecoin issuers could cause dangerous shortages of available Treasury bills, particularly during periods of financial stress.' He points to past disruptions like the repo market crisis of September 2019 and the 'dash for cash' in March 2020 as cautionary tales. For now, another trillion dollars in Treasury demand from stablecoin issuers might seem manageable. But the landscape is shifting fast. Major financial institutions like Bank of America and Fidelity, which manage trillions in assets, are eyeing stablecoin launches. Visa and Stripe-acquired Bridge just rolled out stablecoin-linked cards across Latin America, and Mastercard unveiled a new platform through which users will be able to pay for purchases with stablecoins and withdraw them directly into their bank accounts. Still, Yadav cautions anyone thinking that stablecoins will become a reliable backstop for the U.S. dollar or the Treasury market: 'The presumption that stablecoin issuers will simply fill the gap, is not something that policymakers should be counting on,' she warns. And there's another potential risk: will banks and other stablecoin issuers limit their reserves to Treasurys? Kevin Lehtiniitty, CEO of believes bank-issued stablecoins could become subject to the fractional reserve rules that banks have long used to turn their FDIC-insured deposits into more lucrative growth areas. Perhaps, commercial real estate, subprime mortgages, DeFi? Stay tuned. More From Forbes Forbes Inside The Waymo Factory Building A Robotaxi Future By Alan Ohnsman Forbes Why One-Time Cannabis Darling Tilray Is Now High On Beer By Will Yakowicz Forbes For AI Startups, A 7-Day Work Week Isn't Enough By Richard Nieva Forbes He Made A Billion Building Houses For Florida's 'Marvelous Middle.' Now Things Aren't So Marvelous. By Monica Hunter-Hart Forbes AI Is Making The Internet's Bot Problem Worse. This $2 Billion Startup Is On The Front Lines By Rashi Shrivastava
Bloomberg
05-05-2025
- Business
- Bloomberg
After Buffett's 5,500,000% Run, a New Era for Berkshire Begins
By Apple's Tim Cook called him inspiring. Bank of America's Brian Moynihan praised his lessons on life and business. JPMorgan's Jamie Dimon said he's 'everything that is good about American capitalism.' As Buffett called an end to his historic run, luminaries from the technology and banking worlds rushed to praise the man whose lessons they partially credit for their success.
AU Financial Review
05-05-2025
- Business
- AU Financial Review
Cook, Dimon praise inspirational teacher Buffett
New York | Apple's Tim Cook called him inspiring. Bank of America's Brian Moynihan praised his lessons on life and business. JPMorgan's Jamie Dimon said he's 'everything that is good about American capitalism.' As Warren Buffett called an end to his historic run atop Berkshire Hathaway, luminaries from the technology and banking worlds rushed to praise the man whose lessons they partially credit for their success. Bloomberg
