First’s Monthly Insights - The Current State of Diem, USDC & Visa’s Purchase of an NFT

From the soon to be launched Diem stablecoin, through to the increased transparency around Circle’s prominent stable asset USDC, and even Visa dipping its toe into the NFT market, the signs are that this paradigm shift isn’t slowing, instead it’s speeding up.

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First’s Monthly Insights - The Current State of Diem, USDC & Visa’s Purchase of an NFT

More and more, the world is shifting towards a contactless, digital economy. This was already on the rise well before the Covid-19 pandemic began reshaping the world, but now estimates are that the percentage of all transactions made digitally will be up to 67% in 2025, compared to the estimated 57% from before the crisis.

Companies all over the world are finding ways to adapt to this change, and for many that means beginning to embrace digital assets such as cryptocurrency, stablecoins and more. From the soon to be launched Diem stablecoin, through to the increased transparency around Circle’s prominent stable asset USDC, and even Visa dipping its toe into the NFT market, the signs are that this paradigm shift isn’t slowing, instead it’s speeding up.

More than likely there will be a continued march of stories like this as we head into late 2021 and beyond. If names this big are beginning to get involved, it can’t be long before more follow along. Most importantly, this may be just what the world needs as it turns a weary eye towards tomorrow, and a broader recovery.

The Latest on Diem, and Novi

Recently, David Marcus, FB’s Chief of Financial Services, made a medium post elaborating on the need for a reliable stablecoin and financial payment system, along the way mentioning that the upcoming Diem stablecoin and accompanying Novi wallet stand to fix the exact shortcomings of the existing model. For starters, Marcus points out that the current system is slow, expensive and doesn’t serve a significant portion of the population. In his own words:

“The systems we have today are costly, slow, and not interconnected. There are still about 1.7 billion people who are unbanked around the world, and even more who are underserved. Among them are 62 million Americans who are unbanked or underbanked — people left behind by the current system and stuck in the cash economy. Globally the state of play for cross-border payments is dramatically bad with an average cost to consumers, who can afford it the least, of 6.5% (more than double the Sustainable Development Goal of 3%) and end-to-end settlement times of three days on average.”

Marcus goes on to elaborate on the fact that the current pandemic has only served to exacerbate these issues. It has never been more important for citizens to have access to reliable banking and remuneration services. Unfortunately, the existing legacy financial rails are largely insufficient for providing relief to many.

To this end, Marcus makes the case for the existence of the exact payment channels that the Diem Association and Novi are creating, as well as the 1:1 USD backed stablecoin. He claims that having such an asset fully collateralized is inherently more safe than the fractional reserve nature of virtually all existing bank accounts.

Not Just Stable, Transparent

It isn’t just about offering more people a highly stable asset, either. There’s also the fact that Diem stands to be more transparent, easier to regulate and harder to use for illicit activities than fiat currencies ever were. See, blockchains aren’t as anonymous as some people think. At least, they don’t have to be. Properly set-up networks can monitor traffic and detect issues, ultimately making them safer and actually easier to monitor.

Marcus then goes on to address some of the pushback that has been generated around the creation of the Diem. He discusses how there are many who don’t feel Facebook should have so much influence over the financial market and payment systems. To this end, Marcus points out that the Diem Association is in fact it’s own separate entity now, to limit the direct influence of facebook.

He also touches on the fact that Facebook already has a notable foot in the world of finance, and that it is inherently against American ideals to stymie progress. The case is that Facebook, or it’s branch of the Diem Association, deserves a shot at creating innovative new technology just like any company.

“We can and should play a key role in improving the unacceptable state of affairs that persists for too many people, and the American way to do it is to enable more competition and innovation to break the stalemate of decades of stagnation. Additionally, at a time when the relevance of the dollar and our global influence are challenged like never before, we should leverage the distribution and capabilities of some of our most successful companies to win the war that’s being silently waged against our national interests.”

Building the Road to the Metaverse

Lastly, Marcus goes on to ruminate on all the ways that this new system will enable and in fact be necessary for Mark Zuckerberg’s vision for the metaverse. Powered by NFTs and smart contracts, this is a world where different platforms will see interoperability with each other as well as a seamless interface connecting them all. Such a world would need a payment system that is stable and ubiquitous, and this is just the type of platform Diem is claiming to offer.

Will Diem be the asset and market that becomes the cornerstone of web 4.0? History has yet to be decided but it certainly seems like it is positioning itself to be so. If the system can launch and reach enough people, there’s no reason to believe in David Marcus’ vision.

Circle Announces Change to USDC Collateral

Now let’s turn our attention to another stablecoin, USDC. Originally, the digital currency company that issues the asset, Circle, claimed that the coin was backed by actual US Dollars held in reserve. Then, this year it was revealed that this was in fact not fully the case, with only 60% of USDC in circulation being backed by actual dollars, the rest being collateralized by a combination of debt securities and bonds.

However, now the company has recently released a statement that declares the renewed commitment to keeping the asset fully pegged through nothing more than actual USD reserves and short term US Treasuries. This stands to put users at greater ease and provide a form of legitimacy that stablecoin users are generally looking for.

From the announcement:

“Mindful of community sentiment, our commitment to trust and transparency, and an evolving regulatory landscape, Circle, with the support of Centre and Coinbase, has announced that it will now hold the USDC reserve entirely in cash and short duration US Treasuries. These changes are being implemented expeditiously and will be reflected in future attestations by Grant Thornton.”

Trying to Dethrone Tether

By contrast, Tether, the largest stablecoin in circulation, has only around 3% of its supply backed by USD, the rest is supported by commercial debt. This has definitely led to concerns that the asset could lose its peg and have a huge effect on both the cryptocurrency as well as legacy markets. Clearly, Circle is trying to get ahead of just such a catastrophe, and is betting it can assuage investor fears along the way.

Visa Buys its First Ever NFT

Global payment giant Visa recently turned a few heads when it announced that it had actually purchased its first NFT, both as a means to better understand the technology as well as a memento from this unique evolutionary moment for digital assets. The purchase was recently announced in a blog post, where Visa’s “resident crypto and NFT expert,” Cuy Sheffield explained a bit about why NFT’s are significant and how Visa wants to be a part of this new frontier.:

“We think NFTs will play an important role in the future of retail, social media, entertainment, and commerce. To help our clients and partners participate, we need a firsthand understanding of the infrastructure requirements for a global brand to purchase, store, and leverage an NFT. Having worked with Anchorage Digital to complete this process, we’re better positioned to help our partners navigate the process.”

More Than a PR Stunt

Sheffield went on to say that this is also meant to be a show of support for NFT creators and the industry as a whole. For now, that means spreading awareness and education about the growing NFT landscape, and soon it will mean specific partnerships and projects.

The actual NFT that Visa purchased is CryptoPunk 7610, part of the now quite famous CryptoPunk line of NFTs. The asset was bought for 49.5 Ether, which was worth approximately $150,000 at the time, meaning this is no small commitment on Visa’s part. Overall, it’s optimistic to see such a major player getting involved in the decentralized asset space, and gives hope for continued support as the landscape matures.

Thank you for reading this month’s edition of First’s Monthly Insights - The Current State of Diem, USDC & Visa’s Purchase of an NFT.

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