The crypto landscape is always changing with new innovations and projects coming to light almost on a daily basis. In recent weeks, there has been more and more chatter surrounding the possibility of retail behemoths such as Amazon and/or Walmart issuing their own stablecoins. This action could fundamentally change how and where consumers shop and transact. Along with that comes substantial risk and regulatory hurdles. To fully understand the potential impact, it's essential to examine the potential benefits, challenges, and lessons learned from past ventures like Facebook's Libra (later Diem) project.
The Allure of Retail Stablecoins: Benefits for Giants and Consumers
For big box retailers such as Amazon and Walmart, the motivation to issue their own private stablecoin is strong and varied. One of the main drivers is obvious—there’s a lot of money to be saved. Retailers today are charged hefty interchange and payment processing costs by credit card networks for each transaction. These companies already have the ability to issue their own stablecoins. This action alone could cut fees in half or more—potentially eradicating fees altogether—and save billions of dollars annually. These savings can go directly to consumers or businesses by businesses lowering prices. Or, they can put the money back into their company in other ways.
In addition to savings, stablecoins promise to make cross-border transactions more efficient. It’s true that traditional international payments are slow and costly, usually taking days and involving a myriad of intermediary banks and high fees. Stablecoins increase the speed and reduce the cost of cross-border transactions. That is a win-win for consumers and companies that regularly compete in the global marketplace. This would be especially beneficial for Amazon, who operates the largest global marketplace.
In addition, retail stablecoins can offer consumers beneficial, trustworthy and efficient new payment solutions at the point of sale. They’d be able to offer better options than traditional credit cards. This option could increase the pace of construction and make completing payments easier. Imagine this, for example: you purchase products on Amazon through a stablecoin from your digital wallet. No more climbing over arbitrary walls, avoiding predatory lenders, or facing those hidden banking fees!
Navigating the Minefield: Risks and Regulatory Hurdles
Even assuming their adoption brings the promised benefits, the stablecoin road is far from free of risk and peril. Perhaps one of the biggest concerns is how to make sure that the coin holds its value. A stablecoin has one primary purpose—to keep its value very stable, usually by pegging it to some fiat currency like the US dollar. If the issuer is ever unable to redeem the coins for the underlying reference assets, it risks undermining faith in the stablecoin. This loss of confidence could then prompt a “bank run” scenario and lead the stablecoin’s value to collapse. Without a solution, this would lead to hundreds of millions of dollars in lost money for consumers and investors.
Then there’s the unpredictable, constantly shifting regulatory environment regarding stablecoins. In the United States, there is no overall federal regulatory framework for stablecoins. This gap creates a storm of confusion and legal exposure for these retail behemoths, making compliance nearly impossible to navigate. This confusion breeds confusion and confusion breeds liability, as confusion can leave companies exposed to legal and financial liability.
Leaving aside these particular issues, there are larger regulatory ramifications at stake. The introduction of retail stablecoins would increase risks related to money laundering, sanctions evasion, and other illicit financial activity. Regulators should use their strong oversight authority over these new projects to ensure full compliance with all applicable civil rights laws and regulations.
- Lack of clear regulatory framework: The US government has not created a technologically neutral federal regulatory framework for stablecoins, which can make it difficult for retail giants to navigate the regulatory landscape.
- Insufficient oversight: Both the STABLE Act and GENIUS Act have limitations, such as the STABLE Act's lack of clear enforcement mechanism for foreign stablecoins and the GENIUS Act's weaker "substantially similar" standard.
- Foreign issuer loophole: The GENIUS Act has a foreign issuer loophole, also known as the "Tether loophole," which allows foreign-issued stablecoins to operate with less regulatory oversight, putting US stablecoin issuers at a disadvantage.
- Inadequate joint federal-state supervision: The STABLE Act does not provide for adequate joint federal-state supervision of large issuers, creating the risk that a systemically important issuer could be supervised only by state authorities.
- Unclear bankruptcy procedures: The legislation should make clear that all holders have a claim in bankruptcy, but current bills have limitations in this regard.
Here are four important takeaways that Amazon and Walmart should draw from Libra’s story.
Lessons from Libra: Avoiding the Pitfalls
One of the principal contributors to Libra’s failure was its ill-conceived scope, cut through with hyper ambition. Libra aimed to provide digital banking services to the unbanked, offer a stable asset for people in volatile markets, and create a cheap way to exchange money worldwide. This expansive purview created a lot of regulatory headaches and made it challenging for the project to get off the ground. Instead of seeking to “boil the ocean,” Amazon and Walmart need to zoom in on a specific but solvable problem.
Here's a list of tips that Amazon and Walmart can learn from Facebook's Libra project:
Perhaps the most important take away, though, is the need for centralized administration and strong anti-fraud measures. Libra’s absence of these features increased the alarm of regulators about the capacity for money laundering and alternative nefariousness. Amazon, Walmart, and other payment facilitators need to be fully transparent about their payment systems’ security measures and regulatory compliance mechanisms.
- Solve a solvable problem: Libra's goal was too ambitious, aiming to provide digital banking for the 1.7 billion unbanked, a stable asset for people in volatile markets, and a cheap way to exchange money worldwide. Amazon and Walmart should focus on a specific, achievable problem to solve.
- Don't try to boil the ocean: Libra attempted to tackle too many challenges at once. Amazon and Walmart should prioritize a narrower scope and build from there.
- Centralize administration and anti-fraud systems: Libra's lack of centralized administration and anti-fraud systems raised regulatory concerns. Amazon and Walmart should ensure their payment systems have robust security measures and clear regulatory compliance.
- Timing is everything: Libra's launch was met with intense regulatory scrutiny, which ultimately contributed to its demise. Amazon and Walmart should carefully consider the timing of their payment system launches and be prepared to address regulatory concerns.
- Learn from existing payment networks: Visa's success can be attributed to its focus on a specific problem (enabling electronic payments) and its ability to adapt to regulatory requirements. Amazon and Walmart can learn from Visa's approach and apply similar principles to their own payment systems.
Finally, timing is crucial. Libra’s launch ended up being the catalyst for an increased regulatory focus on the entire cryptocurrency landscape, a fact that helped sink Libra altogether. So Amazon and Walmart should wait and pick their fights. They must be prepared to address possible regulatory issues that come up.
The use of intermediaries can create a host of other risks that require thoughtful consideration. Some of these risks include:
Risks that Intermediaries May Pose
Retail titans like Amazon, Walmart and others are even exploring issuing their own stablecoins. This step would be historic and provide tremendous benefits to consumers and investors. For consumers, it will likely lead to better prices, increased transaction speeds, and the acceptance of new forms of payment. It also poses a danger of great fiscal harm if the stablecoin is poorly operated or inadequately overseen. Consumers need to understand the risks and rewards before they jump into these new payments.
- The role of intermediaries poses significant additional risks, including potential misuse of inside information, market manipulation, and other misconduct.
- Conflicts of interest between the issuer and intermediary.
- Incomplete regulation across the crypto ecosystem, including with regards to the operational and financial resilience of stablecoin issuers and third-party service providers.
- Cyber attacks and fraud.
- Market and liquidity risks.
Implications for Consumers and Investors
Retail titans are jumping onto the crypto bandwagon, which is music to investors’ ears. Their participation might help to prove the technology and attract a critical mass of regular users. Yet, it creates uncertainty around whether this move will usher in more competition or more regulatory eyes. Investors should carefully analyze the potential impact on the overall crypto market and individual projects before making any investment decisions.
All told, the possible introduction of stablecoins from Amazon and Walmart are the latest sign that cryptocurrency is continuing to change and evolve. Considered holistically, the technology extends great promise and potential for tremendous benefits, but equally as much, danger, risk, and regulatory challenges. Retail industry leaders can increase their odds for success by thoughtfully addressing these key aspects. By using wisdom gained from previous, imperfect efforts such as Libra, they can be strategically positioned to help define the future of digital payments.
Overall, the potential launch of stablecoins by Amazon and Walmart represents a significant development in the evolution of cryptocurrency. While it offers the potential for substantial benefits, it also comes with significant risks and regulatory hurdles. By carefully considering these factors and learning from the experiences of past projects like Libra, these retail giants can increase their chances of success and help shape the future of digital payments.
