2022 to 2024: Crypto Regulatory Summer To Unlock 99% Of The World’s Money Supply

“If it moves like a duck, quacks like a duck… it is a duck” - The Duck Test

Most recently I was at the Point Zero Forum which was an invite-only event for central bank regulators, innovators and startups to come together to have roundtable sessions about the industry at an apt time given the recent crypto meltdown gloabally.

Here are some of my thoughts, predictions about the space which represent some megatrends in this space which could impact the way all of us live and interact both on-chain and off-chain (in our daily lives).

1. Stablecoins will be the first to get heavily regulated like tokenized deposits or money market funds

The past 5 years has seen the increase in use cases in the areas surrounding payments, remittance, settlements and thus following with a plethora of stablecoin companies which have been issuing their own stablecoins (some algorithmic, some over collateralized, some fiat-backed).

It is clear that with central banks looking to issue their own version of stablecoins aka Central Bank Digital Currencies (CBDCs) in the coming years, this will be the clearest industry to regulate. This will usher in a new wave of efficiency, transparency, and auditability to an archaic industry like traditional cash.

With this, new stablecoin standards will be set, and it will likely follow a few existing models, where it will be either treated as

1. Tokenised deposits - Representing a claim on the depositor's commercial bank, just as a regular deposit does
2. Money market funds - A kind of tradable, mutual fund that invests in highly liquid, near-term instruments. These instruments include cash and cash equivalent.

Centralized private companies like Circle, Tether, Paxos, and locally StraitsX will start to face pressure to get on similar global standards.

2. New use cases in this regulated world will be the catalyst for the next crypto summer

With the immense fallout of the UST, Terra Luna eco-system where over USD 40 Billion was lost, along with huge public confidence and life savings lost, it officially sparked off the crypto winter.

The chart above shows the tremendous amount lost in the LUNA/UST debacle (blue-line) vis-a-vis the BitConnect scam in 2018 (green-line).

Along with regulation, new use cases will start to form in this space which will lead into innovation which we’ve never seen before.

To me it’s pretty clear what the next few years will look like:

• 2017: Fundraising, ICOs (initial coin offerings) offered this first wave
• 2020: Decentralised Finance (DeFi v1) with lending, staking, yield farming, DEXes
• 2021: Non-Fungible Tokens (NFT v1) which was spearheaded by creators, designers and artists
• 2024: Decentralised Finance (Defi v2 with regulation) with insurance, institutional money, fund houses, banks, and maybe Web3 social or Web2 companies building with Web3 ideals (Web5)

3. Huge giant centralized companies will come on chain to run on decentralized rails

This is already true as of today, but I believe it will start to accelerate at an immense pace in the coming two years.

With centralised companies in the form of exchanges and wallets, as the gateway to most crypto offerings like Coinbase, Binance, FTX, Huobi, CoinHako and more.

If the above is a sign of anything to come, at the recent Point Zero Forum, organised by the Monetary Authority of Singapore (MAS) and the Swiss central bank, the amount of private banks and web2 companies aiming to shape their web3 strategies are clear signs that it is already happening. Many folks in suits as opposed to traditional t shirts and jeans at startup confrerences.

I believe that the next wave will look along the lines of…

Web 2 companies (and banks) with a crypto strategy

In this bucket, companies like Meta (it’s literally in the name), Twitter, Microsoft and closer to home companies like Grab, Sea group will embark on this journey to build web3 squads with folks who are innately plugged in and start to experiment

Also, not to forget the traditional finance companies who already have been on differing levels of innovation and experiments in the digital space, will continue on that path to figure out how to operate in this web3 world.

From Julius Baer (Private banks), to DBS (Commercial and Retail banks), to your Revoluts (Native digital banks) of the world.

Web 3 native companies with experienced Web2 operators

In this second group, companies like Chainalysis, Nansen, Consensys, and all the various exchanges (Binance, FTX, Crypto.com, CoinHako and more) who already have attracted a huge amount of talent.

They will double down on the regulated use cases and double down on areas outside of their core competencies (e.g. margin on exchange trading) to grow their topline.

In Summary: Bringing the 99% of the world’s money on-chain via regulated use cases

As shared, regulators indeed have shown a strong interest to exert pressure in this space but I do feel that it will be for good reason.

There is 99% of the world’s finance and circulating supply of money which is not yet on-chain, and this represents a huge opportunity for startups and incumbents alike.

Adoption strategies will definitely vary in the way that they adopt crypto and it will be either via private, hybrid or totally built on decentralised public chains. And each would have it’s own pros and cons.

Regulators themselves will also move ahead with CBDCs and their own decentralised finance use cases for example Project Guardian a collaborative initiative led by MAS with the financial industry.

The project will explore the economic potential and value of asset tokenisation which will involve all the various centralised banks to come together to run a more efficient financial market with lower costs and other benefits of the blockchain.

Exciting times to continue building and innovating~!