Cash out: Why execs need to stay vested in digital currency developments around the globe

Feature story
September 2023


  • Beyond the headlines of a “crypto winter,” a wealth of business-relevant digital currency developments and Web3 opportunities demand C-suite attention.
  • Consumer and business cryptocurrency adoption continues to increase despite the industry’s well-publicized struggles in the past 18 months.
  • According to The Atlantic Council, which tracks CBDC initiatives in 130 countries, 11 countries — Nigeria, Jamaica, The Bahamas and eight other Caribbean countries—have launched CBDCs. Another 25 are running CBDC pilots, including India, China, Australia and Sweden.

In a recent seven-day stretch that concluded with the incarceration of a crypto exchange founder CEO, the following milestones garnered limited mention beyond CoinDesk: 

- The first large U.S. financial company unveiled its own US$-pegged stablecoin;

- The largest publicly traded U.S. crypto exchange went live with its open blockchain-based development platform; and

- The SEC reviewed applications for spot bitcoin ETFs from several large investment companies.

These important digital-currency advancements did not receive the attention of the media, which preferred to focus on the opaque platforms, protocols and business practices behind the bankruptcies, collapses and alleged frauds that sparked a “crypto winter.” The underreported developments have less to do with tumbling, rug-pulling, slashing, cold wallets, gas or meme coins and instead are doing more for mainstreaming crypto innovation and rewiring the payments circuitry.

These regulatory, business and technological developments will have substantial implications on decentralized finance (DeFi) and Web3 opportunities across a broad swath of sectors, companies and internal business and functional groups. But beyond the headlines, a wealth of business-relevant digital currency developments and Web3 opportunities demand the C-suite’s attention.

Yes, the outcomes of crypto-related federal criminal investigations and charges as well as enforcement actions will shape future legislation, regulations and enforcement stances. And as Lata Varghese, Managing Director and Protiviti’s Digital Assets and Blockchain practice leader, says in Protiviti’s Powerful Insights podcast, Future of Crypto Innovation and Regulation: “I think the industry should expect much tighter regulations and rules, and if you're an intermediary enabling the trading of crypto assets or safekeeping customer assets, you should expect to comply with all of the rules that would apply if you were managing any other asset.” 

Business leaders with Web3 ambitions and strategies would be wiser to familiarize themselves with the EU’s groundbreaking Regulation on Markets in Crypto-Assets (MiCA) than they would be to follow click-bait accounts of crypto failures (which largely stem from old-school governance and risk-management breakdowns). Thoughtful consideration of select cryptocurrency, stablecoin and central bank digital currency (CBDC)issues will help business leaders put enablers in place to optimize investments in blockchains, smart contracts, digital assets and other Web3 opportunities.

Digital Currency Definitions

  • Central Bank Digital Currency (CBDC): A form of digital currency issued by a country's central bank. They are similar to cryptocurrencies, except that their value is fixed by the central bank and equivalent to the country's fiat currency.

  • Cryptocurrency: A cryptocurrency is a digital or virtual currency secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Most cryptocurrencies exist on decentralized networks using blockchain technology—a distributed ledger enforced by a disparate network of computers.

  • Stablecoin: Cryptocurrencies whose value is pegged, or tied, to that of another currency, commodity, or financial instrument. Stablecoins aim to provide an alternative to the high volatility of the most popular cryptocurrencies, including Bitcoin (BTC), which has made crypto investments less suitable for common transactions.


Crypto and stablecoin: What would Howey do?

Consumer and business cryptocurrency adoption continues to increase despite the industry’s well-publicized struggles in the past 18 months.

Market research conducted by crypto payment gateway Triple-A estimates there were more than 420 million global crypto users at the start of 2023, representing about 4.2% of the global population. One graph in Triple-A’s report overlays global internet adoption from 1991 to 1998 with global crypto adoption from 2014 to 2022: The trajectories are nearly identical. The countries with the largest portion of crypto-owning citizens include the United Arab Emirates, Vietnam, the U.S., Iran, the Philippines, Ukraine, South Africa and El Salvador. In the U.S., 44% of U.S. cryptocurrency owners have annual incomes of US$100,000 or more, 66% hold at least a bachelor’s degree, and 82% are between the ages of 18 and 44. The report also notes that more companies—in retail, financial services, technology, media and entertainment, automotive and telecommunications—are accepting cryptocurrency payments.

A failure of governance and risk management, not a failure of crypto

Crypto adoption remained steady during a 15-month period marred by crypto company liquidity crunches, bankruptcies, bitcoin-laundering lawsuits, enforcement actions and indictments. This resilience shows that the DeFi and Web3 ecosystem is larger and broader than certain crypto exchanges, lenders and stablecoin issuers. Besides, closer scrutiny of most of these misdeeds (alleged or otherwise) points to fundamental corporate governance and risk management failures as root causes of many crypto company collapses. The OCC’s 2016 report on responsible innovation ought to be required reading among crypto-company leadership teams. The OCC’s Responsible Innovation Guiding principle #5 calls for furthering safe and sound operations through effective risk management.

Since that didn’t occur in many cases, upcoming legal, regulatory and legislative outcomes could have significant impacts on crypto markets. One of the biggest crypto-related questions in the U.S. is whether crypto qualifies as a digital commodity (and is therefore subject to CFTC oversight) or a digital security (subject to SEC oversight and registration). An answer likely pivots on the so-called Howey Test, a four-pronged determination of whether a transaction or contract qualifies as a security, based on a 1946 Supreme Court decision.

Regulatory attention

U.S. executive and legislative branch attention on cryptocurrency is also increasing. On September 16, 2022, President Biden issued an executive order detailing a framework for the responsible development of digital assets. Congress has proposed dozens of crypto and blockchain-related bills, including the Clarity for Payment Stablecoins Act, which cleared the House Financial Services Committee in August but lacks support from the President, the Treasury Department and the Fed. At the markup session Representative Patrick McHenry, the Republican chair of the Financial Services Committee, warned, “As other jurisdictions like the UK, the EU, Singapore, and Australia move forward with clear regulatory frameworks for digital assets, the United States is at risk of falling behind.”

The EU’s enactment of MiCA earlier this year confirms that the U.S. has regulatory ground to make up. The sweeping regulation establishes a comprehensive framework for issuers and service providers including compliance with the anti-money laundering rules while covering issuers of utility tokens, asset-referenced tokens and stablecoins, along with service providers (e.g., exchanges and wallet providers).

“As other jurisdictions like the UK, the EU, Singapore, and Australia move forward with clear regulatory frameworks for digital assets, the United States is at risk of falling behind.”

- U.S. Rep. Patrick McHenry, Financial Services Committee


Central bank digital currency (CBDC): What’s happening?

As of July, 11 countries—Nigeria, Jamaica, The Bahamas and eight other Caribbean countries—had launched CBDCs, according to The Atlantic Council, which maintains a nifty tracker of CBDC initiatives in 130 countries.

Another 25 countries are now running CBDC pilots, including India, China (whose government has officially banned cryptocurrencies while embracing the digital yuan), Russia, Australia and Sweden. The U.S., along with Canada, Mexico, the UK and most EU countries have CBDC programs in development; and 45 more nations are in the research phase. President Biden’s September 2022 Executive Order calls for the exploration of a CBDC, which the New York and Boston Federal Reserve Banks are exploring by developing prototypes for both retail and wholesale CBDC.

Last year, El Salvador and the Central African Republic made bitcoin their national currencies. Making a decentralized digital coin the national currency represents a markedly different monetary policy than creating a CBDC, which is highly regulated and controlled by a central bank, and, in most cases, operated on a private blockchain.

Types and approaches

CBDCs can be retail (focusing on consumers and small businesses) or wholesale (larger businesses, governments) in nature. A retail CBDC differs from existing forms of cashless payment instruments because “it represents a direct claim on a central bank rather than the liability of a private financial institution,” according to the Bank for International Settlements (BIS), which also tracks global CBDC trends. “In contrast to a retail CBDC, a wholesale CBDC targets a different group of end users. Wholesale CBDCs are meant for use for transactions between banks, central banks and other financial institutions. So, wholesale CBDCs would serve a similar role as today’s reserves or settlement balances held at central banks.” The majority of current CBDC pilots are retail-focused.

The primary motivations for creating a CBDC, according to the BIS, include financial stability, monetary policy implementation, financial inclusion (i.e., reducing the number of unbanked and underbanked citizens), payments efficiency (especially for cross-border payments) and payments security/robustness.

CBDC designs and approaches vary widely. Some are token-based, others are account-based; distribution, access, privacy and security mechanisms differ as well. CBDCs also help address changing consumer preferences, including a growing embrace of digital transactions and the declining use of cash. In 2016, 31% of consumer payments were conducted in cash and 45% were made via credit and debit cards, according to the Federal Reserve Bank of San Francisco; by 2022, cash comprised only 18% of consumer payments while 60% of payments were made with credit and debit cards.

Upsides and downsides

Economist and Cornell professor Eswar Prasad’s book The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance, provides a comprehensive analysis of CBDC pros and cons. The disintermediation of banks is a potential CBDC downside. If a central bank paid interest on its retail CBDC accounts, it could directly compete with commercial banks. While that makes interest-bearing retail CBDCs less likely, there are also upsides for traditional financial services companies: “Wholesale CBDCs could allow financial institutions to access new functionalities enabled by tokenization, such as composability and programmability,” according to the BIS. Large financial institutions are already leveraging DeFi innovations: Last fall, JPMorgan executed its first cross-border transaction on a public blockchain, and the company continues to explore, and invest in, digital identity capabilities and other Web3 innovations.

In his analysis, Prasad also discusses numerous monetary policy benefits of CBDCs: “A CBDC, if properly designed, makes monetary policy more potent in general,” he writes, “particularly under difficult circumstances when an economy faces collapsing growth and spiraling inflation.”

“Wholesale CBDCs could allow financial institutions to access new functionalities enabled by tokenization, such as composability and programmability,” according to the BIS.

digital stock chart

Laying the groundwork for Web3 capabilities

The blockchain and digital asset building blocks used in cryptocurrencies, stablecoins and CBDC also undergird a broader range of business uses across industries. DeFi is often used to describe public blockchain technology used to create digital financial services, products and applications related to payment processes, borrowing and lending, and more. Widening the focus beyond financial services and this decentralized infrastructure generates Web3 opportunities related to smart contracts, NFTs and other digital assets, and decentralized autonomous organization (DAO) models.

“Web3 introduces concepts of decentralized accountability and self-sovereign identity, which creates a digital world that centers the control of data around its use,” notes Protiviti Global Leader of Technology Consulting Kim Bozzella. “That, in turn, empowers individuals to have increased control and ownership of privacy and security while interacting in digital realms.”

Again, the nature of these digital applications and opportunities is varied and broad. Stablecoin payments can help small businesses, small vendors and gig workers, accounts receivable functions, and working capital management capabilities.

Areas of opportunity

As more companies integrate crypto and stablecoin into their investment activities, new forms of insurance are needed. Less than 5% of crypto assets are thought to be insured, according to Reuters: “The question for insurers today is no longer whether there should be coverage for cryptocurrency, given the market entrants already in the field. Rather, the question is what forms such coverage will or should take.” But still, finding reliable insurance for crypto is no easy task.

Digital cross-border remittances, e-commerce, the gaming market and the luxury goods market mark the most lucrative short-term opportunities for digital currency and Web3-related adoption and advancements, according to Triple-A’s research.

Protiviti’s annual survey of global CFOs suggests that finance leaders across all industries recognize these opportunities. Although they were never low-ranked finance priorities in previous surveys, blockchain and smart contracts jumped well into the top 10 in the 2022 survey results.

That recognition is important from a CFO perspective because Web3 opportunities related to payments, investments and digital assets require robust governance, risk management and compliance capabilities; new treasury, tax and internal audit considerations; and adjustments to related back office processes (e.g., order-to-cash and procure-to-pay).

Nathan Hilt, a Protiviti managing director who leads the firm’s payments and fintech solutions practice, tells Treasury & Risk that he views different modes of accelerated payments not as a single, absolute treasury solution, but as options that can meet different needs. “The goal is to fit the use case to the processing capability and the ecosystem that would support the various payment methods,” Hilt says. “I don’t think there will be, or ever is, a ‘one size fits all,’ so there is a continued need and business case for various accelerated-payment methods.”

Watching for risks

As financial institutions and companies in other industries increase their use of digital currencies and onboard new customers in more global regions, sanctions evasion risks will intensify. Strengthening anti-money laundering (AML) and “know your customer” (KYC) capabilities along with adherence to a raft of other financial crime-related regulations could help. Customer assessments must be continually updated, transactions should be screened against updated sanctions lists, and blockchain analytics will improve the ability to sniff out transactions linked to higher-risk wallet addresses. Related compliance considerations are also crucial.  

The bottom line

While Web3 encompasses much more than cryptocurrencies and the exchanges they trade on, growing adoption of digital currencies has ripple effects on business innovations. So, too, will legal, regulatory and enforcement clarity. As new governance and oversight guardrails emerge, more C-suites will have additional opportunities to thoughtfully pursue DeFi and Web3 experimentations and innovations.

Web3 opportunities related to payments, investments and digital assets require robust governance, risk management and compliance capabilities; new treasury, tax and internal audit considerations; and adjustments to related back office processes.

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