Digital assets continue to gain legitimacy in the financial services world, particularly as governments around the world begin to consider the value of a proprietary, state-backed tokenized asset or stablecoin.
While the value proposition is expanding, moving from concept to reality with such initiatives doesn't always have a clear path for FinTechs, banks and government entities.
Like so many areas of finserv innovation, collaboration will be key. And just as the Banking-as-a-Service boom has picked up to help traditional banks shift away from legacy infrastructures to meet the increasingly complex demands of modern customers, the as-a-Service model has the potential to smooth the journey toward digital assets, according to Zero Hash Co-founder and CEO Edward Woodford.
But it's not going to happen overnight, he told PYMNTS. In an interview, Woodford explored the use-cases that are gathering the most steam for digital assets, the strategy of Crypto-as-a-Service to promote adoption, and why supporting the path to ubiquity must first involve a mesh of both traditional payment methods, and what Woodford describes as FinTech 2.0.
The XaaS Model
For entities like banks and FinTechs interested in offering cryptocurrency solutions, go-to-market strategies involve a lot of heavy lifting, particularly in the regulatory and infrastructure department. It's why Zero Hash is taking the Banking-as-a-Service model and applying it to the cryptocurrency world, offering these entities the infrastructure and compliance they need to issue and build services around digital currencies and stablecoins.
One of the biggest use-cases among adopters so far has been in the payments and remittances arena, with another camp of clients wielding the technology to use digital assets as a means of stored value for trading. Increasingly, clients are exploring the potential of stablecoins, and while it's up to Zero Hash clients to wield the company's infrastructure and explore emerging use-cases at will, the firm has identified opportunities itself that will guide the evolution of its offering.
For instance, some clients are taking advantage of the ability for digital assets like stablecoins to enable transactions at any time.
"What I find personally quite interesting with the companies we're working with is the ability to send assets 24-7-365," said Woodford. "That's pretty empowering, whether you're a corporate or an individual seeking to send funds ... Being paid 24-7 in the market is really difficult."
There are use-cases for stablecoins in areas like cross-border payments and foreign exchange, but Zero Hash has also identified an opportunity to help financial institutions and FinTechs explore ways to use stablecoin technology in their own lending operations.
"We're working with a number of banks to offer a packaged lending product," explained Woodford. "In this environment of low interest rates, people are looking for more creative ways to create yield."
Pegging a digital asset to a fiat currency like the U.S. dollar, for instance, can create a 5 percent to10 percent yield, opening up an opportunity in the Lending-as-a-Service arena, he added.
Increasingly, government entities are interested in stablecoin technology as well. While it's a promising development in the world of digital assets, Woodford said he doesn't expect state-back initiatives to go live and take off anytime soon.
Rather, the biggest value in these efforts is in validating digital assets as a whole.
"If you look at what has caused the shift in mentality in the last 12-18 months, it went from, 'No, we don't want this,' to, 'No, but this is interesting' to the point now where it's interesting and people are actively engaging in this space," he explained. "One of the reasons for that is because of the sentiment, caused by those government announcements. It's one driver, but it's more important and meaningful now in terms of how it's adjusted the attitude."
The fact is, any dramatic change in the world's payments landscape isn't going to happen overnight — certainly not a shift from fiat currency toward digital assets like bitcoin. It's part of the reason why stablecoin technology is so popular; it's a blend between fiat and digital currency, and that mix is critical to driving traction.
As such, Zero Hash, which recently announced the closure of its Series C funding round, is planning to not only augment its lending offering, but to integrate ACH processing capabilities within its infrastructure. This will be especially useful for remittance companies that are looking for this blend of payment worlds as they usher in the era of FinTech 2.0.
To demonstrate just how important it is to combine traditional with new payment rails and technologies, Woodford pointed to his own experience of getting paid.
"I work at a crypto company, but I'm still paid in USD," he said, adding that there are certain valuable use-cases both for fiat currencies and digital assets depending on the scenario. "There is very much still this need to bridge traditional markets and regulation with this FinTech 2.0, and we seem to be that bridge."