FedNow System Launch: The Future of Crypto Assets Remains Bright

Crypto Assets supporters have long predicted that digital assets will replace fiat currency and become the new standard for global transactions. However, the launch of the Federal Reserve's instant payment system, FedNow, has sparked a variety of reactions in the market. Some view it as the first step towards monitored currency, while others see it as the end of Crypto Assets use cases. But the reality is much more complicated.

FedNow is an interbank real-time gross settlement system developed by the Federal Reserve to address the global payments infrastructure challenges. Its emergence is partly to respond to the challenges posed by Crypto Assets payments and fintech solutions. The system will operate around the clock, providing final settlement, representing a significant upgrade to the U.S. payment system.

Although FedNow offers instant, globally interconnected, and irreversible payment services, this does not mean that Crypto Assets will lose their value. In fact, encryption payments still play an important role under the FedNow system for the following reasons:

1. FedNow has not expanded the dominance of the US dollar.

In recent years, the trend of de-dollarization has become increasingly evident, with a significant increase in international transactions settled in Renminbi and Euro. Against this backdrop, stablecoins provide growth opportunities for the market, especially in regions where direct trading in US dollars is prohibited. The FedNow system operates within the existing framework and does not expand the coverage or potential trading volume of the US dollar.

2. FedNow ignores on-chain opportunities

Although FedNow appears to be an alternative to stablecoins, it overlooks one of the fastest-growing applications of stablecoins: on-chain transactions and applications. From 2017 to 2023, the total supply of stablecoins increased by 8,750%, reaching $123.9 billion. This growth is primarily attributed to the role of stablecoins in the DeFi space. FedNow does not allow the dollar to participate in on-chain transactions, which contradicts the market trend of asset tokenization.

3. FedNow has not improved cross-border payments.

The current FedNow design primarily focuses on domestic payments in the United States, with limited improvements for international payments. In contrast, stablecoin payments have become an effective solution for addressing cross-border payment friction. In the first quarter of 2023, stablecoin payment and transfer amounts reached $2 trillion, surpassing PayPal's total processing volume for the entire year of 2022.

Although the FedNow system will have a significant impact on the payment sector, it does not signify the end of Crypto Assets. On the contrary, many innovations and improvements introduced by the FedNow system actually reflect some advantages of blockchain-based transactions. As the platform gradually improves and becomes more widespread, some existing issues (such as the $500,000 transaction limit) may be addressed.

Overall, the launch of the FedNow system will not end Crypto Assets; rather, it may create opportunities for more stablecoin transactions, further promoting the application and development of digital assets in the global financial system.