Bank customers and the United States economy may miss out on potential opportunities if blockchain technology is not properly regulated, according to Travis Hill, the vice chair of the U.S. Federal Deposit Insurance Corporation (FDIC). Speaking at the Mercatus Center think tank on March 11, Hill warned that the United States is already at risk and that the FDIC shares some of the blame for this situation.
Hill highlighted that the tokenization of bank deposits and other real-world assets (RWA) could enable financial transactions to be carried out at any time with real-time settlement. This would also allow for programmable payments, making it possible to conduct intraday repurchase (repo) exchanges and improve settlement times for various transactions, including bond issuances. Programmable payments could also be used instead of escrow, providing benefits to consumers.
However, there are several unanswered questions regarding tokenization. Hill mentioned issues such as the use of unified ledgers, blockchain interoperability, and ownership rights as assets move along the blockchain. Additionally, programmability could reduce settlement risks and Know Your Customer processes, but it could also lead to consumers quickly moving their assets, potentially causing bank runs. Hill emphasized the need for an “off” switch to prevent this.
Hill acknowledged that regulatory agencies have struggled to establish consistent policies in the past. Instead, institutions must now engage with their regulator on an individual basis. He also criticized the FDIC’s regulations, which treat all blockchain transactions the same, whether they involve RWA or cryptocurrencies. Hill called for guidance from regulators to ensure consistency in the treatment of deposits in any form. He specifically criticized the Securities and Exchange Commission’s (SEC’s) Staff Accounting Bulletin 121 (SAB 121), which treats crypto assets differently from other assets. He argued that the definition of crypto assets used in the bulletin is broad enough to include tokenized RWA.
In conclusion, Hill highlighted the transformative potential of blockchain technology, particularly in the real estate market. However, he stressed the importance of proper regulation to avoid negative consequences for bank customers and the U.S. economy.