Virtual assets have taken not only the online gaming community, but the world, by storm. Everything from Bitcoin to NFTs (non-fungible tokens) has prompted the increased “tokenization” of the online finance world.
For finance and virtual asset expert Loretta Joseph, this is just the tip of the iceberg, and the traditional finance system could be “gone in two years”, or less.
Joseph, the Managing Director of the Policy Group, has been in the online space for years, writing the model for virtual assets for the Commonwealth – a trade organization that brings together some 56 countries and 2.5 billion people, 1.5 billion of whom are under 30. Her consultancy work with the Financial Action Task Force (FATF) – the ruling standards body behind all things financial, and with the Organization for Economic Co-operation and Development (OECD), has not only helped shaped recommendations and encourage growth in developing countries but has also encouraged the right questions at the right times.
And one of those main questions is: what happens next?
“Digital finance is going to be much bigger than anything that we see in the traditional finance world in the next 18th months”.
Loretta Joseph
She goes on to note that in the same period “every asset will be tokenized – from buying McDonald’s in the Metaverse to gambling in Macau”.
Granted, bricks and mortar institutions will be slower to catch up to the trend, such as multi-billion-dollar integrated resorts for which cash will continue to be king for some time.
But even these are starting to catch up, with things like player redemption and incentive offers in the form of tokens are present on many gaming floors. The move to cashless play – as exemplified in Australia – will further push punters away from grubby bills to some form of virtual asset or another.
And in the online world, operators have already been running far ahead of regulators; and are likely to for some time.
In the online gaming space, from Pokemon Go’s Pokécoins to cryptocurrencies predominantly in use across sports betting and online casino platforms, virtual assets are already extensively in use. And the next generation is already used to walking around without a physical wallet.
Looking specifically at one type of virtual asset, the finance expert notes “crypto adoption is on the rise and it’s only going to get better. In the next five to 10 years, everyone on the planet will own some sort of crypto. Every institution, every individual”.
The reasons are simple: “it’s the only asset I can move 24 hours a day/seven days a week, to anyone in the world without an intermediary – with my mobile phone. Every country in the world has access to this stuff”.
This has been made possible by a massive evolution in technology, prompting a type of financial revolution – where “you will see a mix between public money and private money […] it’s not just all going to be controlled by central banks”.
Regulators around the world are scrambling to make sure that their anti-money laundering and counter-terrorism financing (AML/CTF) efforts are up to snuff – especially to avoid being placed on the FATF grey or black lists – which are notoriously difficult to get off (just look at the Philippines’ ongoing efforts). But that doesn’t mean that adoption of crypto or virtual assets should at all be shunned, points out the expert – in particular in places where innovation is absolutely essential.
“I find the emerging markets are much faster at adopting technology,” notes the expert. Some good examples she points out in Asia are Thailand, Vietnam and Indonesia.
“It’s so important in the recent years, especially for the emerging world, so much so that kids that never had dreamed of being an entrepreneur – in Nigeria or Uganda or the Philippines – how have the opportunity to make and build businesses without relying on traditional finance.
“Having a digital payment level – whether it be for online gaming, the Metaverse, digital finance lending; whatever we do digitally going forward has to be in something that’s not fiat currency”.
Joseph is in the process of writing the laws and regulations for numerous countries to ensure a level playing field in the new digital finance world – and one thing that’s held her attention is the potential for stablecoins.
Stablecoins
Not everyone is ready to take on the rollercoaster ride that holding crypto can be. That’s where stablecoins come in.
“Stablecoins are asset-backed. So, generally at the moment if they’re Dollar-denominated or Euro-denominated – generally, if they’re fiat currency-backed then they have some banking requirements around them […] they’re just like a US deposit note in the 1940s,” notes Joseph. “Tell me why you can’t just write a very basic banking law that makes sure that things are collaterized and they are what they say they are,” she opines.
A stablecoin like Tether (USDT), at the time of writing, had a market cap of around $117.5 billion dollars. And that, of course, brings about some risk. Even Tether crashed to less than 70 percent of its value in 2022 amongst a crypto bloodbath.
“But the stablecoins are that intermediate layer between very volatile cryptocurrencies and fiat currency […] if you’re looking at the de-risking with the US dollar and the geopolitical situation, people are interested to hold a stablecoin […] you’re seeing a geopolitical shift in what currencies people hold.”
What is going to change this environment further, and make it even more attractive, is when stablecoins start to become yield-bearing – low-risk, low-volatility assets that have a yield accrued just by the owner holding them, similar to treasury bonds or fixed deposits.
“That changes the dynamics of everything globally, because you will have entire generations of people that will not touch fiat currency.”
And policy to protect investors is much more advanced than it had been just a few years ago. Something that is absolutely necessary because even stablecoins “probably have a financial stability risk at some point”.
Looking at USDT, “Tether holds a ridiculous number of short-dated bonds. If they got banned in the US, there goes your GFC (global financial crisis), and it would be a much harder GFC than the one I traded options through,” notes the expert.
That said, Joseph mentioned that at her recent time at a G20 gathering “stablecoins were on everybody’s agenda – whether it be standard setters, governments, etc. In the next two years, I think you will see complete regulation across this entire ecosystem”.
And that particular focus on digital assets can only mean good things for licensed online gaming regulators (as pointed out in numerous ASEAN Gaming Summits, online operators need to rely on trust in order to keep a loyal customer base, even in the absence of regulations that mandate how they operate).
“We need trust, and you get trust by being regulated – everyone wants regulation, once trust is in the system, we’re moving into a really interesting era”.
That era will be defined by how well policy makers can work to understand technology and acknowledge that the worldwide policies being built aren’t for us, they’re for the next generation.
“You’re now seeing regulators and technologists coming together, we’re all working together. Cooperation with this stuff really is the new survival because we can’t regulate without technologists, and they can’t create the technology without repercussions and regulation”.
No matter what happens next, “the new digital finance era is now upon us,” notes the expert.
