FedNow Payment System: A Challenge or Opportunity for Crypto Assets?

Crypto Assets supporters have long predicted that digital assets will replace fiat currency and become the mainstream of global transactions. However, the upcoming FedNow instant payment system from the Federal Reserve has sparked widespread discussion in the market. While some view this as the first step toward a monitored currency, others see it as the end of use cases for Crypto Assets, the reality may be more complex.

FedNow is the interbank real-time gross settlement system developed by the Federal Reserve to address global payment infrastructure issues. It aims to support faster payments, partly in response to the challenges posed by encryption payments and fintech solutions. FedNow will operate around the clock, providing final settlement and represents a significant upgrade to the U.S. payment system.

However, the emergence of FedNow does not mean that Crypto Assets will lose their value. In fact, under this new system, encrypted payments still have their unique roles and advantages:

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

In recent years, the trend of de-dollarization has become increasingly evident, with the share of the Renminbi and Euro in international transactions significantly increasing. This provides growth opportunities for stablecoins, especially in regions where the use of the dollar is restricted. FedNow still operates based on the existing payment framework and has not expanded the coverage or potential transaction volume of the dollar.

2. FedNow ignores on-chain transaction opportunities

Although FedNow may be seen as 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 grew by 8,750%, reaching $123.9 billion. This is primarily due to the role of stablecoins in the decentralized finance (DeFi) space. FedNow does not allow the dollar to participate in on-chain transactions, which goes against the market trend of asset tokenization.

3. FedNow failed to improve cross-border payments

The currently designed FedNow mainly focuses on domestic payments in the United States, with limited improvements for international payments. In contrast, stablecoin payments have become an effective solution to address cross-border payment friction. In the first quarter of 2023, the amount of stablecoin payments and transfers reached $2 trillion, surpassing PayPal's total processing volume for the entire year of 2022.

Although the launch of FedNow will undoubtedly impact the payment industry, it does not signify the end of Crypto Assets. On the contrary, many innovations and improvements brought by FedNow to the current payment system actually reflect some advantages of blockchain-based transactions.

As FedNow transitions from the development stage to mainstream application, some issues (such as the current $500,000 transaction limit) may be resolved. However, the launch of FedNow may instead create opportunities for more stablecoin transactions, driving further development of the Crypto Assets ecosystem.