The 21st century has sparked tons of innovation in every area of human endeavor, one of those areas being the financial world. A semi-receent development that has caught the attention of many in the finance world is Stablecoin. A type of cryptocurrency where digital cash is pegged at a 1:1 rate to fiat currency, this digital cash is issued as tokens on a blockchain and provides lower price volatility than normal crypto (because of its 1:1 peg to fiat currency) and higher speed of transactions than fiat currency. Stablecoins main aim is to provide an alternative to our current payment systems. On the one hand, traditional payment systems are slow, often requiring multiple business days to clear a transaction. Along with this, these legacy systems have intermediaries that charge fees and increase the costs of transactions. Legacy systems also only operate during business hours, making them often unavailable in times of need. On the other hand, Stablecoins provide instant settlement of transactions, have no middleman thus no extra fees, and operate on a blockchain that is fully operational 24/7/365. The peer to peer instant transfer aspect of Stablecoin is popular among the DeFi (decentralized finance) community as they are quickly losing trust in our central banks ability to keep fiat currency as a reliable store of value, medium of exchange, and unit of account. Now, after hearing all these benefits you may be asking, “Ferris, why have Stablecoins not taken over as our main payment system?” Well, it is because they aren't very regulated yet. They don't have the necessary framework to be a widespread gadget yet. But, I advise everyone to get familiar with them because they will take over soon. Financial institutions better be ready for the switch from legacy payment systems to Stablecoin because if they aren’t, they will be in big financial trouble.
Equity Insights
↑Bank of America (BAC): With an earnings beat on revenue and EPS this week, banks like BAC are up across the board this week as Q3 results come out strong. Backed by merger and acquisition/IPO upticks during the third quarter.
↑ BlackRock (BLK): Up almost 3% this week as of Thursday after an earnings beat on Tuesday, the whale asset manager just surpassed 13.5 trillion AUM, a record for the firm. Larry Fink, BlackRocks CEO, reported on CNBC after earnings came out that BlackRock has begun the “tokenization of all assets” (the digital representation of physical assets on the blockchain). This capitalization on a growing sector could be a sign to buy for Q4.
Theme of the Week
The early 2000s sparked major public distrust in corporations after scandals at major firms such as Enron and World Com. These firms engaged in massive accounting fraud that shook investor confidence and wiped out billions in shareholder value. These scandals falsely enriched corporate insiders at the expense of investors. In response, congress passed the Sarbanes-Oxley Act of 2002 (SOX), a federal law enacted to protect investors from fraudulent corporate accounting practices.
SOX required that top management individually certify the accuracy of financial information, thus making it a crime to knowingly sign off on false statements. It also created the Public Company Accounting Oversight Board (PCAOB), a board that regulates the auditing of firms, preventing relationships between auditors and the companies they review. The law also increased penalties for fraud, and it made corporate oversight more vigilant.
As a result of SOX, investors regained trust in the system as financial reporting became more transparent. The law is not without criticism though, smaller companies complain about the cost and complexity of compliance with the new regulations. This poses a question for readers... Do you think SOX has been beneficial to the American financial system by promoting transparency, or has it placed unnecessary strain on smaller firms trying to compete?
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