By John San Filippo
In August of 2019, DaLand CUSO released a product called Coin2Core. The tech CUSO claimed that Coin2Core would allow credit unions to vault member crypto assets on their existing core platforms. At the time, few credit unions seemed to take notice, as cryptocurrency was still considered a fringe topic in the credit union space.
Things have clearly changed in the ensuing two and a half years. This past December, digital banking provider Alkami Technology and NYDIG, a cryptocurrency company committed to financial inclusion, announced a partnership to bring cryptocurrency capabilities to the $8 billion Idaho Central Credit Union. Major fintech players like Fiserv and Jack Henry are also including cryptocurrency in all roadmap-type discussions.
Given this new environment, Finopotamus decided to talk with Jon Ungerland, CIO at DaLand CUSO and creator of Coin2Core, to get his thoughts on the state of credit union crypto.
The Writing on the Wall
Cryptocurrency and blockchain had been popular topics at leading financial conferences like Money20/20 since at least 2017, but the movement had not gained much traction with credit unions. Speaking of DaLand’s decision to develop Coin2Core, Ungerland said, “At that point in time, the only real-world use case for blockchain in terms of the financial services sector that had been proven and demonstrated and had clear value was cryptocurrency. I probably sounded like a crazy person in the wilderness at that point talking about cryptocurrency inside community financial institutions, but from a technological perspective, the blockchain technologies, distributed ledger technologies – the things that are driving decentralized finance – it seemed like that was going to be the winning use case for the application of these technologies in financial services.”
According to Ungerland, while some pursued other use cases for blockchain, such as user authentication, it made sense for DaLand to focus on cryptocurrency because the use case had already been proven on a global scale. “I saw a future that involved connecting your open, modern credit union core to these distributed ledger networks,” he said.
“Now we seem to be heading straight toward consumers and merchants and communities wanting to use digital assets for payments and transactions and lending,” added Ungerland, “because it's faster, it's cheaper, it's more flexible. You can base smart contracts on them. You can incorporate any number of layers of innovation into these underlying technologies that benefit what we do in financial services.”
Ungerland summed up DaLand’s early interest in cryptocurrency this way: “I saw clearly the potential for blockchain and distributed ledger technology to disrupt the centralized institution marketplace and this claim that we had to controlling transactions and financial services just because we control the data in these centralized core repositories. I could see that that was going to be disrupted.” He added that cryptocurrency promises to bring financial services access to communities “cost-effectively, freely and democratically.”
Crypto Today
While Ungerland is generally pleased that community financial institutions are now taking interest in cryptocurrency, he said he’s been amazed by lagging adoption rates.
“I'm a little bit surprised by how asleep at the wheel the United States market is in particular,” said Ungerland. “I'm not singling out community financial institutions. I think as a whole, compared to what I see globally, the U.S. market is behind the curve on this one. It’s because we generally presume the dominance of the electronic dollar. I think that's a precarious presumption to believe that the financial services world will always exist because of the dollar.”
Ungerland further claims that cryptocurrency has broader social implications. “In North America, the collapse of trust in institutions, the collapse of trust in banks, the collapse of trust in our political leaders is directly intersecting with this topic of digital assets,” he stated. “The current events going on in Canada directly spotlight why I always believed that this is where things were going – that it is going to become an issue of fair, affordable, democratic access to financial services.”
Ungerland was referring to Canada’s decision to freeze not only traditional bank accounts related to the recent protest, but also crypto assets. This freeze officially ended on February 23.
“This situation in Canada has really demonstrated how we're at this confluence of fair affordable, democratic and free access to financial services intersecting with the interests of these hyper centralized, arguably authoritarian institutions that want to dictate what happens with a person's money and a person's transactions and person's life,” said Ungerland. “That’s something I didn’t expect. I didn't expect to see a Western nation proving the use case for bitcoin in terms of fair, affordable, democratic access to financial services.”
Enter Stablecoins
How does the volatility of the cryptocurrency market affect its ability to serve as a payment mechanism? In other words, what if the cryptocurrency that one accepts for payment of their car today can only buy a stick of gum tomorrow?
“It’s worth looking at the whole market of stablecoins, where you have a stable value because it's backed by some portfolio of other assets,” noted Ungerland. “What's interesting about those coins is that from 2020 to present day, the chart on volatility of stablecoins is compressing down into where, in any given day or week or month, there's a 1% volatility on the value of those coins.”
He added that this trend has caught the interest of U.S. regulators and the Fed because now consumers now have a ready-made exit path from the existing electronic dollar over to a digital currency, where those funds can generate a higher yield.
“You could go put money in an exchange today and have a stable value and get a 3% APY,” claimed Ungerland. “You're not going to get a 3% APY on a money market account at a centralized FI right now. It's just not going to happen.” He added that there’s been an exodus of billions of dollars from traditional financial institutions to stablecoin markets.
See for Yourself
It’s easy enough, claimed Ungerland, for credit union executives to begin assessing how cryptocurrency is affecting operations.
“I always recommend that the institutions we're consulting on this topic pull a report from their core and look at how much money is going out of the institution into Coinbase, BitPay or Robinhood.” He said that it’s likely a “massive” amount for every credit union.
“If anybody's a skeptic on this topic, or wants to understand what it’s all about, go download a wallet,” concluded Ungerland. “I would not recommend Coinbase for a number of reasons, in terms of security value, owning your own coins, etc. Download Exodus, download Kraken or download BitPay. Figure out why consumers are into this stuff, because it's not just the yield. It turns out it’s really easy to move money on these platforms.”