Last week, I had the opportunity to go to Capitol Hill (virtually, of course) and join a panel of experts to brief members of the House Financial Services Committee FinTech Task Force about blockchain technology and its role in transforming financial services.
I love speaking about the power of blockchain, and speaking to members of Congress about it is important. I want to help them to have confidence in this technology and particularly in Stellar. I focused my time in front of the Task Force on the role that Stellar and blockchain plays in payments and more specifically, global payments and remittances.
Because that’s an area we know that deeply needs innovation. According to the U.N., 800 million people – about one in nine globally – are supported by funds sent home by migrant workers. Unfortunately, remittances remain expensive and slow. According to 2019 data from the World Bank, the global average cost of sending $200 across a national border is around 7%. So many people and economies are dependent on high-cost remittances that the U.N. created a sustainable development goal to reduce the per transaction cost of remittances to less than 3% by 2030.
The Committee seemed receptive to, and optimistic about, the idea of creating a more efficient global payments system through blockchain technology. I was able to share some of Stellar’s important use cases for remittances, that illustrate how Stellar rails connect people across geographies, like Cowrie in Nigeria and Tempo in Europe.
I also took the opportunity to emphasize the importance of regulatory clarity to drive innovation. Well-informed guidance from policymakers for the innovators building in this space is crucial to the long term success of the technology.
At SDF, we see this as a great step forward. The mere fact that these hearings are happening, and that they are including diverse participants, shows us that Members of Congress are ready and willing to engage with these technologies. We are encouraged at the level of engagement as we believe that a better understanding of the technologies and their power to drive positive change will lead to thoughtful regulatory decision making.
For those who want to learn more about the discussion, my full remarks are below as well as a link to a recording of the briefing.
September 24, 2020
Good morning Chairman Lynch, Ranking Member Emmer and members of the Committee, thank you for having me at this briefing today - I’m honored to speak with you about the functions of blockchain technology in financial services and to answer any of your questions.
My name is Denelle Dixon, and I am the CEO and Executive Director of the Stellar Development Foundation. I’ve been in this role and working in blockchain for the last 16 months. Prior to that I was the Chief Operating Officer of Mozilla - the maker of the Firefox browser where I spent my time focusing on the intersection of business, technology and public policy. In both of these roles, I have advocated for and highlighted the importance of privacy, net neutrality, encryption, the need for openness and interoperability in technology and fostering competition and creativity on the web. Today, in my role at SDF, these policy issues remain an important focus - as there is a need for openness and interoperability in blockchain so that we can foster competition in our space as we did in the early days of the Web.
The Stellar Development Foundation is a non-stock, non-profit corporation with no shareholders, no owners and no profit motive. We are not a charity - we pay state and federal taxes, but our structure allows us to be beholden only to our mission - creating equitable access to the global financial system. We look to accomplish our mission by making money more fluid, markets more open, and people more empowered through the use of the Stellar network. Our work at SDF is broad and yet focused on this technology stack - we shepherd the code base for the Stellar Network, participate in the ecosystem surrounding Stellar, support the growth of the ecosystem and the use cases built on top of Stellar - in addition to supporting global public policy and education around Stellar and blockchain.
What is Stellar? Stellar is an open, permissionless, decentralized ledger - or blockchain network that is optimized for payments. There is no single entity, including SDF, that controls the codebase of the network or its growth. You don’t need permission to use the technology - it is just like the underpinnings of the Internet - it is open and ready for your use. The many third parties building, innovating and growing the network are a testament to our open source background - and are the source of financial innovation and inclusion. Using Stellar, makes it possible to create, send and trade digital assets backed by nearly any form of value – and to do so in a compliant manner. The network interoperates with the traditional financial system to leverage the benefits of blockchain technology to enhance, not supplant existing infrastructure. The Stellar network has been operating for over five years, and today, the Stellar network processes over 2.5 million daily transactions with over 4.5 million accounts.
As Members of the Task Force have [likely] heard [today], there are countless applications for blockchain technology within the financial services sector. I’d like to focus my comments today on just one: payments. Particularly, cross-border payments. The World Bank estimates global remittances totaled $714 billion in 2019. For 7 countries last year, remittance inflows accounted for more than 20% of GDP. And, according to the U.N., 800 million people – about one in nine globally – are supported by funds sent home by migrant workers. Unfortunately, remittances remain expensive and slow. According to 2019 data from the World Bank, the global average cost of sending $200 across a national border is around 7%. So many people and economies are dependent on high-cost remittances that the U.N. created a sustainable development goal to reduce the per transaction cost of remittances to less than 3% by 2030. This is where blockchain can help. Sending any transaction across a border on Stellar, whether the value is $2, $200, or $2,000 is fast, taking around 3-5 seconds on average, and costing fractions of a cent.
To give the Task Force a live, real-world example of how Stellar creates equitable access to the global financial system, I’d like to focus on Nigeria, the sixth largest remittance market at over $24 billion annually. Cowrie, a regulated FinTech company based in Lagos, Nigeria, provides cross-border payment services for the Nigerian market, powered by Stellar. By tokenizing the Naira and integrating with NIBSS, the Nigerian interbank payment network, Cowrie developed payment rails that enable low-cost and instant payments into and out of Nigerian bank accounts. Their product, NGNT, a digital asset backed 1-1 by fiat Naira, is available on Stellar today for cross-border payments and digital asset exchange. Cowrie plays an important role providing access to Stellar in Nigeria. Another anchor on Stellar, this one in Europe, is a FinTech company called Tempo that issues digital assets backed 1:1 by the euro. With Tempo and Cowrie as endpoints, Stellar enables payments between the EU and Nigeria that are completed in 3-5 seconds - nearly instantaneous and nearly free to the developer.
And, there are built-in compliance tools on Stellar that allow entities building on the network, like Cowrie and Tempo, to complete the know your customer (KYC) and anti-money laundering (AML) steps required by their respective regions. The generalized asset issuance toolkit built into Stellar includes the ability for the issuer to take in the required information before issuance or redemption of the digital asset - empowering them to meet their compliance obligations. This functionality is built in at the protocol level; as tokenization is a fundamental part of the network, so the supporting code is reliable, vetted, and fast.
And when the digital assets work together (as they do in the Cowrie/Tempo example - converting fiat in Nigeria into a digital asset, sending those assets to Europe, converting the digital assets back into fiat in Europe, and ultimately depositing that fiat into the bank accounts of businesses in Europe) a connected global financial infrastructure is created -- that’s how interoperability comes to life. And that’s what makes Stellar (and blockchain) a powerful technology.
Remittances are a core use case for Stellar and expanding the network of anchors (financial institutions) building on Stellar is one way we seek to create equitable access to the global financial system. In addition to accessibility, Stellar’s technology could go a long way toward achieving the UN’s Sustainable Development Goal of reducing remittance transaction costs to less than 3%. As you consider these types of policy objectives, I want to make myself and my team available as resources to the Task Force, and I’d love to know how Task Force Members are thinking about remittances, payments and digital assets. Thank you for having me here today.