The end of El Salvador's bitcoin payments experiment

Back in 2021, El Salvador became the first country in the world to require its citizens to use bitcoin for payments. Last month, four years later, it notched another record: it became the first country to rescind bitcoin's status as required tender. This backtracking was the result of the IMF's threat to pull billions of dollars in assistance if El Salvador didn't put an end to bitcoin's special status.

What have we learnt from El Salvador's four-year bitcoin experiment? I would suggest that it definitively proved that bitcoin is not destined to be money. As far as making payments goes, bitcoin will always be an unpopular option, even when the government gives it a helping hand. And don't blame the IMF for this; bitcoin sputtered-out long before the IMF pressured El Salvador to drop it, as I'll show.

The original motivation behind El Salvador's Bitcoin Law was to harness bitcoin as a means for reaching the unbanked, those without bank accounts, who in El Salvador make up the majority. Cash is still by far the dominant payments choice in El Salvador, but it was believed that an electronic form of cash might complement that. Another goal was to make remittances cheaper by sponsoring a new bitcoin remittance route—few countries are as dependent on remittances from family living overseas as El Salvador. 

President Nayib Bukele made the announcement at a major bitcoin event and El Salvador’s Congress ratified the Bitcoin Law a few days later. Bitcoiners literally cried for joy. For longtime Bitcoin watchers like me, it seemed like an awful idea. But at least it was going to be a fantastic natural experiment.

Satoshi Nakamoto, bitcoin's founder, saw bitcoin as electronic cash, but his dream generally hasn't come to fruition. In practice, 99% of bitcoin adoption is about gambling on its volatile price, with payments being a niche 1% edge case. Bitcoin disciples who continue to believe in Satoshi's electronic cash dream often blame what they see as government meddling for the failure of bitcoin to gain widespread usage as a payments medium. For instance, they say that capital gains taxes on bitcoin makes it a hassle to pay with the orange coin, since it leads to a ton of paper work anytime one buys something with bitcoin. Or they criticize legal tender laws that privilege fiat currency. 

But here was a government that was going to champion the stuff, nullifying all of the headwinds against bitcoin in one stroke! The government meddling hypothesis would be put to test.

The Salvadoran government used a combination of sticks and carrots to kick-start adoption. First, let's list the carrots. The capital gains tax on bitcoin was set to zero to remove the hassle of buying stuff with bitcoin. The government also built a bitcoin payments app, Chivo, for all El Salvadoreans to use. (Chivo also supports U.S. dollar payments.) Anyone who downloaded Chivo and transacted with bitcoin would receive a $30 bitcoin bonus—that's a lot of money in El Salvador. Gas stations offered $0.20 off of a gallon of gas for customers who paid with the app. People could also use Chivo to pay their taxes with bitcoin.

The biggest carrot was zero-transaction fees. Any payment conducted with Chivo was free, as was converting bitcoins held in the Chivo app into U.S. dollars and withdrawing cash at Chivo ATMs. These Chivo ATMs were rolled out across El Salvador and in the U.S., too, to encourage the nascent U.S.-to-El Salvador bitcoin remittance route. Bitcoin ATMs are usually incredibly pricey to use, but in El Salvador the government would eat all the transaction fees. What a fantastic deal.

As for the stick, Bukele introduced a forced-tender rule. Beginning in 2021, businesses were required to accept the orange coin or be punished. This was costly for them to comply with. They would have to update point of sale software, signage, train employees, and set up new processes for handling bitcoins post-sale.

By all rights, this combination of sticks and carrots should have led to a flourishing of bitcoin payments. But it didn't.

The evidence of failure

The first incrimination of the experiment is Figure 1, below. In the Bitcoin Law's initial months, remittances carried out by cryptocurrency wallets exploded, accounting for an impressive 4.5% of all incoming remittances to El Salvador. Not bad! People were actually using the Chivo app to send bitcoins to relatives back home. 

Figure 1: Data from El Salvador's central bank shows that cryptocurrency remittances from wallets like Chivo have steadily shrunk over time from 4.5% of all remittances to 0.87% of all remittances in 2024.

But instead of continuing to gain market share, crypto-linked remittances steadily deteriorated over the next four years to 0.87% of the total by December 2024—hardly a sign of success.

The data for this chart comes from the Banco Central De Reserva (BCR), El Salvador's central bank. The BCR is coy on how precisely it collects this data, but it is almost certainly dominated by Chivo-related transactions. (My note at the bottom explores the data more.)

The second indictment of El Salvador's bitcoin effort comes from survey data compiled by economists Alvarez, Argente, and Van Patten in their 2022 paper, Are Cryptocurrencies Currencies? Bitcoin as Legal Tender in El Salvador. The authors carried out a survey of 1,800 Salvadoran households to get insights into their use of the Chivo Wallet. This wasn't a lazy online survey, but an in-person survey.

The survey found that just over half of Salvadoran adults had downloaded Chivo, which is impressive (see Figure 2, below). Most hardly used it, though. While over 20% of the population continued to interact with Chivo after spending their $30 bitcoin bonus—which isn't a bad adoption rate for an app—the majority of Chivo usage was only occasional, the median Chivo user reporting no bitcoin payments sent or received in any given month, and just one payment per month in U.S. dollars. Payments tools like apps and cards are supposed to be used a few times each week; not once every two or three months.

Figure 2: While awareness of Chivo was high, most Salvadorans did not use Chivo's bitcoin functionality after receiving their $30 bitcoin bonus. Source: Are Cryptocurrencies Currencies? Bitcoin as Legal Tender in El Salvador [link]

The dominance of the app's dollar functionality over its bitcoin functionality also stands out. Chivo was supposed to be a bitcoin payments app, after all, not another version of PayPal of Venmo. For instance, the survey found that of all households who had downloaded Chivo, only 3% had ever received a bitcoin remittance via Chivo, while 8% had received a U.S. dollar remittance via the app (see Figure 3 below). If Chivo was primarily being used for fiat payments, and not bitcoin, then why go through with the whole effort of changing the law for bitcoin's sake?

Figure 3: When Salvadorans did use Chivo for remittances, they preferred it for U.S. dollar remittances over bitcoin-based ones. Source: Are Cryptocurrencies Currencies? Bitcoin as Legal Tender in El Salvador [link]

Moreover, those few citizens who did continue to use Chivo regularly were not the unbanked majority that the Bitcoin Law had originally targeted. The survey found that they were most likely to be from the already-banked minority, young, educated, and male.

By mid-2022, downloads of Chivo had pretty much dried up. Using blockchain tracing, the economists found that $245,000 per day worth of bitcoins were flowing into the Chivo app, which sounds like a lot, but in the payments business, that's peanuts.

It's also worth considering how businesses treated bitcoin after the passing of the Bitcoin Law. Despite the requirement that all businesses  accept bitcoin, just one-in-five actually did so. The survey found that acceptance was driven by large businesses—i.e. McDonald's, Starbucks, Pizza Hut and Walmart—presumably because they couldn't easily evade the consequences of ignoring the law. Bitcoin was not popular with these businesses; the survey found that of those that received bitcoin from their customers, 88% quickly converted them into dollars.

This is problematic. For bitcoin to become money, a circular economy must be kickstarted as the bitcoins spent by consumers are re-spent by businesses on inventory and salaries, which gets re-spent by consumers, and on and on. This wasn't happening.

With just 20% of the population using the app, and mostly for an occasional U.S. dollar transaction, the entire bitcoin experiment can hardly be seen as a wild success. Businesses were not keeping the bitcoins they received, and consumers who were using the app regularly were not the unbanked originally targeted by the Bitcoin Law.

The third and last bit of evidence of the experiment's failure comes from an annual survey from José Simeón Cañas Central American University (UCA) entitled La población salvadoreña evalúa la situación del país. In 2021, the survey began asking Salvadorans whether they had ever used bitcoin to buy or pay for something. This question is more open-ended than the one asked by the three economists, who focused more narrowly on bitcoin transactions conducted via Chivo. 

Figure 4: According to a survey from the UCA, while over 25% of survey participants reported using bitcoin (and not just Chivo) for payments in 2021, only 8.1% used bitcoin for payments just three years later in 2024.

In the first year of the Bitcoin Law, 25.7% of respondents said they used bitcoin for payments. That's a fantastic result, although the $30 Chivo bonus no doubt drove that large number. But over the next three years, bitcoin's usage for payments crumbled, with only 8.1% of Salvadorans reporting that they'd paid with bitcoin by 2024. This is the same downward pattern that we saw in the CBR's remittance data. That's not adoption. That's giving up on bitcoin.

The UCA survey found that the 8.1% who reported using bitcoin for payments in 2024 were not using it for day-to-day payments. Of this group of bitcoin payors, 55% used bitcoin just 1-3 times in 2024. Only 8% made bitcoin payments on a weekly or bi-weekly basis. (See Figure 5 below). I really want to highlight this last data point: in 2024, just 1 in 200 Salvadorans paid for something each week or second week with bitcoin.

Figure 5: In a 2024 survey by UCA, 8.1% of Salvadorans reported using bitcoin for payments that year. This group was then asked how often they used it, with the responses visualized in the above chart. Most used bitcoin just once in 2024, with 55% using it one to three times. 8% used it 20 or more times, which would suggest that almost no one is using bitcoin for day-to-day payments, despite that being the goal of El Salvador's 2021 Bitcoin Law.

Summing up these three pieces of evidence, despite a potent combination of subsidies and coercion, the adoption of bitcoin for payments hasn't occurred. Bitcoin usage in El Salvador is, if anything, regressing. Now that required acceptance of bitcoin is being rescinded, I suspect that it's only a matter of time before all the large businesses that introduced bitcoin payments, like McDonald's and Walmart, drop that option. With the government no longer coercing them to accept bitcoin payments, there's no commercial incentive to continue down that path.

It was IMF pressure on Nayib Bukele that finally got him to give up his bitcoin experiment. But the IMF was doing Bukele a favor, really, because the whole thing was already a failure, as I've explained with the charts above. Cancelling it outright would have been embarrassing to Bukele, but now he can deflect attention from himself and blame the IMF.

Why the failure, and what have we learned?

There is a very big hurdle that has prevented El Salvador's one-two punch of subsidies and coercion from working: bitcoin is intrinsically ill-suited to perform as money. 

The stuff is innately volatile, and so risk-shy individuals don't dare hold it or use it for payments. Risk-seekers can tolerate that volatility, but they expect to be rewarded by a dramatic price rise, and so they refuse to use their bitcoins for payments because they could miss out on the jump. The net result is that no one, neither society's risk-seekers nor its risk-avoiders, ends up paying with bitcoins. Only a tremendous amount of subsidies and coercion will ever overcome their natural preferences, but no sane government would ever try to bring those levels of coercion to bear. (And speeding things up with options like Lightning doesn't change this equation.)

The saddest thing about El Salvador's bitcoin experiment is that all sorts of time and resources have been wasted. El Salvador is not a rich country. The money spent on building and operating Chivo, compliance by businesses, bitcoin signage, and subsidies could have been better deployed on more important things like health and education.  One hopes that other countries learn from this experience and avoid going down the same route that El Salvador did. Brazil, which deployed its wildly popular PIX payment system around the same time as El Salvador launched its Bitcoin Law, provide helpful guidance.

More broadly, I'm hoping that El Salvador's failure finally kills off Satoshi's very misguided dream of bitcoin as electronic cash. I once was a believer in that dream, but for all the reasons I wrote in December, I've long since given up on any chance of bitcoin becoming a widely-circulating currency. But a lot of people continue to sacrifice their careers, time and resources to following Satoshi. Many of these are brilliant people. We want them to be creating valuable things for society. Alas, despite all sorts of evidence that bitcoin payments are a dead end, they continue to hit their heads against the wall, using excuses like government interference. 

Guys, Satoshi's dream is a mirage, a delusion, a hallucination. A government just flexed its muscles for four long years to get bitcoin into circulation, and that still didn't work. The lesson here: bitcoin is a bad payments tool and will never become widely-used electronic cash. It's time to move on.

---

*The BCB won't say how it collects this data -- according to the Salvadoran press there are legal limits on how much it can disclose -- but it describes the series as being compiled from administrative records that it receives from "cryptocurrency digital wallets." Reading between the lines, this probably includes Chivo data and any other regulated cryptocurrency service that stores customer crypto and reports to the BCB. (Because Chivo allows both U.S. dollars and bitcoins to be transferred, the BCR's data may be a mix of the two units, muddying the waters.) I think it's safe to assume that the BCR data does not include bitcoin remittances made via non-custodial services, say like Muun wallet or Blue wallet. However, since most of the governments carrot's (i.e. no fees) require the use of Chivo, it's probably a safe assumption that the average Salvadoran uses Chivo for bitcoin transfers, so the BCR data--which almost certainly includes Chivo--is fairly representative of overall usage.

Who should pay for scams? Victims or their banks?

Scam call centre on CCTV, via BBC.

Here's a question for you. Should banks be required to reimburse customers who have been scammed?

I was recently reading a CBC article about a 63-year old Toronto man who responded to a phone call from a scammer claiming to be a Bank of Montreal employee, warning him that fraudsters had accessed his bank account. He was soon cajoled into paying out $16,000 to the scammer. Not only did the Bank of Montreal not reimburse the victim the full amount. It continued to charge him interest on the stolen funds.

Which isn't surprising. As the law currently stands, Canadian banks don't have to reimburse their customers who fall prey to authorized push payment (APP) fraud, a range of scams that includes calls from impersonated bank employees, RCMP scams, and fake Revenue Canada refunds.

So why not flip the whole system on its head? Why not require the Bank of Montreal to fully reimburse victims of these sorts of scams? The idea isn't without precedent. In 2024, UK will require that most victims of APP fraud be reimbursed within five business days by their bank.

There are some good arguments in favor of this policy. 

As it currently stands, individuals and their families, friends, and support systems are the main lines of defence for detecting scams. But there are big gaps in these lines of defence. Everyone has vulnerabilities, which scammers skillfully exploit to induce panic. Once in a panic, the victim's ability to think clearly is short-circuited, opening them up to being exploited by the scammer. A victim's second line of defence is to seek a second opinion from a sibling or spouse, but these third-parties may not always be available to help out the scam target.

Banks, by contrast, don't panic. Like scammers, they are cold rational machines. In addition, bank computers never turn off, which means they are available 24/7 to detect fraud. They also have a vast amount of knowledge about their clients' financial lives. Combine this data with technology like AI, and banks are in prime position to intervene in the crucial panic stage of the scam process, thus scuttling the scam.

Banks already do plenty of fraud detection. But imagine how much more vigilant they will be if their profits are at stake because they must reimburse scams.

None of this would be free, though.

Making Canadian banks liable for scams will inevitably mean higher fees and more banking frictions for everyone else. After all, reimbursing victims adds a new cost item to bank operating expenses. To recoup these costs, banks will hike fees on a range of banking products. Bankers will also want to reduce costs by catching scams in progress, which means extra checks when any irregular payment occurs, thus slowing down everyone's economic lives.

While no one likes extra bank fees and delays, think of these burdens as an alternative to the implicit costs that families, friends, communities, and civil society are already absorbing due to APP fraud. For instance, to prevent his elderly parents from being scammed, Jack tries to vet all of his parents' bank transactions. If banks are obliged to reimburse victims, Jack no longer needs to burden himself by monitoring his parents transactions; the bank will now take on that responsibility. The cost of this bank-provided anti-scam insurance comes in the form of Jack, and everyone else, paying higher fees and dealing with the odd delayed transaction.

This isn't a net loss, but a swap of one burden for another. Which is the better option for Jack and his parents? Is it more cost effective for him to monitor his parents transactions, or to pay his bank to do the job?

This gets into the problem of moral hazard. If banks insure customers against scams, then folks like Jack and his parents will become less vigilant, which means the public will be more susceptible to scam calls. However, as long as the additional vigilance brought to bear by banks more than compensates for the lost vigilance of individuals and communities, and does so at lower cost, the policy probably makes sense.

Beware, though. The policy could backfire it it unintentionally unbanks the vulnerable.

Victims of scams are vulnerable. They may be elderly, lonely, have low income, are weighed down by debt, or are working multiple energy-sapping jobs. Requiring Canadian banks to reimburse scams will make it more costly for them to service these groups. In response, banks may close the accounts of those they deem most likely to be tricked by scams. And so one of the unfortunate side effects of trying to protect the vulnerable from scams may be to actually burden them with a worse problem, no bank account.

There may be a fix for to this. Legislators may need to add a companion rule prohibiting banks from discriminating against customers on the basis of "scammability." However, keep in mind that this new rule will go on to have its own round of unintended consequences, which one hopes doesn't necessite a third rule, and a fourth one, and a...

Let's not forget the scammers, by the way, who won't sit idly by. 

Scam call centres will incorporate the new policy as a way to make their attacks even more effective. Imagine a panicked customer who is on the verge of transferring funds to the scammer. She suddenly blurts out loud: "Wait, is this a scam?" The scammer, reading off his script, pounces. "This is not a scam, ma'am, and even if it was, you live in the Canada. Your bank will cover it." The victim's worries allayed, the money is transferred, whereas without a policy of reimbursement the alarm bells in the victim's head might have been sufficient to get her to call a level-headed friend or family member for advice, likely putting an end to the scam.

In response to these tactics, banks will have to roll out their own information campaigns. Thus begins a cat and mouse game, whereby scammers adapt to banks and banks adapt to scammers, who in turn adapt to banks. But this is a cat and mouse game that has always existed, albeit with a different cast of characters, that is, scammers being pitted against individuals and communities. By changing the status quo and pitting scammers against a group that is more well-equipped for the game, bankers, we may all come out ahead.

Where now FedNow?

Earlier this month the Federal Reserve introduced its new instant retail payments system, FedNow. This is actually the U.S.'s second real-time retail settlement system. The first, The Clearing House's Real Time Payments Network, or RTP, opened for business back in 2017.

As FedNow and RTP develop over the next few years, a good way to gauge their performance will be to look to the UK, which provides a useful blueprint of a successful rollout of real-time retail payments, one that the U.S. would surely like to emulate. 

The UK introduced its Faster Payments real-time system in 2008, almost ten years ahead of the American roll-out of RTP. Prior to 2008, payments made by U.K. retail bank customers entirely relied on a piece of infrastructure called Bacs, built back in 1968 and originally dubbed the Bankers’ Automated Clearing System. Much like the automated clearing house (ACH) payments, the go-to U.S. option for retail payments, Bacs payments are not immediate, often taking several days to settle.

Below is a chart of the total value of payments processed by Faster Payments and Bacs over time:

As you can see, the value of Bacs payments was advancing at a brisk 10% pace until Faster Payments landed in 2008, at which point they immediately slowed to a lethargic 2-3%, in some years not growing at all. The Faster Payments scheme, which is currently expanding at a healthy clip of 15-20% each year, is set to surpass Bacs by 2025 or 2026.

A steady eclipsing of the slower network is what should ideally happen in the U.S. as consumers switch from ACH over to useful (and often crucial) real-time FedNow or RTP payments. Mind you, we shouldn't expect ACH to be entirely replaced. It's still more efficient to use slower systems to settle non-time sensitive payments.

Unfortunately, the U.S. is already far behind the timetable set by the UK, and is unlikely to catch up.

Let's take a look at RTP, which is now in its seventh year of operations. When the UK's Faster Payments system was in its seventh year, it was already processing around £225 billion worth of payments per quarter, a hefty 20% of the value then flowing through Bacs. Alas, as the chart below illustrates, the blazing-fast RTP network processed $25 billion worth of payments in the first quarter of 2023, just 0.1% of the $19.7 trillion load processed by U.S.'s ACH network. That's next to nothing.

Source: The Clearing House

I don't see why FedNow will prove anymore successful than RTP in driving real-time payments, since it offers no real advantages over its competitor. (In fact, the second network may even slow down the overall growth rate of real-time payments, as I'll show further down.)

I count two reasons why the uptake of real-time payments in the U.S. has lagged U.K., and why this under-performance will only continue, even with FedNow's introduction.

1. The U.S. has over 9,000 banks, thrifts, and credit unions. By contrast, the UK has only 357 banks and building societies. Not only are there fewer UK banks, the UK's top-5 banks are more concentrated, controlling around 60% of all banking assets compared to the U.S. top-5, which control just 50%.

The advantage of having fewer, more concentrated banks is that it makes it easier for the banking system to coordinate a shift onto a new network. When Faster Payments started, for instance, it enjoyed a huge vanguard group with all of the UK's biggest banks participating, including NatWest, Barclays, Lloyds, and HSBC. Not so with FedNow, which has only signed up 41 of America's 9,000 financial institutions, and is missing top-10 banks like Bank of America, PNC, Truist and TD.

(Those with long memories will recall that this vanguard group problem is also why Canada's e-Transfer service has grown so much faster than U.S.'s Zelle.)

2. Further complicating adoption is that fact that while the UK had just one instant network, Faster Payments, the U.S. has two real-time networks, FedNow and RTP. These two networks are not interoperable with each other. A bank that wants to offer real-time payments to its customers may choose to delay incurring the set-up costs of joining either of the two networks, until a definite favorite has emerged. But this collective hesitation will prevent real-time payments from ever being adopted in the first place.

To sum up, the road to real-time settlement systems in the U.S. has been a long one. Whereas the UK introduced Faster Payments in 2008, it took another decade for RTP to be built, and five years on top of that for FedNow. Alas, the path to actual usage of these new real-time systems will be even slower, given the diffuse nature of the U.S. banking system and the hesitation effect that comes with having two competing networks.

Elon Musk's understanding of payments dates back to his PayPal days. It needs an update

[This is a republication of my most recent CoinDesk opinion piece.]

You've heard the script before. Migrants need to make payments back home to their family, but cross-border payments are achingly slow, taking days to process. Luckily, revolutionary new technologies like blockchains, stablecoins, and central bank digital currency (CBDC) are on the verge of speeding things up, or so their advocates claim.

Even Elon Musk has joined in. In an interview last month, Musk says that the banking system is "still not real-time" and "quite inefficient," and suggests that his social network, Twitter, may be able to do something about this. His subsidiary, Twitter Payments LLC, just got its first money transmitter license yesterday from the state of New Hampshire, suggesting that he means business. [Note: Twitter Payments now has three more licenses, as illustrated below.]

Twitter Payments LLC's money transmitter licenses, via NMLS

Alas, the script is based on dubious assumptions, and money transfer company Wise (previously Transferwise) is a great example of why. Wise, based in London, now processes 55% of its customers' cross-border payments instantly, up from under 10% back in 2018. Wise doesn't rely on blockchains, stablecoins, or CBDC to get up to speed. It uses boring already-existing architecture.

The Wise example suggests that would-be challengers like Elon Musk's Twitter and advocates of blockchains, stablecoins and CBDCs may need to update their views on the incumbent infrastructure they are looking to displace.

Take Elon, for example, who helped found PayPal in 1999 and therefore knows a little bit about the payments system. In his recent interview, he describes the financial system as a heterogeneous set of databases that "slowly engage in batch processing."

Having subsequently switched his focus from retail payments to rockets and cars in 2000, what Musk seems to have missed is that batch processing of retail payments has been increasingly displaced by real-time processing. Under the older batching systems that prevailed when Elon was still at PayPal, streams of retail payment instructions would be accumulated over the course of the day into a big batch. Come evening-time or the following day that entire mass of payments was cleared and settled. Only then would the money be made available to the recipient.

Batching was efficient, but slug-like.

But then the global payments landscape entered into an era of transformation. Central banks began to build a new generation of payments infrastructure: real-time retail payments systems.

Real-time payments

These new retail payments systems process incoming retail payments on a first-come first-serve basis, and do so instantly. The central banks that offer these systems keep them open through the night and during weekends. Banks and fintechs can in turn plug into these new pieces of public infrastructure in order to offer their customers 24/7 instant payments.

The world's first real-time retail system, Zengin, was built in 1973 by the Bank of Japan, but the movement really only hit its stride in the 2000s as Korea, Mexico, and the UK sped up their capabilities. India and China went real-time in the early 2010s. The U.S. finally got its first instant retail payments system in 2017, with the debut of the Real-Time Payments network, run by privately-owned The Clearing House. It will get its second such system this summer as the Fed introduces its FedNow payments network.

According to a 2021 BIS report, over 60 jurisdictions currently now have real-time retail systems in place running alongside their older batch retail systems. This is up from almost none back when Elon was working in the payments sector.

This new generation of real-time retail payments systems is a big part of why Wise can move 55% of its customers cross-border payments instantly. Here's how it works.

Say a Wise customer in Ireland wants to send 500 euros to a family member in India. First, the money must be moved from the customer's Irish bank account to Wise's account at another Irish bank. In the old days of batch processing, this leg of the remittance would have taken a day or two. Thanks to the European Central Bank's TARGET instant payment settlement (TIPS) system, introduced in 2018, a flow like this can now occur in just a few moments.

Having received its customer’s 500 euros, Wise can now proceed to the next stage: paying out 44,000 rupees to the recipient in India. To do so it will have to transfer funds from its account at an Indian bank to the recipient's bank. In the days of batch processing, that meant adding another day or two of waiting. Nowadays, courtesy of India's Immediate Payment Service (IMPS), when Wise sends 44,000 rupees to the family member's bank account the payment can be processed in a second or two.

In sum, the Irish and Indian legs of a modern remittance can be processed in a few heart beats, much faster than the multiple day lags that dominated 20 years ago.

As more and more countries install real-time payments systems, and as Wise integrates itself with them, the proportion of Wise remittances settled in real-time will move ever closer to 100%.

But blockchain?

None of this is to say that there is no space in the cross-border payments landscape for a Twitter-based payments option, stablecoins, or blockchains. There is! It simply means that the incoming competitors need to update their oppo research. Traditional finance isn't the oaf that it is so often made out to be. It already has the technological capability for doing instant cross-border payments, which means the rebels will have to find other factors to differentiate themselves by.

Nor is this spreading bedrock of real-time infrastructure that I’ve just described at all incompatible with the new entrants. If Elon wants to build an instant Twitter payments network, he'll find the web of central bank real-time systems that have blossomed during his 20-year interlude outside the payments space to be a very useful set of rails on which to build.

As for stablecoins and blockchain-based offerings, they too may find it useful to be integrated into 24/7 central bank instant payments systems. For instance, if a DeFi speculator wants to move $10,000 from their bank into a stablecoin at 11PM on Saturday evening in order to take advantage of a fleeting DeFi arbitrage opportunity, and then move the funds back into their bank account by 11:01 PM, central bank instant payments systems can make this possible.

Let a thousand instant payments options bloom, built on top of central bank instant rails.

Zelle vs Interac e-Transfer, or why it's so difficult to kickstart a payments network in the U.S.

It's difficult to grow a payments product to universality in the United States, and that's partly due to the fact that the U.S. has a stunning 4,127 banks, 4,760 federal credit unions, and 579 savings & thrifts institutions, for a total of 9,466 depository institutions.*

Let's compare that to Canada. The rule of ten applies to most Canadian/U.S. comparisons. That is, the U.S. has around 10 times the population, so to get Canadian equivalents just divide by ten. (For example, there are 13,515 McDonald's restaurants in the U.S. Meanwhile, Canada has 1,363. That's almost perfectly in-line with the rule of ten's prediction.)

The rule of ten suggests that if the U.S. has 9,466 depository institutions, then Canada should have 946. But that isn't the case. Canada has 81 regulated banks and around 208 credit unions, for a total of just 289 depositories. (I am counting the 213 credit unions belonging to the Desjardins co-operative federation as one entity.)**

The rule of ten particularly fails with respect to banks. Canada has just 81 banks, not 412 as suggested by the rule. Banks are more influential than credit unions because they tend to be much larger.

So why is this data relevant to payments? A payments network is really only useful if it has a lot of participants on it, but a lot of participants aren't going to be on it in the first place if it isn't useful. That's the chicken-and-egg problem of payments networks.

To solve the chicken-and-egg problem, it helps to have a few large actors – a vanguard – commit to using the network at the outset, which kickstarts its usefulness, and then everyone else gets dragged into joining up. Voila, universal payments.

When you've got 9,466 depository institutions, it's hard to build a strong vanguard group in order to drive quick adoption of a new payments network.

Take The Clearing House's Real-Time Payments (RTP) network, for instance, a U.S. payments network which was launched in 2017. Out of the U.S.'s 9,466 depositories, RTP has attracted just 285 participating institutions, effectively limiting RTP's reach to 65% of all U.S. checking accounts. (The 65% number is from RTP's website.)*** That's not bad, but it's not great.

Another example is Zelle, a U.S. bank-owned person-to-person payments network that was introduced in 2017. By 2021, Zelle boasted 1,700 banks and credit unions on its bank-to-bank payments network. That's better than RTP, but according to Zelle, this still only represented 74%, or 577 million of all U.S. checking accounts, in 2021. (As of early 2023, Zelle reports having 1,900 financial institutions on its network, so it probably now connects 75-80% of all U.S. checking accounts.)

In Canada's case, with just 81 banks and 208 credit unions, it's much easier to build a vanguard group to drive a payments network forward.

For instance, Interac e-Transfer is the Canadian equivalent to Zelle, providing instant person-to-person transfers via bank and credit unions. As of 2023, Interac e-Transfer has 250 participating banks and credit unions. (It lists Desjardin Group, a federation of 213 credit unions, as a single entity). That's almost all of Canada's 289 depositories, and effectively 100% of all Canadian chequing accounts. That's ubiquity for you.

Admittedly, Interac e-Transfer has been around a lot longer than Zelle and RTP, having debuted in 2003, and so it has had more time to spread into all the cracks. (I wrote about Canada's big head start in instant payments a few years ago.) But even at the outset of the adoption process, e-Transfer enjoyed buy-in from Canada's five biggest banks (Royal, TD, Scotiabank, CIBC, and Bank of Montreal), which together owned 86% of all Canadian banking assets at year-end 2003. That's a huge vanguard group. The chart below, which uses 2022 data, gives a good feel for how significant this is.

I made this chart to show how diffuse the U.S. banking system is compared to the Canadian one.

The assets of the top-6 🇺🇸 banks represent a much smaller proportion of total banking assets than the top-6 🇨🇦 banks. pic.twitter.com/87sd1p0kqd

— John Paul Koning (@jp_koning) April 24, 2023

The above chart also illustrates how small any U.S.-equivalent vanguard group will ever be. Zelle's 2017 group of 30 first-adopters may have seemed large on the face of it. After all, it included America's largest banks: JP Morgan Chase, Bank of America, Wells Fargo, Citibank, US Bank, PNC, and Capital One. Yet this vanguard still only constituted 52% of total U.S. banking assets, much less than the 86% committed to Interac e-Transfer on day one.

The diffuse nature of U.S. banking (and the concentrated nature of Canadian banking) will play into the upcoming launches of FedNow and Real-Time Rail (RTR), two instant retail payments system belonging to the Federal Reserve and Bank of Canada, respectively. I'd expect RTR usage to amp up quickly, given that Canada's big-5 banks will likely help sponsor it. FedNow adoption will lag. It's just not that easy to get 9,466 institutions on the same page.

---

* Number of US banks and savings/thrifts is from FDIC. Data on credit unions is from the NCUA
** Number of Canadian banks is from OSFI. Number of credit unions is from CCUA
*** A tweet where I list my data source for RTP data

The PayPal misinformation wars

If you ever glance through the acceptable use policies or terms of service of consumer-facing payments company like PayPal or GoFundMe, you'll see that they have incredibly long and stifling lists of prohibited activities. Why would these companies willingly turn away legitimate business? 

There are a bunch of reasons, but here are three important ones:

1) Some customers are a nuissance. Their businesses may suffer from high rates of payments fraud and/or frequent chargebacks, which means that it may not be to expensive for a payments company to connect them.  
2) The products that some businesses sell are semi-legal (i.e. marijuana) or potentially illegal (libelous publications), and so it's too risky to connect them.
3) Some businesses engage in activity that is legal but potentially controversial (like white supremacist lit or sex toys). The payments company that connects them could look bad, which means potentially losing customers, shareholders, or employees.

This is a pretty sensible set of reasons for prohibiting certain activities from your payments platform. However, if you're a businesses that has been barred by a processor, you'll certainly be upset, and understandably so. Payments are vital to any enterprise. Having as many competitors to choose from is important. To boot, being suddenly cut off is a pain; you'll need to scramble for an alternative.

When a payments firm enacts a new prohibition on a certain type of businesses, this in turn feeds into the political arena. In return for votes and funding, political actors offer support to particular companies and business lobbies. When their constituents are suddenly prevented from accessing a certain payments platform, these political agents loudly broadcast their displeasure. And so the acceptable use policies of companies like PayPal have become incredibly politicized documents. Progressives bellow when sex workers are cut off from PayPal. Republicans howl when firearms are disallowed.  

Case in point was the massive push back against PayPal which earlier this month updated its acceptable use policy to prohibit "misinformation." I've screenshotted the update below, with the changes being entirely confined to section 5. PayPal already fines customers $2,500 for engaging in prohibited activities such as selling cigarettes, hate literature, and items that are considered obscene. With this new update, PayPal would now be prohibiting anyone from using its platform to engage in fake news and would extend its existing $2,500 fine to infringers. [An archived copy of the policy update is available here.]

PayPal's updated acceptable use policy, since rescinded. The changes are all in section 5.

PayPal executives probably had good business reasons for wanting to prohibit misinformation from their platform. Last month conspiracy theorist Alex Jones was ordered by a judge to pay almost a billion dollars to his victims for fabricating fake news about them. With numbers as big as that being bandied around, lawyers at payments company have to be wary that they too could be pursued by the victims of misinformation for facilitating the disinformation attacks of their customers.

Not only that, but associating with a bad actor like Alex Jones could hurt the reputations of consumer-facing payments companies, leading to customers bolting.

Long story short, the legal, financial, and reputational risks of having fake news artists as customers are just too high for mainstream firm like PayPal, and thus the prohibition on misinformation was introduced into its acceptable use policy page.

But acceptable usage policies have become politicized, and so PayPal's move led to all sorts of outrage. Republicans were furious. Senators Bill Hagerty, Cynthia Lummis, Pat Toomey, and others expressing their "deep concern" in a letter to PayPal, subsequently broadcast across social media. A big chunk of the internet's many misinformation artists are their misinformation artists, after all, and need to be protected. 

This week I joined @SenThomTillis and other Senate Republican colleagues in sending a letter to the President & CEO of PayPal. We are demanding answers on the most recent policy change that would financially punish consumers over “misinformation.” Our letter: pic.twitter.com/rzjO8n4VyW

— Senator Bill Hagerty (@SenatorHagerty) October 22, 2022

Meanwhile, commentators like Glen Greenwald were upset by what they see as a PayPal attempt at "punishing dissidents in the West through exclusion from the financial system." Which I don't think is the right way to process the event. PayPal is a business. It doesn't refuse to serve a certain set of customers because of an ideology requiring it to punish "dissent from neoliberal orthodoxies." PayPal chooses to stop serving clients because it believes that this would reduce its income, adjusted for risk. While some "dissenters" are too risky for PayPal to serve, many dissenters aren't—and probably make for fine customers.

Greenwald's reliance on the word "banishment" also betrays a misunderstanding of how payments work. PayPal is a low-risk payments processor, not a high-risk one. There are other payments companies that do specialize in serving a riskier clientele. These firms will compete to reconnect the fake news sites that PayPal has decided to offboard. In short, there is no such thing as payments banishment.

In response to the push back, PayPal said that it would not be adding the misinformation clause to its acceptable use policy after all. (It actually said that the update was an error, but that sounds unlikely.)

And again, you can see why it made a business decision to change its tune. The move had made some of its existing rule-abiding customers unhappy, and they threatened to close their acconts. PayPal wants to drop bad customers, but not at the expense of losing the good ones.

This is interesting because it shows how a business decision gets ingested by the political machine, the resulting output being fed back into PayPal's business decision making process, leading to a 180 degree turn.

Nor did things end there. With acceptable use policies having become a key political battleground, and politics loves controversy, the fake news mill – the very targets of PayPal's misinformation clause – kicked into high gear. Across the internet, articles began to pop up alleging that PayPal's rescinded misinformation clause and associated $2500 penalty had been stealthily "added back into the terms of service with equally ambiguous language," as one article put it.

One of many articles wrongly claiming that PayPal sneakily re-updated its policy

A quick check of PayPal's acceptable use policy in the WayBack Machine shows that these claims aren't factual. Agree or not with the $2500 fine, it wasn't added back after "criticism on social media died down." The fine has been there since it was tacked on by PayPal back in September 2021.

The article also alleges that the misinformation clause has reappeared in the form of a prohibition on intolerance. But the intolerance clause has been there since 2018. Never mind that it's an error to equate a prohibition on intolerance with a prohibition on misinformation. They're just not the same thing.

The fake facts continued to pile up. PayPal has a long-existing rule against lying about account details like your name and age. A second article erroneously tries to claim that this longstanding rule is a new one, more specifically that it is the "misinformation" clause sneakily reintroduced back into PayPal's list of acceptable uses. It's a silly argument that I rebutted more fully on Twitter.

So no, the controversial rescinded misinformation clause has not been quietly added back to PayPal's acceptable use policy. But the facts don't necessarily matter. This wave of fake news successfully fed back into the political arena, with folks like Republican representative Tom Emmer seizing on them to air his worries that PayPal is being "weaponized to control speech." There are existing users of PayPal, the ones that PayPal would like to keep, who will listen to Emmer and close their accounts.

The whole series of events illustrates how complicated it is for a company to modify its terms of services.

Firms want to boost their profits, which means establishing policies to reach a certain type of desirable client while excluding other types of clients that don't fall within their targeted market. But firms also need to try and calculate how their proposed changes will be digested in the political arena, and how the resulting outrage feeds back into the decisions of their desirable clients, who might choose to leave.

And firms must also consider the third degree of complexity: how the political controversy over their  policy changes gets respun by fake news sites, the resulting sausage being imported back to the political arena for additional consumption, more outrage, and (potentially) more client departures. It's a difficult nut to crack. I wouldn't want to be PayPal, or its lawyers, the next time it comes time to update its acceptable use policy.

Improvements to stablecoin transparency

[This article originally appeared in CoinDesk. It explores some improvements to stablecoin transparency recently initiated by New York regulators. In my opinion, there are two key changes. Up till now, stablecoin issuers have typically been examined by their auditor at the end of the month. With the new guidance, management's assertions must now be tested not only at the end of the month but also on one randomly selected business day during the month. Secondly, stablecoin issuers will be required to submit their internal controls to audit. Both measures will improve the trustworthiness of attestation reports.]

New York Regulators Have Planted a Seed for Stablecoin Transparency

Good news for stablecoin users: Stablecoin transparency standards are set to improve.

This comes courtesy of the New York Department of Financial Services (NYDFS), which last month issued formal guidance for NYDFS-approved stablecoin issuers, including upgrades to the amount and quality of information that issuers must provide to the public.

Increased transparency is a welcome development. It means users will have a better ability to vet stablecoins, and with more eyeballs on them, stablecoins issuers will be pressured to provide a safer product.

The new regulations will directly apply to gemini dollar (GUSD), issued by Gemini Trust, and binance USD (BUSD) and paxos dollar (USDP), issued by Paxos Trust. Those stablecoins were introduced in 2018 when the NYDFS initiated its regulatory framework for stablecoins.

The NYDFS is one of the most influential financial regulators in the world. By dint of peer pressure and customer demand, one hopes these improvements spread to other large, non-NYDFS-regulated stablecoins like USD coin, tether, trueUSD – and also to stablecoins yet to emerge.

It’s all about the assets

When people debate the intricacies of stablecoins, the most pressing thing they want to know is what backs the stablecoin. There are good reasons for that.

With good old-fashioned bank deposits, a bank's deep layer of capital offers depositors a degree of protection should the bank's investments sour. Stablecoin issuers, however, lack the large amounts of capital that banks possess. Furthermore, unlike with bank deposits – which are insured by the government up to a certain amount – you're on your own if the stablecoin in your wallet fails.

So the safety of a stablecoin is highly dependent on the assets that are backing it. That's why the topic of stablecoin backing attracts so much attention in the press and on social media, and why transparency is so important.

The durability of a stablecoin’s underlying assets is important to more than just the people who own the stablecoin. It's also crucial to the broader crypto economy, because stablecoins act as the plumbing of crypto. If a major issuer like Tether were to fail, it would drive the entire ecosystem into a crisis.

One way for people to gain sufficient confidence in a stablecoin is by getting a peek at its internal workings. A stablecoin issuer accommodates that by providing public information about the assets backing the stablecoin. By doing so, the issuer gives a stablecoin credibility, which may help it grow and earn more profits – but only if the public approves of what it has seen in the sausage-making process.

To ensure the information about its assets can be trusted by the public, stablecoin issuers first pass it through the hands of an independent auditor. The auditor examines the information and offers its opinion on whether the numbers are accurately stated.

The practice of providing the public with independently verified insights into stablecoin assets emerged in 2018 when the issuers of newly created stablecoins USD coin, gemini dollar and paxos dollar began to work with auditors to publish monthly "attestation" reports. Three years later, in 2021, Tether – issuer of the largest stablecoin – began to publish its own attestation reports, albeit quarterly.

This glance behind the curtains through the mediation of an independent auditor ultimately provides users like you and me with useful information.

But the glance that the public is afforded is good only if it is 1) timely, 2) provides a broad amount of useful information and 3) can be trusted.

The NYDFS's new standards address those three issues.

Timeliness

The utility of information degrades as it gets older, especially in the fast-moving crypto economy. The NYDFS new guidance requires attestation reports to be published monthly and no later than 30 days after the end of the month.

Stale attestation reports have been a problem among stablecoins issuers. In 2021, attestations for USDC were arriving 50 days after the attestation date. Tether's latest attestation was published 49 days after its March 31 attestation date. Users of this tardy information were left to speculate how the crypto declines of April, May and June may have affected Tether's finances.

Tether and USD coin aren't NYDFS-regulated coins and thus their issuers aren’t required to conform to the NYDFS’ standards on timeliness. However, given that competitor Paxos is implementing the standards for binance USD, Tether and Circle, the issuer of USD coin, may have no choice but to conform.

Completeness

A long look behind the curtains is better than a quick glimpse.

The NYDFS will broaden the amount of information available in attestation reports by requiring that stablecoin's assets be reported not only in aggregate, but also by asset class. So a stablecoin issuer would have to list how much commercial paper it owns, its allocation to money-market mutual funds, its deposits, its bonds and its quantity of Treasurys. That is, separately, instead of lumping it all together.

Some stablecoin issuers like Tether already do that. But others don't. The attestations for binance USD, for instance, inform us that Paxos may own deposits at banks, Treasury bills or Treasury bonds, but doesn't reveal what the proportions are.

Trustworthiness

An auditor's approval isn't worth much if the stablecoin can game the system. Of the updates to NYDFS' guidance, the most important ones will improve the trustworthiness of stablecoin reports. There are two ways it will do that.

First, the NYDFS will require auditors to not only examine a stablecoin’s end-of-the-month asset count, but also run a check on "at least one randomly selected business day during the period." Requiring a random in-between day examination prevents a stablecoin issuer from holding one set of risky assets for most of the month only to switch into safer assets the day before the auditor examines it.

Tether in particular should consider adopting the NYDFS’ random in-between day test as a best practice. Tether's three-month interlude between examinations is much longer than its competitors. By having its auditor test one random day during that period in addition to the end-of-period day, Tether would provide users with much needed assurance.

Second, the NYDFS will require that a stablecoin auditor provide an opinion on the effectiveness of a stablecoin issuer's internal controls. That must occur once a year.

Internal controls are the rules and procedures that companies adopt to prevent mistakes and fraud. They include separation of duties, verification of invoices, reconciliation and controlled access to financial reporting systems. After the Enron and WorldCom scandals of the early 2000s, the Sarbanes-Oxley Act made it necessary for U.S. public companies to undergo regular audits of internal controls.

At the present time, auditors that attest to the investments underlying stablecoins issued don't examine the effectiveness of an issuer's internal controls. An auditor need only acquire whatever "degree of understanding" of an issuer's internal controls that is necessary in order to carry out their assessment of its assets.

That's why all attestation reports contain something to the effect that "we did not test the operating effectiveness of such controls and express no such opinion on such controls." (That's from the attestation for paxos dollar.)

This is a black hole in current attestation practices. If internal controls aren't adequate, the numbers can’t be trusted. By requiring an auditor to examine a stablecoin issuer's internal controls every year to assure those controls are effective at promoting compliance with regulations, the NYDFS addresses this shortcoming.

Circle and Tether should consider voluntarily submitting their internal controls to annual examination and so reach the standards being met by their New York competitors. Because an organization's internal controls offer vital protection against fraud, anyone who owns stablecoins that conforms to NYDFS standards will be able to sleep soundly at night.

The vandalization of "bitcoin accepted" signs

[Here's an article I wrote for CoinDesk's recent Payments Week series.]

Why We Need Crypto Payments to Work

Crypto has always held out the promise of a payments revolution. But that revolution never happened.

We're 13 years into the Bitcoin age, and there’s only one store in my neighborhood in downtown Montreal that advertises that it accepts bitcoin. I was passing by that store the other day and noticed that a vandal had crossed out the bright orange ₿ written on the storefront, adding a "non" in protest.

Why? The vandal didn't provide us with more information. But if I had to guess it probably had to do with their opinions on the environmental implications of bitcoin's security method, proof-of-work. Proof-of-work requires huge amounts of electricity, and in an age of global warming there's no place for such an awesome display of energy consumption.

This small example is illustrative of the crypto payments challenge. It's tough enough for crypto to gain acceptance as a payments network. The medium’s inherent volatility and novelty are huge hurdles. Add to that concerns about crypto’s effect on the environment, and getting the payments ball rolling becomes even more of a challenge.

But even normies who don't care about crypto should want it to succeed as a payments medium.

Cash is rapidly disappearing as a payment medium. The big winners are the Visa and MasterCard card oligopolies. Every time someone deserts cash, the card networks get a little more powerful. As consumers we don't often notice the few cents that the card networks extract from us when we pay with our debit or credit cards, but it leads to fantastic profits for them. Visa and MasterCard's returns on equity – 40% and 120% respectively – give testament to their wide oligopolistic moats. (The average company's return is a meager 10-15%).

There are a number of solutions to oligopolies, one of them being competition. If there are more payment networks fighting for market share, we consumers (and the retailers we frequent) can at least choose the cheapest one.

And that's why it would be nice if crypto worked for payments.

Alas, crypto usage has been mostly confined to the relatively small confines of the speculative crypto economy, only leaking out once in a while to serve as a normie payments medium. These leaks may be slowly plugging up, too. Over the last year or so, activists have been trying to push the small advance that crypto has achieved in the payments realm into retreat.

My neighborhood store is just one example. The storekeeper's internal dialogue might have gone after seeing their store window vandalized: "Why bother accepting the odd bitcoin payment when it attracts such negative attention?"

Last month, hundreds of long-time Wikipedia editors asked the Wikimedia Foundation to stop accepting cryptocurrency, the most popular reason put forth being its environmental sustainability. A few months before, Discord – a popular messaging platform – quashed rumors of a cryptocurrency integration after pushback from users concerned over energy use.

The Wikipedia editors' vehemence stands in contrast to the tiny amount of crypto that Wikimedia has collected. According to Wikimedia, just 0.08% of its donations have been in crypto, mostly bitcoin. The Wikimedia Foundation has little reason to say no to the activists. At 0.08%, crypto isn't proving to be very useful for accepting payments. Why bother pushing back?

Had the activists campaigned for Wikimedia to stop accepting Visa, for instance, it'd be a complete non-starter. Visa has an advantage over crypto. It’s already big, likely accounting for a decisive percentage of Wikimedia donations.

That you can’t say no to Visa, but you can say no to crypto, illustrates the crypto payments dilemma. Retail payments networks are notoriously difficult to bootstrap. It's the classic chicken-and-egg problem. For an individual to adopt it, a new payment option needs to be already useful (by being widely available and spendable at shops), but it can't be already useful if no one wants to try it in the first place.

Making this paradox worse is that the card networks already have firm footholds. People have grown used to their plastic, and the incumbents use dirty tricks to enforce lock-in, like card reward points and no-surcharge policies. The nut is made even harder to break by crypto's incredible volatility. Risk-averse new users are reluctant to try it.

But the crypto world has evolved a response to volatility. Stablecoins are a type of cryptocurrency that is pegged to traditional fiat money, which makes them less intimidating for people to use. And so where regular crypto comes short, stablecoins at least stand a fighting chance against the MasterCard and Visa oligopolies.

Unfortunately, stablecoins are built on energy-intensive proof-of-work blockchains, which opens them up to the growing environmental critique. Given the already difficult chicken-egg payments problem being faced by stablecoin issuers, the last thing they need is for card users to come up with one more excuse not to give stablecoins a try.

Mozilla's recent reappraisal of its crypto acceptance policy provides a good example of how I hope the debate evolves. In January, Mozilla – the nonprofit organization that makes the Firefox web browser – decided to temporarily pause cryptocurrency donations to see how crypto "fits with our climate goals."

This month Mozilla announced its new policy. Rather than closing the door on crypto, it came up with a more nuanced solution. Mozilla won’t accept proof-of-work coins, but it'll accept proof-of-stake cryptocurrencies it sees as "less energy intensive."

If Mozilla's more welcoming policy is emulated, and one hopes it is, it offers stablecoin issuers a window. But this window comes at a price. If stablecoins are ever going to compete in a meaningful way with the card networks, they need to dissociate themselves from proof-of-work. That may mean avoiding expansion to proof-of-work blockchains. At the worst, it means helplessly waiting while the proof-of-work chains on which they already exist, like Ethereum, switch over to less energy intensive security methods.

Removing as much ammunition as possible from critics will make the already difficult chicken-and-egg payments problem a little easier for stablecoins to solve. We need them to win, though. Visa and MasterCard aren't getting any less dominant.