Thomas Cowan Discusses Tokenization and Stablecoins on Bits to Bricks

On Bits to Bricks, Thomas Cowan, who has a background working on the central bank digital currency (CBDC) team at the Boston Federal Reserve and at Ripple and Paxos, currently leads the tokenization efforts at Galaxy. He highlights the progress being made in the tokenization space and the pivotal role of stablecoins in enhancing the dollar's global dominance.

Currently, stablecoins represent approximately $300 billion in circulation, predominantly in US dollars, reflecting the US's historical edge in developing the crypto economy. Cowan explains that the demand for dollar-denominated assets is largely responsible for this growth, rather than any concerted effort from Washington. He notes, "In many ways, $300 billion is a big number. In other ways, if you look at FX or you look at actual flows, it's still a drop in the bucket." The primary use cases for stablecoins include cross-border payments, providing dollar access in emerging markets, and facilitating trading pairs for digital assets.

Galaxy has also initiated the launch of a euro-denominated stablecoin called AllUnity, in collaboration with Flow Traders and DWS, indicating potential growth in the European market. Cowan anticipates that as on-chain finance increasingly intersects with traditional financial markets, additional currencies will become prominent in the space. He suggests that central banks will need to adapt to maintain competitiveness as more currencies vie for market relevance.

During the episode, Cowan outlines a strategic approach for central banks responding to the rise of dollar stablecoins. His practical steps for central bank governors include fostering cooperation with regulators to create a preferred environment for local stablecoins, ensuring seamless on and off-ramps, and encouraging tech firms to innovate with local currencies. He comments, "Once you have that flywheel going of the regulation, the tech, and the financial support, that is how you're able to build a local jurisdiction with a local stablecoin." However, he notes that enforcing capital controls against unlicensed issuers is also a potential avenue for central banks.

Reflecting on his experience with Project Hamilton, Cowan recounts the challenges faced in developing a US retail CBDC, which would require a throughput of 1.7 million transactions per second to meet projected peak US payment volumes. Despite the impressive performance of Solana, which can achieve sub-second finality and low fees for transactions, Cowan believes that a retail CBDC remains a long-term project, estimating at least a 7- to 10-year timeline for its deployment.

The conversation shifts to the innovative work Galaxy is doing by tokenizing its own stock directly on Solana, bypassing traditional methods where shares are held by special purpose vehicles. As the first SEC-registered public equity issued directly on a public blockchain, Galaxy's approach offers a legal framework for ownership that allows instantaneous settlement and increased transparency. This shift eliminates the need for multiple intermediaries in stock transactions, significantly reducing counterparty risk.

Cowan emphasizes that the infrastructure supporting on-chain transactions, including technology from SuperState and self-custody wallets like Phantom, is essential for expanding access to the tokenized economy. He connects this initiative back to the theme of dollar dominance, pointing out that the US's robust financial ecosystem is a key factor for issuers globally.

In conclusion, Cowan believes that while stablecoins provide individuals with access to a stable currency, the true potential of tokenized capital markets lies in extending American financial infrastructure to institutions around the world. This discussion captures the nuances of the evolving landscape of tokenization and stablecoins, relevant for stakeholders in both the crypto and traditional finance sectors.