Fluent Finance CEO Discusses Deposit Tokens And Importance Of 'Secure, Stable Growth' Of Web3

The global Web 3.0 market, valued at $3.34 billion last year, is projected to be a $49.10 billion industry by 2030. This may be promising, but there are still a lot of things holding back the market from being adopted by the mainstream and achieving "secure, stable growth."

The digital asset space and the broader Web3 ecosystem push to grow and innovate at unbelievable speed yet mass market adoption is still at an arm's length.

People are aware of how the latest iteration of the internet can revolutionize the current financial systems, but what's preventing this world from fully embracing it?

An expert in the industry with more than a decade of experience in various fields — including leading product design, entrepreneurship, financial analysis, special economic zones, blockchain business design and strategic acquisitions — enumerated three major factors that serve as the roadblocks in achieving mass adoption.

"For years now, the primary roadblocks standing in between digital asset ecosystems and mass market penetration have been unmanageable volatility, a lack of regulatory compliance and security risks," Bradley Allgood, CEO and co-founder of fintech infrastructure company Fluent Finance, told International Business Times in an interview. "Volatile assets are never going to work in traditional use case scenarios — especially in the commercial sector,"

"On volatility, there is far too much uncertainty surrounding the value of even Web3's blue-chip assets on a day-to-day basis for them to function in modern economic applications," he added. "We still need a robust, stable-valued medium to facilitate exchange and act as a reliable unit of account between both Web3 and traditional finance."

"As for regulatory compliance, that has factored into making the stable-valued asset task quite a lot harder than most of the space would have liked to think," Allgood, who has developed numerous products for both governments and blockchain companies, explained. "Stablecoins have not panned out the way most expected three years ago when they were picking up steam in the 2020 DeFi summer."

"And lastly, security is non-negotiable," he said further. "The amount of hacks, scams and security breaches Web3 sees on a daily basis introduces far too many risks to be viable for mass market applications. We need strong custodians, issuers and infrastructure that can keep decentralized systems intact so their benefits can be realized without regular, hundred-million-dollar setbacks."

The stablecoin, which currently has an 11-figure market capitalization, is Web3's answer to the volatility issue. However, since it is not yet widely recognized in established markets and considering the spectacular collapse of Terra's so-called algorithmic stablecoin, many think that the crypto asset pegged to fiat or other assets is still not the catalyst for the mainstream adoption of Web3.

But if not stablecoin, what else is there?

Allgood told IBT about deposit tokens, which are transferable digital coins that represent a deposit claim against a commercial bank.

"Yes, we're just getting to see that now," he said. "Deposit tokens are now emerging from the pack as Web3's most promising stable-valued digital assets that check all the boxes — near-zero volatility, fully regulatory compliance and robust security with extremely low counterparty risk. Now, to be clear, stablecoins are not the 'bad guys.' Stablecoins are just the best effort from a previous era — albeit an era not too long ago. Time really moves at warp-speed in Web3."

"The sticking point with stablecoins is that their issuers are essentially lean startups that have to onboard and curate a network of major organizations in order to successfully issue currency units and serve redemption requests — that means a loosely affiliated group of banks, accounting firms and legal representatives," Allgood went on to share. "It's obviously an immense undertaking that requires highly intermediated processes for issuance and redemption, not to mention complicated audit procedures that never provide adequate reserve transparency — let alone hold up to regulatory expectations. When you consider the inherent security risks, frequent depeggings and compliance issues, it's not difficult to understand why stablecoins have had no success whatsoever picking up traction in traditional use case scenarios."

Allgood then pointed out that, unlike stablecoins, deposit tokens "are issued directly by banks based on fiat currency deposits in their core banking systems."

"The benefits of direct issuance are immense and far-reaching: They eliminate clunky intermediated processes for issuance and redemption and make providing real-time reserve transparency a breeze," he said. "More importantly, deposit tokens put issuance into the hands of custodians that can provide paramount security: rigorously regulated banks."

Given the advantages they bring to the table, the question now is how deposit tokens would benefit global markets, which include national governments, banks and payment processors.

Allgood underlined that deposit tokens are issued by banks themselves and represent tangible reserves kept at regulated financial institutions that observe reporting standards. Aside from streamlining the complex process associated with capital transfers, the Fluent Finance CEO explained that deposit tokens eliminate "unnecessary middlemen" that do not only occupy but also "obfuscate stablecoin issuance models."

"The best financial vehicles are those that employ incentives to benefit all parties who stand to use them," he said. "None did it better than the Bitcoin network, which to this day upholds decentralization principally by replacing intermediaries with a holistic incentive model. Deposit tokens also incentivize relevant players — in this case, within the currency issuance vertical."

As for national governments, Allgood said the infrastructure of deposit tokens provides a doorway for "direct trade corridors," which, according to him, "attracts capital to and bolsters the national currencies in which deposit tokens are issued and offers new opportunities for nations to establish themselves as leading commercial hubs."

Allgood also underlined that even non-government organizations (NGOs) "can benefit immensely from streamlined humanitarian aid initiatives and seamless KYC integration."

Banks and other financial institutions have a lot to gain from deposit tokens as first-movers, as Allgood said most of these NGOs' current and prospective clients interested in digital asset exposure would prefer that banks get involved first, noting that "regulators will love first-moving banks even more because deposit token infrastructure integrates vertically with core banking systems and vastly simplifies reporting and audit procedures."

"Regulators will finally be able to stop pulling their hair out and catch up on sleep," he said.

As for Web3 users, they can expect "1:1 backing, real-time reserve transparency and the best custodians the world has to offer," as per the Fluent Finance CEO.

The deposit token space is on the rise, and Allgood believes that "the best countries for the job are those that have struck the right balance of seasoned professionalism and agility — the kind which have organizations with know-how that are also innovation-ready."

"They are best positioned to take the lead on deposit tokens," he said.

According to Allgood, that country is the United Arab Emirates (UAE), which he described as an "ideal hotbed for fintech innovation" with its "robust financial institutions and world-leading Special Economic Zones (SEZs)."

He also shared that "the UAE — and Abu Dhabi in particular — is in a very special place developmentally."

"Many European and American banks have great experience and prestige at the highest level of global and corporate finance," he said. "But none has the agility nor the flexibility to innovate like UAE banks. A lot of exciting things are going to be happening in the UAE in the decade ahead, and deposit token adoption might just be one of the biggest innovations to keep an eye out for."

But where is the world going in the next five to 10 years? And in this particular timeline, where is the deposit token positioned?

"I cannot emphasize enough the imperative of grounded, stable growth and innovation," Allgood, whose skills have guided the creation of successful crypto and tech companies by promoting effectiveness through proper design and implementation, said. "Web3 has experienced more exciting, exponential growth than almost any other asset class the world has ever seen. It's not about parabolic price swings at this point; it's about balanced, steady growth. That's something Web3 is yet to demonstrate to the world. What Web3 needs is a secure, steady growth driver that doesn't end the way Terra/LUNA, FTX and so many others have,"

"The key is to develop the next set of on-chain platforms and protocols based on secure, regulatory-compliant custody and real-time reserve transparency, and to earn trust from market participants with stability and transparency — not promises of outrageous yields," the crypto executive added.

"The major transition I see taking form in the next five to 10 years is a shift toward bank-led on-chain asset issuance," Allgood revealed.

"In other words, a shift away from stablecoins that try to pull together a network of banks and legal officials to deposit tokens that are issued directly by regulated banks and backed fully by their deposits," he added, underlining that the process is actually underway with PayPal's stablecoin.

"Interestingly enough, the process is already underway. Paypal's PYUSD represents one significant step in the right direction," he said further. "Although it's not a bank, Paypal is a well-respected payment processor from beyond Web3 acting as a stablecoin issuer of sorts. Paypal's banking relationships are far stronger than those of Tether and Circle, and its legal team is more experienced and prepared as well. From PYUSD, it is one, only one more step to cut the payment processor out of the equation and bring custody, issuance and redemption responsibilities to the bank. This is where we arrive at the most streamlined, simple and disintermediated model."

Allgood also shared that "at Fluent [Finance], we've got the infrastructure to make this possible, and the relationships to make it happen."

"I'm as excited as ever to get out of bed every morning and see what steps we can take to bring deposit tokens to fruition and provide Web3 with the stable, secure and compliant growth driver it's been waiting on for too many years," he said.

The Web 3.0 market, despite its innovations and growth, is still in its nascent stages.