Dan Awrey: Digital payments challenge legacy banking; bankruptcy risk threatens stable-value money
Dan Awrey, Beth and Marc Goldberg Professor of Law at Cornell, argues that historical banking practices created path dependency that now hinders payment-system innovation. He distinguishes ’good money’—defined by law and institutions—from ’good payments,’ which depend on technology and governance. Rising consumer demand for digital payments is pressuring legacy banks and forcing policymakers to decide whether to preserve old systems or build new ones. Awrey warns central banks should not unilaterally act as central planners beyond their legal remit. He highlights a core trade-off: short-term money is valued for payment convenience, while long-term money must preserve stable nominal value during stress. Innovations tied to private credit or risky assets often remain vulnerable to conventional bankruptcy processes, undermining nominal stability—an acute problem for stablecoins and equity-linked money. Asset volatility at issuers raises bankruptcy risk; thus reserve management and legal structure are critical for digital-money stability. He also notes limits to proposals like ’skinny master accounts’ under section 13(1) of the Federal Reserve Act. For traders, the takeaways are: (1) payment-related innovation will accelerate pressure on incumbents; (2) stablecoin and private-money stability hinges on issuer asset quality and bankruptcy exposure; (3) regulatory and legal constraints will shape which payment architectures scale.
Neutral
The analysis is neutral because Awrey’s commentary outlines structural risks and regulatory constraints rather than announcing a specific technological breakthrough or regulatory action that would immediately move crypto markets. Short-term trading reactions could be mixed: increased attention to payment innovation and stability risks may spur volatility in stablecoins and issuers perceived as exposed to risky assets, creating short-lived bearish pressure on associated tokens. Conversely, any clearer regulatory frameworks or credible reserve-management improvements could be bullish for well-structured stablecoins. Historically, events that exposed reserve or bankruptcy risk (e.g., Terra collapse, FTX) produced sharp bearish moves in related tokens and temporary sector-wide contagion; subsequent regulatory clarity and stronger on-chain/backing standards later restored confidence. In the long term, the piece implies continued pressure on legacy banks and an expanding market for robust digital payment solutions—positive for crypto infrastructure projects that can demonstrate legal resilience and low bankruptcy exposure. Traders should watch indicators such as stablecoin peg deviations, issuer balance-sheet disclosures, regulatory guidance, and adoption metrics for payment-focused crypto projects to time trades. Risk management: prefer assets with transparent reserves and legal protections; expect episodic volatility tied to disclosures and regulatory developments.