Digital assets are gaining traction among credit unions and regional banks as they strive to modernize their offerings. Instead of transforming into cryptocurrency startups, these institutions aim to integrate digital asset capabilities seamlessly into their existing systems. This shift makes digital assets feel like a standard account type or collateral option, enhancing service delivery for staff and recognition for auditors.
St. Cloud Financial Credit Union (SCFCU) in Minnesota is at the forefront of this trend. It plans to launch its own stablecoin, the Cloud Dollar (CLDUSD), by the end of the year. This digital asset will utilize the Metal blockchain from Metallicus and will integrate with the credit union’s banking core through software provided by DaLand CUSO.
During a recent discussion, John Ainsworth, general manager at Metallicus, and Jon Ungerland, chief information officer of DaLand CUSO, warned that community banks could face significant challenges if their members shift liquidity to digital asset platforms. These platforms can lend and settle payments using stablecoins, posing a threat to traditional revenue streams. They highlighted a growing trend where approximately 5% of deposits are moving to cryptocurrency exchanges, up from 1% around 18 months ago.
“Staying on the sideline is not an option,” Ainsworth stated, emphasizing the urgency for credit unions to adapt. In the evolving landscape of financial services, institutions must either connect with new digital networks or risk obsolescence. Ungerland noted that the increasing monthly flight of deposits underscores the need for credit unions to act swiftly. “You have a very easily-derivable number of months that your business model can be relevant,” he added.
Bridging Traditional Banking and Digital Assets
Both Ainsworth and Ungerland stressed that digital assets should not exist in isolation from traditional banking. They envision a collaborative ecosystem where credit unions maintain deposits, loans, and customer relationships while integrating with new decentralized networks. “What we’ve built is a bridge to allow traditional financial institutions to connect to these new worlds of DLT and decentralized money movement,” explained Ungerland.
Credit unions must leverage digital assets for deposits, loan collateral, and revenue generation, but this requires them to first secure these assets within their traditional frameworks. The goal is to normalize digital assets in core operations, ensuring that members can transact within their community rather than seeking alternatives elsewhere.
While the concept is straightforward, the execution can be complex. Ainsworth acknowledged the difficulties many payment solutions face at the integration stage. “The integration always becomes either the enabler or the roadblock,” he said. His team’s approach with the Metal Blockchain focuses on compliance and security, which are crucial for building member trust.
From Pilot Projects to Practical Applications
The current movement towards stablecoins is reminiscent of the early days of mobile banking. Initially, only a few credit unions offered mobile apps, but as demand grew, mobile banking became a baseline expectation. Stablecoins may soon follow a similar trajectory, transitioning from novelty to necessity.
Credit unions possess a unique advantage: community trust. By pairing this trust with the efficiency of stablecoins, they can differentiate themselves within the digital economy, steering clear of the volatility associated with speculative cryptocurrencies.
Interoperability is essential for success. Ainsworth stated that members may hold various digital assets, including credit union stablecoins and other consortium coins. The ability for members to navigate these options seamlessly will be key to their experience. “The utility of that payment rail means the consumer may not even know there’s a stablecoin behind it,” he explained.
As credit unions explore stablecoins, the focus will likely shift to applications that align with their mission, such as affordable remittances, expedited small-business payments, and efficient member-to-member transfers. The objective is to transition from questioning feasibility to establishing a clear and responsible implementation strategy.
In summary, credit unions are positioned to leverage stablecoins as a means of enhancing member services and maintaining liquidity. By integrating digital assets into their core operations, they can ensure their relevance in an increasingly digital financial landscape.
