Newegg Commerce(NEGG 29.96%) is off to the races again. The online retailer posted incredible price gains in July and early August, followed by a sharp drawdown in the last three weeks. On Thursday, the stock was back to its old tricks with a 26.7% single-day gain as of 3 p.m. ET.
Meme stock action, with a twist
Like the momentous rise and fall in recent months, Newegg’s fresh surge looks like a meme stock rally — with some unique quirks.
The stock’s short-selling ratio is high, inspiring dreams of quick short-squeeze rallies when share prices start to move higher. I see no game-changing news in Newegg’s press center, or the company’s official blog. The only potentially market-moving news source would be Newegg’s financial filings, where I found independent investor Vladimir Galkin reporting another purchase of Newegg shares.
Galkin’s Newegg stake now consists of 3.6 million shares, up from 3.52 million on Aug. 19. He controls 17.6% of the stock’s shareholder votes at this point and should be considered a powerful voice in Newegg’s boardroom. Not that he holds a seat there, but large shareholders have ways to make their opinions known anyway.
That’s pretty much it. Scouring the usual online news media you often see in meme stock boosts, there hasn’t been much talk about Newegg on X or Reddit today.
So Newegg’s stock is soaring almost purely because Vladimir Galkin is boosting his ownership again. It’s a somewhat unusual angle on the classic meme stock idea, but the results are the same.
Image source: Getty Images.
Vladimir Galkin’s strategy
It’s important to note that Galkin’s claim to fame (and wealth) comes from his lucrative investments in Gamestop during the video game retailer’s meme stock peak. He is also a top shareholder in airline operator JetBlue Airways, which has acted like a meme stock recently.
Meme stock investing is what Galkin does, pulling strings and pushing buttons to boost social media chatter around the stocks he’s buying. And at this point, his strategy is famous enough that the stock buys themselves have market-moving power.
That’s all Newegg is doing today. The struggling e-tailer did not sign an important contract, nor did it start low-priced sales of the Next Big Thing in gaming hardware. It’s just another meme stock surge.
Anders Bylund has positions in Newegg Commerce, unfortunately. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
A group of business leaders submitted paperwork on Wednesday for a ballot measure that would repeal Los Angeles’ gross receipts tax, delivering some financial relief to local employers but also punching an $800-million hole in the city budget.
The proposed measure, called the “Los Angeles Cost of Living Relief Initiative,” would strip away a tax imposed on a vast array of businesses: entertainment companies, child care providers, law firms, accountants, healthcare businesses, nightclubs, delivery companies and many others, according to the group that submitted it.
Backers said that repealing a tax long reviled by the business community would help address the city’s economic woes, creating jobs, allowing businesses to stay in the city and making the economy “more affordable for all Angelenos.”
“This initiative is the result of the business community uniting to fight the anti-job climate at City Hall,” said Nella McOsker, president and CEO of the Central City Assn., a downtown-based business group.
McOsker, one of five business leaders who signed the ballot proposal, said city officials have “ignored the pleas of small- and medium-sized businesses for years.” As a result, scores of restaurants and other establishments, including the Mayan Theater, are closing, she said.
The filing of the ballot proposal immediately set off alarms at City Hall, where officials recently signed off on a plan to lay off hundreds of city workers in an attempt to balance this year’s budget. The city’s business tax generates more than $800 million annually for the general fund — the part of the budget that pays for police patrols, firefighters, paramedic response and other core services.
“Public safety is almost exclusively paid for by the general fund,” said City Administrative Officer Matt Szabo, in an email to The Times. “This measure is an assault on public safety. Proponents of this measure will be directly responsible for cutting police or fire staffing in half if it passes.”
McOsker, asked about L.A.’s financial woes, said the city had a $1-billion shortfall this year and still succeeded in balancing the budget. She is the daughter of City Councilmember Tim McOsker, who sits on the five-member budget committee.
The proposed measure is backed by executives and board members with various groups, including the Los Angeles Area Chamber of Commerce, the Greater San Fernando Valley Chamber of Commerce and VICA, the Valley Industry and Commerce Assn.
VICA president Stuart Waldman said the city’s economy has faltered amid a spate of increased taxes, higher city fees and new regulations. The most recent, he said, is the ordinance hiking the minimum wage for hotel employees and workers at Los Angeles International Airport to $30 per hour by 2028, which was approved by the City Council over objections from business leaders.
“We’re usually playing defense,” said Waldman, who also signed the ballot proposal. “We’ve decided the time has come to play offense.”
The business tax proposal is part of a larger ballot battle being waged this year between businesses and organized labor.
Last month, a group of airlines and hotel industry organizations turned in about 140,000 signatures for a proposed ballot measure aimed at overturning the newly approved hotel and LAX minimum wage. L.A. County election officials are currently verifying those signatures.
Unite Here Local 11, which represents hotel employees, responded with its own package of countermeasures. One would require a citywide election on the construction or expansion of hotels, sports stadiums, concert halls and other venues. Another would hike the minimum wage for all workers in the city, raising it to the level of hotel and airport employees.
Two other measures from Unite Here take aim at companies that pay their CEOs more than a hundred times their median employee in L.A., either by forcing them to pay higher business taxes or by placing limitations on their use of city property.
The ongoing ballot battle is “escalating in ways that are reckless and disconnected from the real work of running a city,” said Councilmember Katy Yaroslavsky, who heads the council’s budget committee. Yaroslavsky, in a statement, said the fight is “unproductive and needs to stop.”
“We just closed a billion-dollar budget gap, and basic services are already severely strained,” she said. “You don’t fix that by removing one of our largest revenue sources with no plan to replace it. We have to fix what is broken and that requires working together to offer real solutions.”
Josué Marcus, spokesperson for the Los Angeles City Clerk, said proponents of the latest ballot measure would need to gather about 140,000 valid signatures for it to qualify. The next city election is in June 2026. McOsker, for her part, said she believes that state law sets a lower threshold — only 44,000 — for measures that result in the elimination of taxes.
Industry leaders have long decried L.A.’s business tax, which is levied not on profits but on the gross receipts that are brought in — even where an enterprise suffers financial losses.
Former Mayor Eric Garcetti argued for eliminating the tax more than a decade ago, saying it puts the city’s economy at a competitive disadvantage. Once in office, he only managed to scale it back, amid concerns that an outright repeal would trigger cuts to city services.
Organizers of the latest proposal said it would not rescind business taxes on the sale of cannabis or medical marijuana, which were separately approved by voters.
Wilbur Ross became rich investing in faltering businesses like steel mills and coal mines, finding a fortune in blue-collar industries that others dismissed as beyond saving.
But before he was scooping up Rust Belt factories, the banker was sizing up another troubled asset: Donald Trump. More than two decades ago, Ross represented bondholders who were gunning for Trump after he failed to pay back the high-interest loans he had taken out to build his casino empire.
For the record:
3:04 a.m. June 23, 2019A earlier version of this article listed House Majority Leader Kevin McCarthy’s party affiliation as Democrat. He is a Republican.
When Ross arrived in Atlantic City, N.J., for negotiations in 1990, he found a throng of journalists and curious onlookers eager to catch a glimpse of Trump, according to “The Vulture Investors,” by Hilary Rosenberg. For the quiet Ross, the scene inspired a revelation: Trump’s flashy image had resilience.
Ross embarked on a strategy that helped Trump avoid a personal bankruptcy that could have derailed his unlikely trajectory from real-estate mogul to reality television star to president-elect.
Consider it another investment that has paid off for Ross, whom Trump recently tapped to lead the Department of Commerce. A private equity billionaire who once led a secret Wall Street fraternity, Ross is among the rich, loyal insiders Trump picked for a Cabinet that is shaping up as the wealthiest in history.
If confirmed by the Senate, the 79-year-old veteran investor will spearhead trade policy and business development in the new administration.
Trump rejected criticism that Ross was too out of touch to serve, saying during a rally last week in Cincinnati that Ross was chosen because “this guy knows how to make money, folks.”
Trump added, “I put on a killer.”
Ross, however, once spared Trump.
The future president-elect at one time owned a quarter of Atlantic City’s casino market. But Trump was heavily in debt, and he started missing bond payments on his — and Atlantic City’s — largest casino, the Taj Mahal, in 1990.
Donald Trump celebrates the grand opening of the Taj Mahal in 1990. The Atlantic City casino was in financial trouble later that year.
(Mike Derer / Associated Press )
Ross, then an investment banker working for Rothschild Inc., helped bondholders negotiate with Trump, whose finances were unraveling. The final deal reduced Trump’s ownership stake in the Taj but left him in charge, and bondholders were unhappy when Ross presented the plan.
“Why did we make a deal with him?” one asked, according to Rosenberg’s book.
Ross insisted that Trump was worth saving.
“The Trump name is still very much an asset,” he said.
Trump himself proved to be less of a sure bet. Though the agreement allowed Trump to soldier on in Atlantic City, his casinos landed in bankruptcy court twice more.
The president-elect respects Ross’ deal-making skills, said Jason Miller, the communications director for Trump’s transition team.
“He’s seen Mr. Ross up close and personal,” Miller said. “He knows that he can depend on him.”
Ross grew up in New Jersey and attended a Jesuit prep school in New York before earning degrees from Yale and the Harvard Business School. He spent two decades at Rothschild working on bankruptcies before starting his own private equity firm, WL Ross & Co., in 2000.
A Palm Beach, Fla., resident who owns an art collection valued at nine figures and is worth an estimated $2.5 billion according to Forbes, Ross earned a reputation as a so-called vulture investor for finding profits in dying businesses. Ross described himself differently in an interview with New York magazine: “We’re a phoenix that rebuilds itself from the ashes.”
At the Commerce Department, Ross would oversee a portfolio containing responsibilities as diverse as weather research and promoting minority-owned businesses. However, with Trump in the White House, foreign trade likely will be the issue that gets the most of Ross’ attention. Trump has promised to remake free-trade deals.
President-elect Donald Trump, left, with Commerce secretary pick Wilbur Ross, whose estimated worth is $2.5 billion.
(Carolyn Kaster / Associated Press)
The department has wide latitude to determine when other countries are violating trade rules, experts said, allowing U.S. officials to slap tariffs on imports or find loopholes in international agreements.
The Trump administration won’t rush toward tariffs but wants to renegotiate some deals, Ross told CNBC after he was tapped by Trump.
“We’ve been doing a lot of dumb trade,” he said, echoing Trump’s campaign-trail rhetoric.
Trump’s pronouncement that companies that leave the U.S. will face a 35% tariff on goods they want to sell domestically has been met with a tepid response from his fellow Republicans. GOP leaders on Capitol Hill suggested this week that they would not go along with such a proposal, though they emphasized that they would wait to hear exactly what Trump had in mind.
“Take a deep breath. He’s not sworn in yet,” House Majority Leader Kevin McCarthy (R-Bakersfield) told reporters. “Let’s not predetermine what the outcome of this stuff is.”
Even Trump’s vice president-elect, Mike Pence, deflected when asked repeatedly on MSNBC whether he agrees with the proposed tariff.
“What we don’t want to do is for companies to say it cost — it costs this much to manufacture it overseas and sell it in the United States and it costs this much in taxes and regulations and other burdens to manufacture here,” Pence said Tuesday on “Morning Joe.”
Ross, though, helped formulate Trump’s economic policies, which include tax cuts, reduced regulations on energy production and privately financed infrastructure spending spurred by tax credits.
Peter Navarro, a UC Irvine professor who worked with Ross on the proposals as a Trump adviser, praised Ross for his “precision, compassion, humility and subtle humor.”
“Donald Trump continues to choose very well for America,” Navarro said.
A report from Moody’s, however, predicted that Trump’s plans would lead to a recession, while the Tax Foundation projected that deficits would increase, conclusions that Navarro and Ross have dismissed.
House Minority Leader Nancy Pelosi (D-San Francisco) slammed Trump’s choice of Ross. Democrats have no power to block his eventual nomination.
“Choosing a practiced corporate raider to head the Commerce Department reflects Republicans’ disdain for hard-working Americans struggling to make ends meet,” she said in a statement. “With sprawling conflicts of interest and a troubling record on worker safety, Democrats have serious concerns that Wilbur Ross’ corporate interests will trump the concerns of American families, entrepreneurs and our economic security.”
Her reference to worker safety was particularly damning. Ross’ private equity fund bought financially troubled coal operations several years ago, and in West Virginia, one of them, the Sago mine, suffered a collapse that killed a dozen people in 2006.
Miller defended Ross’ response to the blast, noting that Ross raised money to help families of the victims and invested in better mining safety.
Ross’ record with steel companies is less controversial. Under the banner of the International Steel Group, he acquired mills on the verge of being shuttered when their owners fell into bankruptcy. The company became the largest producer of steel in the country, and Ross sold the operations for $4.5 billion two years after he entered the industry.
Despite his Wall Street background, Ross had a good relationship with labor. Leo Gerard, president of the United Steelworkers, said that his exchanges with Ross weren’t “peaches and cream,” but he was open to workers’ concerns.
“Lots of these folks are bottom-feeders. They come in, and they strip the assets,” Gerard said of other investors. “Wilbur went the other way.”
WASHINGTON — Americans’ per capita income–after adjustment for inflation–declined in 1991, the first drop in nine years, the Commerce Department reported Wednesday.
The fall in real personal income was even greater in California, reflecting the impact of the recession in the state.
Nationwide, personal income averaged $19,082 last year, a scant 2.1% improvement over the prior year. That compares to a 4.1% rise in consumer prices, meaning real per capita income fell last year.
In California, personal income averaged $20,952 in 1991, a 1.3% increase over 1990. Nevada lagged even more with personal income of $19,175, only 0.7% higher than the prior year.
It was the first time since 1982 that growth in per capita income failed to keep pace with inflation, and it was the slowest growth since per capita incomes rose just 1% in 1958, a recession year.
The Commerce Department calculates personal income using wages and salaries, rents, dividends and government payments such as Social Security. This total measure of income–$4.81 trillion nationally in 1991–divided by a population of 252.2 million yields the per capita income for America.
California last year was among a group of 14 slow-growing states, according to the Commerce Department. This represents a major change from the 1980s, when these states were enjoying rapid growth, significantly above the national expansion of per capita incomes. They led the boom, with the central part of the nation lagging behind.
Now the situation is reversed, with the Midwest enjoying growth while both coasts suffer from sluggish economic performance.
The eastern states, notably New England and New York, suffered “declines in earnings in construction, durables, manufacturing and retail trade,” the Commerce Department said. Incomes grew in the West, but population and inflation grew even faster.
The fast-growing states, in which per capita income outstripped the national average, had strong gains in construction, manufacturing and service industries, the Commerce Department said. This group included Texas, Colorado, Wyoming, Montana, Hawaii and Utah.
Nationally, the growth rate in per capita income has been slowing since the end of the Reagan Administration. The increase in 1988 was 7.1%, and then slipped to 6.9% in 1989, and 5.4% in 1990 before reaching 1.3% last year.
The Commerce Department indicated that the recession, now in its second year, has had widespread and pervasive impact throughout the country. The growth of income slowed in all 50 states compared to the previous year’s performance.
“The defense cutbacks are having a big impact,” said Rudolph E. DePass, a Commerce Department analyst. “The high-income states (in the 1980s) . . . were generally all pretty heavily involved in the defense industry.”
Only seven states enjoyed per capita incomes in 1991 matching or exceeding the national inflation rate. They were: Wyoming, 5.1%; Montana, 4.8%; North Dakota, 4.8%; Hawaii, 4.6%; Louisiana, 4.2%; New Mexico, 4.1%, and Arkansas, 4.1%. Mississippi at 4% virtually matched the national average.
Economists predicted that income growth would improve modestly this year as the economy recovers.
“1992 will be slightly better. You could see a 3% to 4% increase,” said economist Lawrence Chimerine of DRI-McGraw Hill, a Lexington, Mass., forecasting firm. “But we still will be lucky to match or exceed inflation, and we won’t make up for the weakness of the last several years.”
Paul Brody is global blockchain leader at professional services firm EY and co-author of a 2023 book, Ethereum for Business: A Plain-English Guide to the Use Cases that Generate Returns from Asset Management to Payments to Supply Chains. He speaks with Global Finance about blockchain technology’s impact on everything from routine payments to cross-border remittances to the future of banking and the CFO and treasurer roles.
Global Finance:If we look at what people are transacting on blockchains today, it’s not primarily bitcoin but stablecoin, a type of cryptocurrency designed to maintain a stable value over time. Does this surprise you?
Paul Brody: The ability of people to pay each other in dollars is hugely valuable. And to give you a sense of how big stable- coin dollars have become, last month the ethereum blockchain ecosystem did $2 trillion in stablecoin payments, over 99% of which were in US dollars.
GF: Who is actually using them?
Brody:By far the most popular initial use case for stablecoin is in emerging markets. Countries without independent central banks often experience high inflation or even hyperinflation, and so demand for US dollars is really high among the local population.
GF: And they’re being used for cross-border remittances too?
Brody: A lot of traditional cross-border systems take days to execute, and they cost a fair amount of money. If both participants have smartphones and cryptocurrency accounts, you can send dollars across borders in a matter of seconds for almost nothing.
GF: Lately, the US Treasury Department seems to be saying that the US doesn’t need a central bank digital currency [CBDC], i.e., a digital dollar. It can use stablecoin. Is that your read too?
Brody: What we need is well-regulated stablecoin. We need some regulatory safeguards to make sure that if you say there’s a dollar on-chain, there’s also a dollar in the bank account to back that up, or its equivalent in assets.
CBDCs have been flopping, mostly because central banks don’t really know why they’re doing them. I’ve talked to many central bankers, and they generally have no idea why they’re doing this other than Facebook wanted one.
GF: How will blockchain technology change things for corporate CFOs and treasurers?
Brody: CFOs and treasurers have some questions to ask themselves: Am I plugged into the crypto and blockchain system? Can I make stablecoin payments? Should I include bitcoin in my corporate treasury alongside US dollar-denominated bonds? Going further, can I automate my business contracts? My procurement? How can I run my business operations more efficiently? And if a customer wants to pay me in stablecoin, can they do so? The answer for most companies today is, no, they can’t.
GF: If you’re a stablecoin issuer, how do you make a profit on that business?
Brody: You make money with transaction fees and, potentially, your float on the interest rate. But that depends on interest rates. If rates go down really low, it’s going to be a painful business. Fees are pretty small because it’s such a competitive environment.
GF: What does all this mean for banks generally going forward? Is it going to lessen their importance?
Brody: It’s going to change banks’ role, and may diminish it. It depends on how a bank makes its money.
Banks that make their money processing credit card transac- tions are the most at risk because blockchains represent a new, more efficient way to process transactions. You swipe your credit card in a store, and you don’t see the cost of the payment, but it’s real and it’s substantial, like 3% to 4%. International wire trans- fers are usually a fixed fee, as much as $50. Stablecoin transfers cost almost nothing by comparison.
But if you’re a regional bank that does a lot of corporate finance, blockchain probably doesn’t change your business that much.
GF: What about major custody banks, such as BNY Mellon, JPMorgan, etc.? Is their business at risk?
Brody: Major custody banks are in an interesting place. They have a ton of assets, and if you’ve got assets and you control and custody those assets, you’re then in a position to help people tokenize them.
So, this new technology is certainly a threat, but it’s also potentially a substantial opportunity. At the end of the day, if you’re custodying assets and you’re now helping people tokenize them or manage them in different ecosystems, that represents the additive potential to your business.
GF: In your book Ethereum for Business, you highlight the importance of blockchain-based smart contracts. With these, one can define not only dollars but all sorts of things, even coffee mugs. Why aren’t more corporations using smart contracts?
Brody: The answer is that blockchains don’t yet have privacy built into them, and this is a huge problem. But it’s being fixed. It’s like the early days of the internet, when we didn’t have encryption. Most companies don’t feel comfortable doing business without privacy.
It’s why private blockchains have never worked. If companies had a private blockchain, they thought it ensured privacy. What they didn’t realize is that inside that walled garden there’s still no privacy. If you’re a big company and you have all your suppliers in your private blockchain, you still can’t run your procurement process there, because supplier A can see how much you’re paying supplier B, and also how much you’re ordering from them.
GF: How deep are banks going to go in providing blockchain services?
Brody: Every single bank is going to offer some kind of DLT [distributed ledger technology] service. You have stocks, you have bonds [to offer clients], and now you may add crypto. Other institutions may send cash to an ethereum address for you, instead of setting up a wire transfer to a bank address. There will be new versions of money transfer and payments, and some of them are going to be quite sophisticated.
GF: Skeptics are asking when they will see blockchain’s “killer app”: meaning an application that’s universally used, along the lines of what email did for the internet?
Brody: Stablecoins are the killer app, the one that gets everybody on-chain. The stablecoin market is about to get crazy competitive, and yield-bearing stablecoins will be widely available soon.
“CFOs and treasurers have to ask themselves: If a customer wants to pay me in stablecoin, can they do so?”
GF: All in all, is blockchain a niche innovation—useful but not earth-shattering—or is it something that can fundamentally change global finance?
Brody: It’s not only going to change global finance, but it will transform all global commerce.
Blockchain is going to become the plumbing by which all B2B transactions are done.
And the reason it’s so transformational is that historically, money, contracts, and “stuff” [i.e., goods] all were in different systems. Companies still spend huge amounts on reconciling money, stuff, and contracts. For example, it costs the average large company about $100 to pay a bill. And the reason is, somebody in procurement has to say, I’ve got this bill. Does it match the purchase order that I sent out? Do the terms on the bill and the purchase order match the terms of the contract? And so on. Imagine a future where the money, the stuff, and the terms of the contract are all in the same digital system and they all reconcile with each other. It’s done instantly. In 10, 15 years, the whole process will be universal and invisible. Back-end plumbing, right?
Paul Brody is global blockchain leader at professional services firm EY and co-author of a 2023 book, Ethereum for Business: A Plain-English Guide to the Use Cases that Generate Returns from Asset Management to Payments to Supply Chains. He speaks with Global Finance about blockchain technology’s impact on everything from routine payments to cross-border remittances to the future of banking and the CFO and treasurer roles.
Global Finance:If we look at what people are transacting on blockchains today, it’s not primarily bitcoin but stablecoin, a type of cryptocurrency designed to maintain a stable value over time. Does this surprise you?
Paul Brody: The ability of people to pay each other in dollars is hugely valuable. And to give you a sense of how big stable- coin dollars have become, last month the ethereum blockchain ecosystem did $2 trillion in stablecoin payments, over 99% of which were in US dollars.
GF: Who is actually using them?
Brody:By far the most popular initial use case for stablecoin is in emerging markets. Countries without independent central banks often experience high inflation or even hyperinflation, and so demand for US dollars is really high among the local population.
GF: And they’re being used for cross-border remittances too?
Brody: A lot of traditional cross-border systems take days to execute, and they cost a fair amount of money. If both participants have smartphones and cryptocurrency accounts, you can send dollars across borders in a matter of seconds for almost nothing.
GF: Lately, the US Treasury Department seems to be saying that the US doesn’t need a central bank digital currency [CBDC], i.e., a digital dollar. It can use stablecoin. Is that your read too?
Brody: What we need is well-regulated stablecoin. We need some regulatory safeguards to make sure that if you say there’s a dollar on-chain, there’s also a dollar in the bank account to back that up, or its equivalent in assets.
CBDCs have been flopping, mostly because central banks don’t really know why they’re doing them. I’ve talked to many central bankers, and they generally have no idea why they’re doing this other than Facebook wanted one.
GF: How will blockchain technology change things for corporate CFOs and treasurers?
Brody: CFOs and treasurers have some questions to ask themselves: Am I plugged into the crypto and blockchain system? Can I make stablecoin payments? Should I include bitcoin in my corporate treasury alongside US dollar-denominated bonds? Going further, can I automate my business contracts? My procurement? How can I run my business operations more efficiently? And if a customer wants to pay me in stablecoin, can they do so? The answer for most companies today is, no, they can’t.
GF: If you’re a stablecoin issuer, how do you make a profit on that business?
Brody: You make money with transaction fees and, potentially, your float on the interest rate. But that depends on interest rates. If rates go down really low, it’s going to be a painful business. Fees are pretty small because it’s such a competitive environment.
GF: What does all this mean for banks generally going forward? Is it going to lessen their importance?
Brody: It’s going to change banks’ role, and may diminish it. It depends on how a bank makes its money.
Banks that make their money processing credit card transac- tions are the most at risk because blockchains represent a new, more efficient way to process transactions. You swipe your credit card in a store, and you don’t see the cost of the payment, but it’s real and it’s substantial, like 3% to 4%. International wire trans- fers are usually a fixed fee, as much as $50. Stablecoin transfers cost almost nothing by comparison.
But if you’re a regional bank that does a lot of corporate finance, blockchain probably doesn’t change your business that much.
GF: What about major custody banks, such as BNY Mellon, JPMorgan, etc.? Is their business at risk?
Brody: Major custody banks are in an interesting place. They have a ton of assets, and if you’ve got assets and you control and custody those assets, you’re then in a position to help people tokenize them.
So, this new technology is certainly a threat, but it’s also potentially a substantial opportunity. At the end of the day, if you’re custodying assets and you’re now helping people tokenize them or manage them in different ecosystems, that represents the additive potential to your business.
GF: In your book Ethereum for Business, you highlight the importance of blockchain-based smart contracts. With these, one can define not only dollars but all sorts of things, even coffee mugs. Why aren’t more corporations using smart contracts?
Brody: The answer is that blockchains don’t yet have privacy built into them, and this is a huge problem. But it’s being fixed. It’s like the early days of the internet, when we didn’t have encryption. Most companies don’t feel comfortable doing business without privacy.
It’s why private blockchains have never worked. If companies had a private blockchain, they thought it ensured privacy. What they didn’t realize is that inside that walled garden there’s still no privacy. If you’re a big company and you have all your suppliers in your private blockchain, you still can’t run your procurement process there, because supplier A can see how much you’re paying supplier B, and also how much you’re ordering from them.
GF: How deep are banks going to go in providing blockchain services?
Brody: Every single bank is going to offer some kind of DLT [distributed ledger technology] service. You have stocks, you have bonds [to offer clients], and now you may add crypto. Other institutions may send cash to an ethereum address for you, instead of setting up a wire transfer to a bank address. There will be new versions of money transfer and payments, and some of them are going to be quite sophisticated.
GF: Skeptics are asking when they will see blockchain’s “killer app”: meaning an application that’s universally used, along the lines of what email did for the internet?
Brody: Stablecoins are the killer app, the one that gets everybody on-chain. The stablecoin market is about to get crazy competitive, and yield-bearing stablecoins will be widely available soon.
“CFOs and treasurers have to ask themselves: If a customer wants to pay me in stablecoin, can they do so?”
GF: All in all, is blockchain a niche innovation—useful but not earth-shattering—or is it something that can fundamentally change global finance?
Brody: It’s not only going to change global finance, but it will transform all global commerce.
Blockchain is going to become the plumbing by which all B2B transactions are done.
And the reason it’s so transformational is that historically, money, contracts, and “stuff” [i.e., goods] all were in different systems. Companies still spend huge amounts on reconciling money, stuff, and contracts. For example, it costs the average large company about $100 to pay a bill. And the reason is, somebody in procurement has to say, I’ve got this bill. Does it match the purchase order that I sent out? Do the terms on the bill and the purchase order match the terms of the contract? And so on. Imagine a future where the money, the stuff, and the terms of the contract are all in the same digital system and they all reconcile with each other. It’s done instantly. In 10, 15 years, the whole process will be universal and invisible. Back-end plumbing, right?
