In March 2019, amid a flurry of questions and panic regarding the global economy, TF Blockchain founder Jonathan Blanco interviewed Shamir Karkal, Co-Founder and CEO of Sila, a banking and payment API platform that leverages blockchain technology to make money transfer easier and cheaper, to answer questions about banking, stablecoins, the effect COVID-19 has on the economy. This article is a follow up to that interview.
Like never before, the world, along with the global economy, is going through a wild time,many thanks to the Coronavirus, which started around December 2019 in China. As a result, global markets have crashed and are still crashing, as reported in The Economist. As a result of this ravaging pandemic, leaders of the world’s top economies are confronted with massive indecision, fear, and trepidation. This, therefore, begs the question, "what are the implications of a looming market crash and how long will the markets need to recover?"
Back in March, we turned to Shamir Karkal, Founder and CEO of Sila, a banking and payment API platform that leverages blockchain technology to make money transfer easier and cheaper, to answer our questions on the current state of the economy during this unprecedented COVID-19 era. During the interview, Shamir explained the role of technology in banking, the effect of COVID-19 on the economy, and the projected timeline for the economy’s recovery.
According to Shamir, the global financial system is a grand system, which is currently valued at $15-20 trillion dollars per year in revenue. It has existed for several years as an exclusive industry for “experts only" making it impossible for others to breakthrough. Interestingly, it took the introduction of technology into the financial system to change that, making it the level playing field that it is today. The introduction of technology in the financial sector is responsible for improving and automating the delivery of financial services that were once known to be moribund and restrictive.
The fintech industry contains different and diverse sectors and industries, which range from investment management, education, retail banking, fundraising and nonprofit, and cryptocurrency. This speaks of a very diverse market, made possible by the technological revolution. Interestingly, the surface of fintech is just being scratched, especially in the past two decades, since the invention of PayPal. Shamir explained that although “fintech” might seem to be the "new kid on the block," certain aspects of it still use old banking structures to transact business and reach out to their customers. This means that aspects of fintech are not the perfect alternatives to traditional money as we were led to believe. This is because they still depend on the banks for their transaction. Traditional money is heavily regulated, and when compared to the blockchain, the difference is clear. Blockchain and cryptocurrencies are less regulated. In other words,the banking system has evolved from a rigid and regulated system to a flexible system.
Interestingly, with Sila's platform, which is an API (application programming interface) platform that allows most of its customers to use the STK (tokens) to perform activities like verifying identities, linking their cards and bank accounts, and conducting transactions from these cards and accounts. These characteristics are what make Sila standout from any fintech outfit. All businesses need to have an effective payment system, and Sila ensures that these payments are programmed to meet the needs of these businesses.
In giving reasons why “stable coins/stable currency" are essential, Shamir uses the example ofthe US dollar. Most people identify with the US dollar as the most identifiable form of money because of its global acceptance. Sila uses the dollar as a stablecoin. Stablecoins ensure that the volatility of a currency is reduced. These stablecoins exist to eliminate the question of untenable/unacceptable currency in some parts of the world. With stablecoins, a business person can build or ship any commodity without having to worry if the creditor will accept the currency whoever situated wherever, whenever, can transact with whoever using a stablecoin.
In providing answers about the effect of COVID-19 on the banking sector, Shamir described this period as one where banks are experiencing massive losses, which will continue as the pandemic spreads. The economy as of this March 2020 is in an all-time low, with interest rates at zero percent and markets ending below the 3000 mark.
However, the question remains, “how long will the recession last?” Shamir says, "the recession will extend as long as the disease lasts and even afterward because of the shutdown of top economies like Italy’s, China’s and the United States and the repercussions of such shutdowns. Not forgetting the ripple effect the $2 trillion stimulus package approved by the US Senate this week will cause afterward.
Shamir reiterated on the differences and similarities between this present financial crisis and that of 2008 and others before them. The financial sector caused the crisis of 2008, resulting in the mortgage industry crash. However, this is different as the mortgage industry is left unscathed in this crisis. Shamir concludes, “These recessions might last for 6, 8,12 months, but they don't last for ten years, but no matter how long or short, everyone has to get back to work- the work of rebuilding the economy!”
Sila in the News: Banking services provider Sila has raised $7.7 million to build out features for a platform that allows entrepreneurs to easily launch programmable, USD-pegged stablecoins. Read the Coindesk article here.
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