Page 6 - Wealth-Adviser-Issue-118 (FWP)

ISSUE 118
AUGUST 2025

Australia’s digital identity proposals, aiming to link digital
wallets with verified identity systems, further blur lines between

convenience and surveillance. Citizens must weigh faster
payments against potential loss of transactional privacy.

ledger can expose transaction histories in granular detail. guardrails aim to balance innovation with financial system
Policy proposals in the United States have ignited debate stability and consumer protection.
over mandatory data collection. As the Cato Institute warns,
“Stablecoin legislation must ensure financial privacy, or risk Financial-Infrastructure Resilience
a surveillance infrastructure rivalled only by centralised 4and Innovation
digital currencies” . Traditional networks’ resilience stems from their net-
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Similarly, concerns have been raised that U.S. regulatory work effects—each additional user increases value for all
drafts would require transaction reporting far beyond exist- participants. Stablecoins must replicate these features to
ing banking requirements: “Concerns raised over privacy in compete meaningfully. Collateral requirements, reserve
U.S. stablecoin legislation highlight the risk of blanket data audits and governance frameworks underpin trust in
collection on consumer behaviour” . fiat-backed tokens. As Magellan notes, the Genius Act’s
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These issues echo debates over central bank digital AML/KYC mandates are a “step in the right direction for
currencies (CBDCs). Unlike private stablecoins, CBDCs give stablecoins to be considered as an ‘alternative payment’
central banks ultimate control: “Bitcoin vs. CBDCs: The mechanism” .
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difference is control—CBDCs enable government oversight Collaboration between fintechs, stablecoin issuers and
over every transaction, while private cryptos preserve more incumbents offers a path to incremental innovation. For
user autonomy” . instance, Taurus’s open-source privacy layer for USDC could
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Australia’s digital identity proposals, aiming to link digital allow users to shield transaction details selectively, combin-
wallets with verified identity systems, further blur lines ing blockchain transparency with enhanced privacy . Major
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between convenience and surveillance. Citizens must weigh banks in Australia are exploring partnerships with token
faster payments against potential loss of transactional privacy. issuers to streamline cross-border settlement, drawing on
both regulated expertise and blockchain efficiency.
Incumbent Competition
3and Regulatory Dynamics Navigating the Trade-Offs: Practical Guidance
Stablecoins have been hyped as disruptors to Visa and 5for Consumers
Mastercard networks. However, the established card rails Australian consumers curious about stablecoins should
benefit from decades of investment, scale and regulatory adopt a cautious, informed approach:
integration. Magellan’s analysis cautions: “Much of the
excitement around stablecoin being the next big disruptor Evaluate Provider Transparency: Choose issuers with reg-
in consumer payments is misplaced…they lack the seamless, ular reserve attestation, clear governance and robust AML/
secure global network and consumer protections of V/MA” . KYC practices .
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Visa processes roughly 65,000 transactions per second
across 200+ countries with built-in fraud protections and Use Privacy-Enhancing Tools: Opt for wallets or layer-two
chargeback rights—features that stablecoins cannot yet solutions that support selective disclosure and advanced
rival . Regulators in Australia and the EU have acted to cap privacy features .
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interchange fees, preserving consumer outcomes while
ensuring network viability . Limit Exposure in Day-to-Day Spending: Reserve stable-
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Government policy will shape stablecoin trajectories. coins chiefly for cross-border transfers or niche use cases;
Australia’s Treasury is modernising payment regulation to continue using regulated card and bank networks for every-
include licensing frameworks for digital payments pro- day purchases to retain consumer protections.
viders, including stablecoin issuers . The Reserve Bank’s
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2022 Bulletin called for clear guidelines on reserve backing, Stay Informed on Regulation: Monitor developments from
operational resilience and AML/KYC compliance . These the RBA and Treasury regarding licensing, consumer
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