Google: Why We Want to Build Our Own Blockchain GCUL

Original Source: Google
Original Title: "Beyond Stablecoins: The Evolution of Digital Currency"

Editor's Note: Internet giant Google has officially announced their own native blockchain network, GCUL (Google Cloud Universal Ledger). From the introduction, we can roughly see Google's idea: due to the explosion of stablecoins and the potential trillion-dollar prospects, Google does not want to miss the next wave of Fintech, so they created GCUL, a network that is more like a stablecoin alliance chain. Rich Widmann, head of web3 at Google, stated that this is the result of years of research and development at Google, and can provide financial institutions with a high-performance, credibly neutral network that supports Python-based smart contracts. Google has also written an article to explain their thoughts on GCUL. The following is the original text from Google:

Stablecoins have experienced significant growth in 2024, with trading volume tripling the original volume, organic transaction volume reaching $5 trillion, and total transaction volume reaching $30 trillion (data source: Visa, Artemis). In comparison, PayPal's annual transaction volume is about $1.6 trillion, and Visa's annual transaction volume is about $13 trillion. The supply of stablecoins pegged to the US dollar has grown to more than 1% of the total US dollar supply (M2) (data source: rwa.xyz). This surge clearly shows that stablecoins have secured a place in the market.

The demand for better services is driving a major transformation in the nearly $3 trillion payments market. Stablecoins do not have the complexity, inefficiency, and fee burden of traditional payment systems, enabling seamless fund transfers between digital wallets. New solutions are also emerging in capital markets to facilitate the payment leg of digital asset transactions, increasing transparency and efficiency while reducing costs and settlement times.

This article explores the evolving financial landscape and proposes a solution to help traditional finance and capital markets not only catch up but also lead the way.

Private Money: The Similarities Between Banknotes and Stablecoins

Stablecoins share many similarities with privately issued banknotes that were widely used in the 18th and 19th centuries. Banks issued their own banknotes, with varying degrees of reliability and regulation. These banknotes made transactions easier because they were easier to carry, count, and exchange, without the need to weigh or assess the purity of gold. To increase trust in this new type of money, banknotes were backed by reserve funds and promised to be redeemable for real-world assets (most commonly precious metals). The number of transaction wallets and liquidity increased significantly. Most banknotes were only recognized in the local area near the issuing bank. For remote settlements, they were exchanged for precious metals or cleared between banks. In exchange for these benefits, users accepted the risk of a single bank default and value fluctuations based on the perceived solvency of the issuing bank.

Fractional Reserve Banking and Regulation

Subsequently, the economy experienced significant growth, accompanied by financial innovation. Economic expansion required a more flexible money supply. Banks observed that not all depositors would demand redemption at the same time, realizing they could profit by lending out part of their reserves. The fractional reserve banking system emerged, in which the amount of banknotes in circulation exceeded the reserves held by banks. Mismanagement, high-risk lending, fraud, and economic downturns led to bank runs, bankruptcies, crises, and depositor losses. These failures prompted increased regulation and oversight of money issuance. With the establishment and expansion of central bank charters, these regulations created a more centralized system, improved banking practices, set stricter rules, increased stability, and won public trust in the monetary system.

Today's Monetary System: Commercial Bank and Central Bank Money

Our current monetary system uses a dual-currency model. Commercial bank money issued by commercial banks is essentially a liability (IOU) of a specific bank, subject to comprehensive regulation and oversight. Commercial banks use a fractional reserve model, meaning they keep only a portion of deposits as reserves in central bank money and lend out the rest. Central bank money is a liability of the central bank and is considered risk-free. Liabilities between banks are settled electronically in central bank money (via RTGS systems such as FedWire or Target2). The public can only use commercial bank money for electronic transactions, while the use of cash (central bank physical money) is declining. In a single currency, all commercial bank money is interchangeable. Banks compete on service, not on the quality of the money they provide.

Today's Financial Infrastructure: Fragmented, Complex, Expensive, and Slow

With the advent of computers and networks, monetary transactions are recorded electronically and can be conducted without cash. Liquidity, access, and product innovation have reached new heights. Solutions vary by country/region, and cross-border transactions still face economic and technical difficulties. Correspondent banking requires idle funds to be left at partner banks, and the complexity of the infrastructure forces banks to limit partnerships. As a result, banks are withdrawing from correspondent relationships (down 25% in the past decade), meaning longer payment chains, slower payments, and higher costs. Convenient solutions that abstract away these complexities (such as global credit card networks) are costly for businesses paying payment fees. Moreover, most improvements are focused on the front end, while innovation in payment processing infrastructure has been slow.

The financial system is fragmented, increasing trade friction and slowing economic growth. The Economist estimates that by 2030, the macroeconomic impact of fragmented payment systems on the global economy will reach a staggering $2.8 trillion loss (2.6% of global GDP), equivalent to more than 130 million jobs (4.3%).

Fragmentation and complexity also harm financial institutions. In 2022, the annual maintenance cost of outdated payment systems was $3.7 billion, expected to rise to $5.7 billion by 2028 (IDC Financial Insights). In addition, the inability to provide real-time payments, inefficiency, security risks, and extremely high compliance costs exacerbate direct revenue losses (75% of banks struggle to implement new payment services in outdated systems, and 47% of new accounts are opened at fintech companies and neobanks).

High payment fees hinder the international business growth of enterprises, affecting profitability and valuation. Companies that process large volumes of payments are highly motivated to reduce their payment processing costs. Take Walmart as an example: reducing its annual payment processing fees of about $1 billion (assuming an average payment processing fee rate of 1.5% on $70 billion in revenue) to $200 million could increase earnings per share and stock price by more than 40%.

New Infrastructure, New Possibilities

Experiments in the Web3 space have given rise to promising technologies such as distributed ledger technology (DLT). These technologies provide a new way for financial system transactions by offering global, always-on infrastructure, with advantages including support for multiple currencies/assets, atomic settlement, and programmability. From isolated databases and complex messaging to transparent, immutable shared ledgers, the financial industry's paradigm has begun to shift. These modern networks simplify interactions and workflows, eliminate independent, expensive, and slow reconciliation processes, and remove technical complexity that hinders speed and innovation.

Disruptors: Stablecoins

Stablecoins operate on decentralized ledgers, enabling near-instant, low-cost global transactions, unconstrained by the limitations of traditional banking (time, geography). This freedom and efficiency have fueled their explosive growth. High interest rates have also made them highly profitable. Profits, growth, and increasing confidence in the underlying technology are attracting investment from venture capital and payment processing companies. Stripe acquired Bridge, enabling online merchants to accept stablecoin payments. In addition, Visa offers the ability to use stablecoins for partner payments and settlements. Retailers (such as Whole Foods) are accepting and even encouraging stablecoin payments to reduce transaction fees and receive payments instantly. Consumers can obtain stablecoins within seconds.

Stablecoins face many challenges.

· Regulation: Unlike traditional currency, stablecoins lack comprehensive regulation and oversight. The US is strengthening regulation, and the EU is applying e-money rules to e-money tokens through MICAR. Depositor protection measures do not apply to stablecoins.

· Compliance: Ensuring compliance with anti-money laundering and sanctions laws is challenging when anonymous accounts transact on public blockchains (in 2024, 63% of the $51.3 billion in illicit transactions on public blockchains involved stablecoins).

· Fragmentation: There are many types of stablecoins running on different blockchains, requiring complex bridging and conversion. This fragmentation leads to reliance on automated bots for arbitrage and liquidity management, with transactions by these bot accounts accounting for nearly 85% of total volume.

· Infrastructure Scalability: To achieve widespread use, the underlying technology must be able to handle large volumes of transactions. In 2024, there were about 6 billion stablecoin transactions, ACH transactions are about an order of magnitude higher, and card transactions are two orders of magnitude higher.

· Economics/Capital Efficiency: Currently, banks expand the money supply by lending out multiples of their reserves, driving economic growth. Widespread use of stablecoins would shift bank reserves, significantly reducing banks' lending capacity and directly impacting profitability.

The direct challenges faced by stablecoins (issuer credibility, regulatory ambiguity, compliance/fraud, and fragmentation) are similar to those of early privately issued banknotes.

Widespread adoption of fully reserved stablecoins would disrupt not only banking and finance but also the current economic system. Commercial banks provide credit, money, and liquidity to support economic growth; central banks monitor and influence this process through monetary policy to directly manage inflation and indirectly pursue other policy goals such as employment, economic growth, and welfare. Large-scale transfers of reserves from banks to stablecoin issuers could reduce credit supply and increase credit costs. This would dampen economic activity, potentially lead to deflationary pressures, and challenge the effectiveness of monetary policy implementation.

Stablecoins bring obvious benefits to users, especially in cross-border transactions. Competition will drive innovation, expand use cases, and stimulate growth. Increased transaction volume and stablecoin wallet adoption may lead to reduced deposits, loans, and profitability for traditional banks. As regulation matures, we may see the emergence of partially reserved stablecoin models, blurring the line between them and commercial bank money, and further intensifying competition in the payments space.

The Innovator's Dilemma

Now, institutions and individuals can choose traditional payment systems, which are familiar and lower risk but slow and costly; or they can choose modern systems, which are fast, cheap, convenient, and rapidly improving, but come with new risks. Increasingly, they are choosing modern systems.

Payment service providers also have a choice. They can view these innovations as niche markets that will not affect the core customer base of traditional finance and focus on incremental improvements to existing products and systems. Or, they can leverage their brand, regulatory experience, customer base, and network to dominate the new era of payments. By adopting new technologies and building strategic partnerships, they can meet evolving customer expectations and drive business growth.

Better Payments Through Evolution (Not Revolution)

We can achieve the next generation of payments—global, 24/7, multi-currency, and programmable—without reinventing money, simply by reimagining the infrastructure. Commercial bank money and robust traditional financial regulation solve the stability, regulatory clarity, and capital efficiency issues of the existing financial system. Google Cloud can provide the necessary infrastructure upgrade.

Google Cloud Universal Ledger (GCUL) is a brand new platform for creating innovative payment services and financial market products. It simplifies the management of commercial bank money accounts and facilitates transfers via distributed ledger, enabling financial institutions and intermediaries to meet the needs of the most demanding clients and compete effectively.

GCUL is designed to provide a simple, flexible, and secure experience. Let's break it down:

Simple: GCUL is offered as a service, accessible via a single API, simplifying integration of multiple currencies and assets. No need to build and maintain infrastructure. Transaction fees are stable and transparent, invoiced monthly (unlike volatile prepaid crypto transaction fees). Flexible: GCUL offers unparalleled performance and can scale up or down for any use case. It is programmable, supporting payment automation and digital asset management. It integrates with your choice of wallets. Secure: GCUL is designed with compliance in mind (e.g., KYC-verified accounts, transaction fees compliant with outsourcing regulations). It operates as a private, permissioned system (which may become more open as regulations evolve), leveraging Google's secure, reliable, durable, and privacy-focused technology.

GCUL can bring significant benefits to customers and financial institutions. Customers can enjoy near-instant transactions (especially cross-border payments), as well as low fees, 24/7 availability, and payment automation. On the other hand, financial institutions can benefit by eliminating reconciliation, reducing errors, simplifying compliance processes, and reducing fraud, thereby lowering infrastructure and operational costs. This frees up resources for developing modern products. Financial institutions leverage their existing advantages (such as customer networks, licenses, and regulatory processes) to maintain full control over customer relationships.

Payments as a Catalyst for Capital Markets

The situation in capital markets is similar to that in payments, with major changes brought about by the adoption of electronic systems. Electronic trading was initially resisted but ultimately transformed the entire industry. Real-time price information and broader access increased liquidity, speeding up execution, narrowing spreads, and reducing per-trade costs. This, in turn, stimulated further growth in market participants (especially retail investors), product and strategy innovation, and overall market size. Although the price per trade is much lower, the entire industry has expanded significantly, with advances in electronic and algorithmic trading, market making, risk management, data analytics, and more.

However, challenges remain in payments. Settlement cycles can take days due to the limitations of traditional payment systems, requiring working capital and collateral for risk management. Digital assets and new market structures supported by distributed ledger technology are hampered by the inherent friction of connecting traditional and new infrastructures. Separate asset and payment systems perpetuate fragmentation and complexity, preventing the industry from fully benefiting from innovation.

Google Cloud Universal Ledger (GCUL) addresses these challenges by providing a streamlined and secure platform to manage the entire lifecycle of digital assets (such as bonds, funds, collateral). GCUL enables seamless and efficient issuance, management, and settlement of digital assets. Its atomic settlement feature minimizes risk and increases liquidity, unlocking new opportunities in capital markets. We are exploring how to use safe exchange media backed by bankruptcy-protected assets provided by regulated institutions (such as central bank deposits or money market funds) to transfer value. These initiatives help achieve truly 24/7 capital flows and drive the next wave of financial innovation.

Original Link