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Tag: global trade

Digital Finance Revolution

Written by Dylan Gardner

Our February article on Orbital AI tracked the migration of compute from terrestrial grids to Low Earth Orbit. We argued that when a physical bottleneck like energy meets a technological solution like Starship, a paradigm shift is inevitable. This month, we apply that same first-principles logic to the global financial system. This time, the bottleneck is in the settlement layer and the solution is stablecoins. The settlement layer is the foundational level of a financial system where the final, irrevocable transfer of value occurs.

For years, the cryptocurrency industry was dubbed the “Wild West”, a fragmented landscape of offshore exchanges with speculative volatility that hindered traditional investors from trusting the underlying technological shift. That era is drawing to a close. With the maturation of US Dollar (USD) stablecoins and the federal codification provided by the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS) Act, stablecoins have become the primary vehicle for exporting U.S. dollar dominance across the globe in the digital age.

The $300 Billion Digital Export

Stablecoins are no longer a fringe experiment. As of March 2026, the total stablecoin market capitalization has surged past $315 billion. However, market cap is the least interesting part of this innovative asset’s story. The true narrative is the velocity and volume at which a stablecoin networks are being utilized.

Stablecoins represent a familiar asset, the USD, technologically enhanced for the digital age. By utilizing blockchain technology as the settlement layer rather than a speculative asset, the USD can now be rapidly transacted 24/7/365 on enabling telecommunication infrastructure anywhere across the globe for less than a penny in transaction fees. We are witnessing the Transmission Control Protocol/Internet Protocol (TCP/IP) moment for money with a new settlement protocol that is fast, cheap, and invisible.

Circle and the New Treasury Guard

The most significant shift in the last 180 days has been balance sheet driven. Stablecoin issuers have become some of the leading purchasers and holders of U.S. Treasuries through their minting of stablecoins. Stablecoin issuers receive USD and electronically issue stablecoin tokens.  USD received by the stablecoin issuer is used to purchase U.S. Treasuries to back the $1 net asset value (NAV) of the stablecoin much like a traditional money market fund.  Circle Internet Group (NYSE: CRCL),the second largest stablecoin issuer by market capitalization with its USDC token behind Tether and its USDT, has become one of the largest U.S. Treasury holders, with roughly $66 Billion in notional value on their balance sheet.

This has been a calculated, strategic absorption of U.S. debt issuance that has been enabled in part by U.S. government policies. As traditional foreign buyers, like China and Japan, have moderated their appetite for U.S. paper, the stablecoin industry has stepped in as a permanent, programmatic buyer. This is effectively the strategic plan of the United States Treasury under Secretary Bessent: ensuring USD hegemony by turning worldwide digital transactions into a demand-sink for U.S. debt.

The Fidelity Stablecoin: TradFi Moves In

For years, traditional finance (known in the crypto world as TradFi) institutions viewed stablecoin companies as upstart competitors. That sentiment has seemingly undergone a total reversal. The launch of the Fidelity Digital Dollar (FIDD) marks the definitive crossing of the Rubicon.

Fidelity Digital Dollar℠(FIDD) is not simply a competing stablecoin, Fidelity has built a vertically integrated financial stack within their brokerage, custodial, and investment platform. FIDD is issued by Fidelity Digital Assets, National Association, a federally chartered trust bank. FIDD is a 1:1 USD-backed stablecoin announced on January 28, 2026, designed for both institutional and retail investors. FIDD operates on the Ethereum network and is backed by cash and short-term U.S. Treasuries. FIDD brings with it Fidelity’s sterling reputation as a bank-grade fiduciary with institutional audits, and its legacy trust and institutional credibility to the digital dollar.

The goal for Fidelity, and the wave of institutions that will follow them, is to make sure their customers stablecoin usage is seamless and easy. With FIDD, customers/users  can transact  in digital dollars without ever needing to interact with the underlying blockchain infrastructure. Much like the average consumer doesn’t understand the Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging system for bank wires or Automated Clearing Housing (ACH) batching for electronic funds transfers, the FIDD, USDC, or USDT stablecoin holder will simply enjoy the benefits of instant settlement without needing to manage a private key.

THE GENIUS Act: From Token to Legal Tender

The catalyst for this institutional ramp of stablecoin usage was the signing of the GENIUS Act. This legislation was the green light that hedge funds, investment management firms and corporate boardrooms across the country were waiting for.

The GENIUS Act achieved three critical objectives:

  1. Legal Finality: It officially designates “Payment Stablecoins” as federally legalized payment instruments rather than unregulated securities.
  2. 1:1 Mandate: It mandated that all U.S. regulated issuers must back their token 1:1 with cash or short-term Treasuries. This effectively turned every stablecoin into a liquid buffer for the U.S. Treasury market. Circle’s USDC and Fidelity’s FIDD are subject to U.S. regulations and the 1:1 Mandate, but Tether’s USDT is not.
  3. Bank-Grade Oversight: It provided a pathway for firms like Circle to operate with the same legal certainty as a traditional depository institutions.

By regulating the stablecoin industry, the U.S. government has ensured that the next generation of global trade and transactions happens under the watchful eye of U.S. regulators and in support of the USD as the global reserve currency.

The Efficiency Dividend: The Death of The Wait

In the TradFi world, “T+2” (two-day settlement) is the norm. When you sell a stock or send an international wire, your money sits in a digital purgatory for 48 to 72 hours. This is “trapped capital”, billions of dollars in aggregate that cannot be used, reinvested, or moved. Earning nothing while the transaction moves to the settlement layer.

Stablecoins collapse this latency to near zero.

  • Corporate Treasury or Hedge Fund: A multinational corporation or hedge fund can now move $500 million from a subsidiary in Tokyo to its headquarters in Chicago on a Sunday night at 2:00 AM, and have those funds settled and ready for investment when U.S. markets open that morning.
  • Consumer Retail: We are also seeing companies like Visa invest in this stablecoin architecture. Visa and a company called Bridge are developing stablecoin-linked cards that allow users to spend directly from their personal non-custodial crypto wallets like Metamask or Phantom.

The technology allows the merchant to get paid instantly via stablecoin settlement protocols, while the consumer enjoys the flexibility and convenience of using their digital-native wallet. This removes the costly 3% middleman transaction toll that has burdened global commerce for decades.

The Future of Global Trade

If you follow the logic of the GENIUS Act and the strategic stance of the U.S. government, the future of the financial system becomes much clearer. We are moving toward a global programmable USD and USD backed settlement layer for global trade and finance.

The next phase of this evolution will utilize smart contract integrated finance. Imagine a supply chain where a payment is automatically triggered the moment a shipping container hits a specific delivery port and the barcode or QR code is scanned. There is no invoicing, no bank wire to authorize, and no 3-day wait times. The stablecoin just flows through the digital contract the moment the conditions are met. Talk about working capital and investment efficiencies.

The strategic plan is to make USD the easiest, fastest, and most programmable currency in the world. This ensures that no other currency can compete for global reserve status for the foreseeable future.

Bottom Line for Servant Financial Clients

Our investment focus remains anchored in the underlying infrastructure of this transition, moving past the speculative token era and into an era defined by capturing the efficiency of the stablecoin settlement rails and network architecture. We anticipate that Circle’s market share will continue to outpace offshore competitors like Tether as transaction volume shifts towards regulated, institutional channels and the clarity and comfort of the GENIUS regulatory framework. Beyond mere volume, Circle’s status as a U.S.-based entity provides unique leverage and has effectively positioned the company as the preferred domestic partner for the U. S. government as it seeks to modernize domestic and international financial and monetary systems. We viewed CRCL as a higher risk, opportunistic strategy and only added it selectively to more risk tolerant models earlier this year – Core-Satellite Moderate and Core-Satellite Aggressive and similar bespoke client models.  CRCL is up roughly 17% in price year-to-date through March 28, 2026 compared to an approximate (8%) decline for the S&P 500 index.

“Stablecoins represent a revolution in digital finance. The dollar now has an internet-native payment rail that is fast, frictionless, and free of middlemen.”

~ Secretary of the Treasury Scott Bessent.

 

 

Commodities Refresh

Written by John Heneghan

Investors are shaking out the dustbin of their investment strategies to take a fresh look at commodities that haven’t seen a strong portfolio allocation since the 1970s/80s. With inflation rampant and the U.S. consumer price index hitting a 40-year high in September of 8.2% annual rate, it may be time to reconsider commodities as an investment option.  With this inflationary backdrop, it’s the first time in a generation that investors are losing sleep over inflation eating away at their purchasing power and devaluing their hard-earned life savings.

Conventional wisdom holds that commodity investments can provide beneficial portfolio diversification and hedging benefits against inflation. The commodity asset class is generally considered a tactical insurance policy rather than a strategic asset allocation.  The returns from commodities are more episodic driven primarily by inflationary surprises leading to commodities’ primary use as a tactical or trading instrument. Historically, commodities have not been a stable source of returns. On a forward-looking basis, investment firm Research Affiliates projects measly expected annual returns of 0.2% over the next ten years with an expected volatility of 15.5% for commodities (Asset Allocation Interactive research platform).  That said, commodities’ asymmetric return profile can provide valuable inflation protection similar to recoveries under an insurance policy from catastrophes.

Accordingly, we think of the commodity asset class as a tactical/trading tool to deploy before a wave of unexpected inflation or a long period of sustained inflation.   In hindsight, an opportune time to allocate to commodities was earlier in 2021 while the Federal Reserve’s mantra was “inflation is transitory” and well before the Fed’s December 15, 2021 inflation capitulation.  For instance, an allocation to the iShares S&P Goldman Sachs Commodity Index (GSCI) Commodity-Indexed Trust (GSG) returned 39.0% for calendar 2021 and has gained a further 26.0% through October 26, 2022.  Although we were appropriately concerned about inflation trends and adjusted Servant Financial client portfolios accordingly, we did not add any direct exposure to commodities to client portfolios. We opted instead to tilt model portfolios, subject to client risk tolerances, to real assets and inflation hedges with more stable risk-adjusted return profiles – gold/precious metals (CEF, GDX, SLV), bitcoin (GBTC, HUT), farmland (FPI), and Horizon Kinetics Inflation Beneficiaries ETF (INFL).

With spectacular commodity price responses to the unexpected spike in inflation now largely behind us, we are hard-pressed to add commodity exposure to client portfolios at this juncture unless we were highly confident that a long period of sustained inflation or what is called a Commodity Super Cycle (Super Cycle) has begun.  Super Cycles are extended periods of time of around a decade where commodities as a whole trade at prices that are greater than their long-term moving averages.  A Super Cycle will usually occur when there is a large industrial and commercial change in demand within a country or globally that requires more resources or supplies of commodities with large demand-supply imbalances.

There have been four super cycles over the last 120 years. The first started in late 1890 and was accelerated with widespread industrialization of the United States and industrial build-up associated with World War I. This cycle peaked in 1917. A new Super Cycle started in the late 1930s with the advent of World War II and peaked in 1951 after Europe and Asia’s heavy rebuilding from the war was complete.

The next Super Cycle started in the 1970s at the beginning of a long phase of global industrialization.  World economies industrialized and populations moved to urban centers, requiring more raw materials and energy to sustain this more intensive growth. The Vietnam War and Nixon’s closing of the gold window (halting foreign nations’ convertibility of U.S. dollars to gold and the dollar plunged by 1/3rd in the 1970s) were also significant factors in this cycle.

Note that the Vietnam War was one of the first Cold War-era proxy wars with eerily similar characteristics to the current Ukraine-Russian conflict. The Vietnam war took place in Vietnam, Laos, and Cambodia from November 1955 to the fall of Saigon in April 1975.  It was “officially” fought between North Vietnam and South Vietnam. However, North Vietnam was supported by the Soviet Union, China, and other communist allies.  While South Vietnam was supported by the United States and its democratic allies. Ominously, the Vietnam war lasted almost 20 years.  The 1970 Super Cycle came to an end as the Vietnam War ended and foreign investments fled as extractive industries became nationalized.

The most recent Super Cycle began in 2000 as China and its population of 1.3 billion, or 20% of the world’s population, joined the World Trade Organization.  With 1.3 billion Chinese jumping on the globalization and industrialization bandwagon, demand for energy and raw materials needed to build new megacities surged. The Great Recession hit in 2009 and ended this last Super Cycle.

The current spike in inflation and commodity prices could well mark the beginning of a fifth Super Cycle.  The Ukraine-Russia conflict, destruction and/or destabilization of global supply chains from the COVID-19 pandemic, breakdown in global trading partnerships, dangerously loose global central bank monetary policies, and a shortage of new investment in energy and raw materials exploration and development point to the makings of a fifth Super Cycle potentiality.

Ole Hansen Head of Commodity Strategy at Saxo Bank believes this lack of investments in materials and energy sectors, as depicted below, together with the forces of decarbonization, electrification and urbanization will keep supply tight and inflation high.

At a minimum, investors should consider the possibility of a new Commodity Super Cycle.  The key matter of debate is whether investors believe the Federal Reserve will ultimately be successful in taming the inflation beast.  The Fed is playing catchup after letting the beast run wild for some time before taking credible action.  For a more in-depth discussion on the Fed’s chances of policy success, readers are encouraged to watch investment research firm Real Vision’s video where perspectives on both sides of the economic debate – deflation/disinflation/recession and inflation/stagflation – are discussed.

We’ll be watching for signs that the Federal Reserve’s interest rate hikes and quantitative tightening cycle are having the desired economic impact – the destruction of demand for goods and labor.  One factor we’re highly focused on is the labor market and whether unemployment levels will trend higher and if inflationary wage pressures lessen.  Secondly, we’re watching for signs of a possible Federal Reserve policy mistake, like a premature policy pivot before the back of inflation is broken.

Our preferred investment vehicle for a tactical allocation to commodities is the Invesco Optimum Yield Commodity Strategy No K-1 ETF (PDBC).   PDBC is an actively managed exchange-traded fund (ETF) that seeks broad-based commodity exposure through financial instruments (commodity futures and swaps and U.S. Treasury Bills) that are economically linked to the world’s most heavily traded commodities.  The Fund’s commodity allocation is production weighted and therefore structurally overweights the energy complex relative to other commodity indexes.  The following summarizes commodity allocations (current % and strategic rebalance target %):

 

Sector

Current % Allocation

Strategic Rebalance Target %

Commodity Allocation
Energy 63% 55% WTI Crude, Brent Crude, Natural Gas, Gasoline
Precious Metals 8% 10% Gold & Silver
Industrial Metals 9% 13% Aluminum, Copper, & Zinc
Agriculture 20% 23% Corn, Soybeans, Sugar, Wheat

 

PDBC outperformed GSG in 2021 returning 41.9%, but the Fund is lagging that GSG year-to-date at 20.7% in gains through October 26, 2022.  Importantly, the Fund does not generate a K-1 tax reporting obligation.

Clear signs of an impending Fed policy mistake would lead us to aggressively consider a tactical allocation to commodities through PDBC.  One low-probability scenario would be a significant dislocation or lack of market liquidity in the U.S. Treasury market that forces the Fed to purchase treasuries.   The Fed would effectively be adopting yield curve controls, much like the recent Bank of England’s actions in the gilts market to stem an uncontrolled blow-out of gilt yields.  One expected casualty in this outlier fact set would be foreigners’ loss of faith in the U.S. Dollar with an ensuing currency devaluation like in the 1970s when Nixon ended dollar convertibility to gold.

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