Unbundling of central-banking functions: the 5 layers

Wiki route

This entry sits under fintech index. Read it against U.S. / EU / Japan \"three major circles\" stablecoin global compliance architecture for peer / contrast context and Japan Financial Regulation — Legal Framework for Tokens, Crypto Assets, and Payments for the broader system / regulatory boundary.

[!info] TL;DR The implicit premise built by the Bretton Woods system (1944) was that the central bank simultaneously bears the 5 functions of the monetary system, and that those functions are sold as a bundle. Since 2022 年, 4 of the 5 functions (#2-#5) have been individually privatized, commoditized, chain-nativized, and made multipolar. The central bank has retained the unit of account (#1); the rest of the unbundling process is the largest financial-infrastructure restructuring of the past 80 years.

Definition of the 5 functions

Triggers of the unbundling

In 2022 年, 3 independent events occurred almost simultaneously and triggered the unbundling:

Reference: 2022 Three Variable Cascade Thesis

Cross-layer network effects

        Customer base (#4)
           ↑↓
   ┌───────┴───────┐
   ↓               ↓
Settlement medium (#2)  Payment rails (#3)
   ↓               ↓
   └───────┬───────┘
           ↓
        Enforcement layer (#5)
        (provided by the regulator)

Strongest path: a player that first holds #4 (customers) + #5 (affinity with the regulatory side) builds #3 and #2 below. Weakest path: starting from the single point of #2 (product) and going upward to look for customers and regulation.

Coverage of major players by layer

Player	#2	#3	#4	#5
Coinbase / Base	USDC-dependent + its own token awaiting issuance	Base L2 + cbBTC closed loop	retail KYC + Prime institutional	OFAC cooperation
Stripe / Tempo+Bridge+Privy	USDB	Tempo + Connect	Bridge OCC + merchant network	OCC compliance
Circle / Arc	USDC	Arc	OCC application pending + USDC brand	§501 day-1
JPMorgan / Kinexys	JPMD + MONY/JLTXX	Kinexys + Canton	bank KYC 100 years	direct central-bank connection + OCC parent bank

JPMorgan is the hidden giant: it has closed off sovereignty across all of #2-#5 and does not depend on the crypto ecosystem. Its only weakness is that it is not crypto-native, but the TD path requires no §501 SC qualification.

Applications

It can be used for the following analyses:

• Any “financial-infrastructure restructuring” event (a CBDC launch, a SWIFT alternative, a reconstruction of cross-border payments, etc.)
• A “layer map” diagnosis of a single player (identifying strengths and weaknesses)
• The strategic implications of cross-layer M&A (reinforcing a weak layer vs. further strengthening a strong layer)

A recurring structure:

• 1944 The establishment of Bretton Woods = the 5 layers were for the first time borne simultaneously by a central-bank coalition
• 1971 The collapse of Bretton Woods = the de-linking of #1 and #2
• 2008 Central-bank QE = the central bank intervening in #1 via #2
• 2022- ongoing = the privatization of the 4 layer

Related

• Stablecoin Geopolitical Currency-Confrontation Framework
• Federal stablecoin bank arbitrage route using OCC trust bank charter
• U.S. / EU / Japan \"three major circles\" stablecoin global compliance architecture
• 2022 Three Variable Cascade Thesis

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