Yesterday Bitcoin investment firm NYDIG announced it’s the latest firm to enable part of someone’s salary to be paid in cryptocurrency. It’s also worth exploring the other motivations for using digital currency for salaries, the innovations already available, and how this might impact the corporate adoption of digital currencies, including stablecoins.
In NYDIG’s case, the purpose is to promote Bitcoin as a saving and investment tool. It gives a case study of former NFL start Drew Brees whose companies Everbowl and StretchZone allow staff to receive a portion of their paycheck in Bitcoin, if they choose.
Coinbase announced a similar plan in October last year.
Beyond the investment thesis
Some of the reasons for using a digital currency for payroll include:
- enable staff to ‘invest’
- crypto firms want to keep operations in the crypto world
- conventional SMEs want to save costs for multinational staff teams
- exploit innovations like hourly payments in real time.
Non-crypto firms using stablecoins for payroll could encourage broader adoption of new digital currency payment systems by corporates, starting with SMEs. And will help to pave the way for a future with central bank digital currencies (CBDC).
Technology companies, including those outside the blockchain sector, tend to have a higher proportion of remote employees spread around the world. And depending on the country, the costs of the payment for freelancers or employees can be high. Hence paying with stablecoins seems attractive.
There are also issues beyond the costs. Anti-money laundering (AML) procedures are a particular challenge for SMEs. It’s not uncommon for companies paying freelancers or employees in Eastern Europe to encounter issues, sometimes getting their bank accounts blocked. Using stablecoins can save a lot of hassle.
We’ve previously written about the challenges of anti-money laundering. Think about a bank fined for AML infractions that wants to appear proactive. Who are they more likely to be strict with – a blue chip client or an SME? The AML procedures are still in place using a digital currency, but there’s a different set of actors.
Apart from AML, in terms of costs and efficiency, even domestic payments can be a challenge in some countries.
What’s the impact?
Once companies start using stablecoins for salaries, they’re already inside ‘the blockchain system’. This means they might start keeping some funds in stablecoins or possibly cryptocurrency. And as digital currencies become more broadly accepted, they’d look at paying other costs with digital currency, including settling invoices for physical trade of goods.
However, using Ethereum isn’t a realistic option for most, because of its shockingly expensive transaction fees. The payments would need to be either through an Ethereum or Bitcoin sidechain (or layer 2) or pretty much any other blockchain where the costs are low.
What’s already available
Given the amount of money in the crypto sector, there’s already considerable activity in the payroll space. They vary from a basic wallet, to more sophisticated functionality layered on top, to bleeding-edge streaming applications.
Earlier this month, Australian blockchain startup Chrono.tech raised a $30 million funding round. It positions itself as offering blockchain HR solutions, including a freelancer website. It also provides PaymentX for payroll, which includes a system for inviting employees to sign up for a wallet. Plus, it has an Australian Dollar stablecoin for local payments.
That raises a general point re stablecoins. Beyond the U.S. dollar, the liquidity of stablecoins in other currencies is thin, and the range of providers is not as deep. For example, for the Euro, Tether is the only one with a significant stablecoin. Given it’s been censured for misleading statements about its backing assets, it’s not an ideal option for payroll.
Last year Gilded Finance introduced its Mass Pay for payroll solution which per its name is essentially a bulk payment offering. It primarily supports the Bitcoin and Ethereum networks, including stablecoins. Despite high Ethereum transaction fees, it lets you bundle up to 500 payments in a single transaction.
Bitwage is one of the original companies offering payroll payment services. Like Gilded Finance, it doesn’t seem to offer particular payroll integration, so a company uploads a spreadsheet of who to pay and how much.
The other solutions for streaming money are at the bleeding edge. Zebec Protocol unveiled its Zebec Payroll, which could allow you to pay hourly staff by the second with the funds dripping into their wallets. If you’re old school, you may think that’s not desirable. But most people also want to work tomorrow, so they’re still motivated. And there’s a reasonable chance this sort of real-time payment will be the norm in five or ten years. Other streaming solutions include MeanFi and Superfluid.
Going forward, it’s not just the payments that can be streamed. The future is programmable money. So when the digital currency hits an employee’s wallet, they might have rules to set aside some for savings, automatically pay their bills, or move money to their holiday wallet.
Most of these crypto solutions are just crypto payment apps with limited or no integration with payroll or accounting systems. But it’s still early days. While cryptocurrency companies aim to persuade large companies to use crypto for their treasury, using digital currency for payroll might be the real trojan horse.