Tim Colyer
Hello and welcome to Future forces in Asia-Pacific banking, where we're going to be exploring the future forces shaping the financial services sector in Asia-Pacific. Each episode will spotlight a unique perspective on the challenges and opportunities in a dynamic region and a super exciting industry.
It's my great honor in the first episode of our podcast to be joined here by Joe Cox. Joe spent 13 years at the Federal Reserve, where he led a lot of the thinking around the regulation of novel activities. A big part of that was digital assets, and that's what we're going to be spending today talking about, on where he was involved in shaping some of the thinking around the systemic risks involved in digital assets. Also, in the supervision of some novel business activities, including some bank failures and some of the lessons that were drawn from that.
Joe joined Oliver Wyman last November in a very timely fashion, and we have been very lucky to catch him here in the middle of a whirlwind tour of Asia, in what we're calling the Great Asian Tour. He's been through Hong Kong. He spent the last couple of days in Singapore, going on to Sydney and Tokyo.
Joe, welcome. Thank you for joining us. How are you doing?
Joseph (Joe) Cox
I am wonderful. This is the second leg of the Asia tour. I was in Hong Kong, and I leave for Australia tomorrow, and then to Tokyo next week. It's been great fun, great conversations. I'm having a blast.
Tim
Where's your body clock at?
Joe
I think I am fully adjusted, but not well rested. It feels like the right time of day, but I'm still very tired. But that's just because I'm so intellectually stimulated, obviously.
Tim
Well, I mean, what jet lag takes away caffeine can give back, as they say. We're going to talk about digital assets today. This is a very interesting topic, and a very fast-evolving area.
I thought maybe just to level set the conversation, can you give us a very quick intro to the current state of digital assets and the types of digital assets? What are digital assets, and what are we talking about here?
Joe
Digital assets – you could conceive it broadly – are like any asset that's in digital form, but usually people are talking about assets that are native to blockchains or are issued and traded on blockchains. We're also increasingly seeing tokenization of securities and commodities, where you represent those assets on blockchain so that they can be programmatically traded.
There is atomic settlement and other sorts of buzzwords you hear in the crypto asset ecosystem. Then there's the cash leg of digital assets, and that usually comes in three forms. Most commonly, stablecoins, which started out as a way to facilitate crypto asset trading, where they wanted to have a more convenient form of money on blockchains.
We also now see many banks exploring tokenized deposits where they represent bank deposits on blockchains. Then there's central bank digital currencies, which can be just a wholesale settlement mechanism where only banks can access the central bank's liabilities. Some jurisdictions are exploring retail CBDCs, which would be like a digital form of cash.
Tim
Okay. Just to make sure we have fully demystified this, the stablecoin, the tokenized deposit, the CBDCs – they're all forms of digital money effectively. What's the difference between those three?
Joe
Absolutely. The fundamental difference between a stablecoin and a tokenized deposit is that a range of institutions could issue a stablecoin, but only banks can issue a tokenized deposit. That's the fundamental difference.
When people think about the differences in practice, there are usually certain things that arise between stablecoins and tokenized deposits. While a stablecoin is just a liability of the issuer, stablecoins tend to have a specific pool of assets that provide backing to the stablecoin. They tend to be highly liquid assets like bank deposits, short term sovereign notes, or repo or money fund versions of the same. Whereas a tokenized bank deposit is just a liability of the bank, the way any other bank deposit is. A central bank digital currency is really a fundamentally different thing. It's more software and money that's a liability of the central bank.
Tim
Yeah, indeed, these are things that have evolved to create fast, instantaneous, cheap payments with some security behind them, and the stablecoin takes away the kind of volatility that you had with Bitcoin and EFA. Where are you seeing the real-world non-financial demand for this? What is the real economy use case for these, and where do you see that evolving at the moment?
Joe
There are a few different areas where we're seeing use cases take off. One is that, as we've seen, the growth in crypto asset prices and trading has increased demand for stablecoins. As we see tokenized real-world assets, again, we're seeing a need for a cash leg, but in the real economy, a lot of the use cases are around cross-border payments. In particular, for corporates, it's particular B2B and B2C use cases like e-commerce, for example, where if a corporate has a very geographically dispersed user base or set of suppliers or employees where they need to make a lot of cross-border payments, having a stablecoin or a tokenized deposit that can operate globally and have instantaneous settlement and cheap transaction costs is very attractive.
Tim
Is that because of cost – the kind of global, cross-border transactions are especially expensive, they involve lots of intermediaries and agents – and so the cost saving is a lot, or is it actually about the instantaneous nature of those payments?
Joe
It's really about both. While it's certainly the case that there are more traditional ways of having fast payments, oftentimes that involves prefunding liquidity in particular jurisdictions to give the appearance of instantaneous cash movement. So blockchains enable at least the stablecoin leg to settle instantaneously or nearly instantaneously.
On more leading-edge blockchains, the transaction costs can be as low as one penny. There is a sort of last-mile problem. So oftentimes, you hear in the industry the discussion of the stablecoin sandwich – which is like there's some financial intermediary, whether it's a bank or a fintech – on both sides of the transaction, and just a stablecoin hop in the middle.
Where we've seen some of the biggest unlocks are companies that have built acceptance networks for the last mile. Places where we've seen a lot of early adoption are corridors that are not members of the big institutional money flows like CLS, and in particular for smaller dollar payment types like remittances or e-commerce suppliers, SMEs, where oftentimes those particular payments can take longer and can be quite expensive relative to the value that's transferred.
Tim
That's really interesting. We're sitting here in Singapore in the middle of Southeast Asia, quite a lot of regional payments here, which are in the form of relatively small remittances. We have quite a lot of small micro-SMEs that are receiving, again, small payments on a regular basis, and at the moment, often paying pretty large transaction fees on pretty large FX fees.
If they're using a traditional remittance service, they might be paying extremely high fees. Are you starting to see stablecoins and digital assets as a viable alternative for that kind of micro payment, or is it more in the kind of large corporate institutional space?
Joe
There's actually been quite a lot of movement in the remittance space because it is attractive. Most of the major remittance players have a stablecoin strategy, if not an actual stablecoin in the market. We are seeing rapid adoption there because, as you said, especially relative to the value being transferred, the payment or the fees can be quite high.
Historically – I mean historically because all of this is pretty nascent – even a few years ago, that last mile could be really expensive, and so it wasn't necessarily more competitive, but as there's been a lot of progress on what they call on and off ramping, the transaction fees have come down a lot, and that's really led to more adoption.
Now I will say that small dollar payment is where we've seen the initial sort of rapid uptick, but we are seeing for larger value corporate and institutional payments, a lot of major financial institutions developing products that are targeted in those use cases where they can bring down transaction costs or add additional functionality like programmatic payments or after-hours payment and settlement for particular use cases.
Tim
This would be for an Amazon or eBay or someone with a large number of suppliers and merchants and customers that they're paying all around the world, and the need to not only make those payments cheaply and quickly, but also to be able to program those so that the payment happens instantaneously and the customer or the merchant is not waiting for that money for a long period on the other end.
Joe
Yeah, absolutely. Some large corporate customers already have services from banks that leading-edge banks, particularly for their best corporate customers, will facilitate payments that look nearly instantaneous and with low FX fees and low transaction fees because they're such large-volume customers. But we have seen in particular, as you said, e-commerce players, like one example of a company that was an early adopter here that got a lot of attention was Starlink, the satellite internet company. Starlink has a global user base, and they're receiving payments from people around the world, including jurisdictions that are traditionally hard to get cross-border payments from, like Sub-Saharan Africa and parts of Southeast Asia.
Starlink also has contractors that need to make B2C payments, too, who are selling Starlink kits. They entered into a relationship with Bridge, which was a stablecoin acceptance company that had built that sort of last-mile network. The use case was so strong that it was one of the big reasons why Stripe acquired Bridge for like $1.1 billion last year or the year before, which is a real sign to everyone that stablecoin was coming of age.
Tim
Super interesting. I mean, a lot of that innovation has been driven outside the banking sector.
If you're an incumbent bank, then what does this mean for you? How do you respond to this? Is this a threat, or is it an opportunity? How are you seeing banks around the world responding to this?
Joe
I think that it definitely starts with the threat. I should caveat that major banks have been using this technology for a long time. Some banks started as early as 2018, and many banks started five years ago with at least pilots and building their internal capabilities.
I think getting things to move from the pilot stage to real production has been spurred on by some of the dramatic non-bank entrants coming to market as a potential competitive threat. So that's really, I think, driving bank adoption.
I do think that banks are also thinking about the opportunities here. In stablecoins, it's solving longstanding customer needs, potentially accessing new customer segments, and in digital assets more broadly, meeting some investment desires of some of their customers.
Tim
How is this changing the economics? If we move to a world where stablecoins and tokenized deposits, digital assets generally, are being used for payments, and we're bringing down payment transaction fees quite significantly, who's losing in that situation and who's making the money in the new stablecoin world?
Joe
Great question. I think that fundamentally, this is an increase in competition. You have a product that is a substitute for a bank deposit and can substitute for a bank payment mechanism. Particularly in the US, we're also seeing openness to greater access to payment rails that were traditionally reserved for banks. That increase in competition would be expected to potentially decrease margins.
I think it's unclear whether the overall pot of transaction revenue, for example, will decline. It could be that there are more transactions because there are some unsettled met transaction needs, or it could be that transactions take a new form, for example, transaction fees associated with coming on and off chain or moving between chain-on-chain FX, for example. I think the other question is, who will capture those revenue pools?
I think that one hypothesis is that there might be some big winners, like a sort of power law distribution of who benefits in this market. My hypothesis is that the layers that provide greater interoperability will capture a lot of that, and other layers might be more commoditized. It could be that the banks will stay at the center of client liquidity, and they'll solve a lot of the problems around interoperability and leverage some of their big advantages. I mean, they already have the best customers and trust, and they can provide a range of services like credit.
You could also see that some of the big payment networks are all exploring stablecoins, whether it's Visa and MasterCard with stablecoin settlement, or Swift, it's like an interoperability layer or issuing their own stablecoin potentially.
They could be a big winner, or it could even be at the blockchain level, or it could be that some of these non-bank stablecoin issuers will serve as the interoperability layer where, in order to make payments on chain, you'll have to go from a bank ecosystem to a stablecoin and back to another bank's ecosystem in order to effectuate payment.
Tim
So, is it fair to say if you can, that what you would really want to be is an infrastructure player at scale? It's going to cost you to build the infrastructure, but once you're there, if you can capture the transaction fees as people come on and off-ramp, even if they're small, it's a lot of transactions.
They're not holding the balance sheet; it's a capital-light business, that's the place that you really want to be, but it's only going to work if you're either a non-bank that is capturing a lot of liquidity across the industry, or you're a mega bank like a JP Morgan that has enough size that you get that scale and can justify the investment.
Is that a reasonable way of thinking about it, or is that too simple?
Joe
I think it could be too simple. I think that there's a range of banks that thrive because they meet their customers' needs, whether it's linking deposit products with credit products, meeting the credit needs of their corporate customers, or meeting the payment needs of their retail customers or here in Asia. Many banks here are handling a lot of customer complexity, many currencies, FX, like handling the liquidity needs, managing the complexity of working across jurisdictions and different regulatory requirements.
Solving those hard problems is generally how banks sort of retain their customer relationships. I don't want to think that the future is that this is only good for JP Morgan and a couple of big payment networks. There are probably opportunities for a range of banks, but I do think that if this infrastructure is going to continue to develop, then banks that are still very early in the journey are going to need to start to build their capabilities so that they have the right to keep their customers.
Tim
When you were at the Fed, you were looking at financial stability as well, and what this all means for the sector – I think that might be quite an interesting thing for us to explore now.
As I look at the balance sheets of a stablecoin issuer, it starts to look really quite a lot like a bank. It's got a bunch of assets. Generally, these are lower-risk assets than the typical banking balance sheet would have, and they're put against those liabilities in the form of stablecoin, which looks an awful lot like a bank deposit. It's one-to-one peg to the US dollar, and it's available on demand.
I'm doing maturity transformation, credit transformation, and yet I'm not subject to banking regulations. What do you see as the financial stability implications of having a very bank-like non-bank outside of the banking regulation? What kind of things were you thinking about when you were at the Fed, as to how to manage that risk?
Joe
This is a great question, Tim, and it's something that has definitely been on central bankers’ minds ever since Facebook explored issuing a stablecoin, the Libra project starting in 2019. I think that the risk of a run on the stablecoin is definitely one where, even if the assets are highly liquid, there could still be some event.
Maybe we've seen several instances of stablecoin issuers de-pegging, whether it was concerns about the availability of bank deposits or concerns about the reserve mix. There could be an operational risk event in the future. I think that would be one, especially if there was the possibility of contagion. Historically, stablecoins are primarily used for crypto asset trading, so obviously, this would have a big impact on crypto asset markets, but that's pretty far away from the real economy.
As stablecoins become more integrated with the real economy, and particularly as they're integrated into financial products with leverage, if there were a default or de-pegging that led to loan defaults and other things, that could have a real financial contagion.
I think another risk that's a little more subtle is the risk that stablecoins are too safe, which is the risk that during a time of crisis, there would be a run out of the banks and into stablecoins. If stablecoins were seen as a safer form of money, historically, I think central bankers have been very attuned to the hierarchy of money that becomes very clear during times of stress. Another concern in that same vein is how this new plumbing will perform on a rainy day.
So it could be that there's a lot of efficiency during good times, but during bad times, there are vulnerabilities that reveal themselves. One vulnerability is that some commentators say stablecoins borrow stability from other parts of the financial system, so they hoover up safe assets; they don't produce their own safe assets.
Bank deposits and banks in general have flexible balance sheets. During times of stress, as corporates tap their credit lines or consumers use their sources of credit like credit cards, this actually creates liquidity in the banking system. New deposits are created. As the central bank provides liquidity support to banks through the discount window or to increase reserves, propping up money markets, all of that liquidity ultimately makes its way back to the real economy and prevents a credit crunch.
It could be that stablecoin balance sheets, but because they're more narrow, it will actually take money out of this system.
Tim
Yeah, that actually is a real [problem]. I mean, I'm old enough to remember the financial crisis, and the flight-to-quality effect was very real there, but what it meant in the financial crisis is that smaller banks lost money to larger banks, except when those larger banks were under pressure themselves. It became very difficult if you looked like you had a weak or dubious asset quality on the balance sheet, and it was difficult to be a small bank during that time.
But if we're in a world of stablecoin alternatives, you might very reasonably look at a subprime mortgage crisis like in 2008 and say, "Actually, I don't really trust the banks, but I've got this other institution over here where I can park my money and it's only got money markets and treasuries against it, so I'm going to do that”.
If I can program my treasury to respond very quickly to that, I could have a very fast liquidity movement as well. I kind of exacerbate that flight-to-quality effect. I exacerbate the liquidity risks that I have in the system as well. Is that the kind of thing that you were looking at?
Joe
I think this is a real risk, especially as we move to a world with more real-time payments and more same-day redemptions. There's just the possibility that runs will happen much more quickly than they have in the past. In the US, I've seen this firsthand; some US banks were run on by crypto companies.
That's one thing that's a real truism at central banks – in a crisis, time is everything, time to work things out, time to find buyers for banks. That's why everything good that ever happens in a financial crisis happens on the weekends. If we're in a world of 24/7 liquidity and real-time payments, we'll have to see how the system performs.
Tim
Yeah, part of the reason there's a lot of excitement and we're having these conversations today is the regulatory changes that we have seen in the US.
Maybe talk us through the GENIUS Act that came up last year, what that's meant, how that's changed, why that's got the industry so excited and then what's still coming. I think there's still some implementing guidance that is coming out on top of that. The CLARITY Act is also coming out, and that's going to bring some additional kind of momentum behind the industry. If you can talk us through those regulatory developments as well.
Joe
Absolutely. The GENIUS Act created a framework for payment stablecoins in the US. It allows stablecoins to be issued by banks, by non-banks, and by out-of-state chartered institutions. We're going to see a lot of innovation in terms of where these are issued out of, and I think there are strong incentives for there to be lots of stablecoin issuers in the future. Though again, how it'll work in terms of interoperability and who will get traction in the market is very much to be seen.
The CLARITY Act includes requirements around the reserves that can back a stablecoin, the requirements to meet money laundering standards, and the approval and licensing requirements. Many of those things are still to be implemented. The agencies haven't finalized guidance on the application requirements for stablecoins.
The US Treasury is going to put out guidance around innovative approaches to anti-money laundering compliance for stablecoins, where you might see some interesting movement on the use of blockchain tracing, digital identity, smart contracts, and other tools for compliance. We're also seeing – while it's not directly related to stablecoins – additional guidance around tokenized deposits. The FDIC (Federal Deposit Insurance Corporation) has said it will put out guidance around deposit insurance eligibility for tokenized deposits.
Those are some of the things to come on the stablecoins and tokenized money front. On the CLARITY Act, we're seeing a lot of movement already by the SEC (United States Securities and Exchange Commission) and the CFTC (Commodity Futures Trading Commission) to provide greater clarity around the application of securities laws to crypto assets and digital assets.
Some of the topics that'll be in the CLARITY Act are: what are the characteristics of decentralization that would make something that was originally used for capital formation, like a security to be sufficiently decentralized to be treated more like a commodity and not subject to disclosure requirements, the eligibility of tokenized assets for collateral, and more innovative ideas around new forms of capital formation like initial coin offerings and things like that.
So there's a lot of movement underway, and obviously that's galvanizing banks, FMIs, and regulators in the US, but also around the world to sort of explore the technology more.
Tim
Maybe talk to us also about interest in stablecoins. I understand stablecoins don't pay interest at the moment. That might change with the CLARITY Act. What's the current state, and where do you think that's going to take us?
Joe
So the GENIUS Act actually did ban direct payment of interest from the stablecoin issuer to the stablecoin holder, but there's a…
Tim
…loophole to...
Joe
Well, the banks would say a loophole. The crypto industry would say longstanding business practice.
Tim
I'm here to represent the banking industry, so that's why I thought of a loophole.
Joe
This is a longstanding practice that is a way of incentivizing adoption where there are distribution agreements between stablecoin issuers and, for example, crypto exchanges, where they share revenue on the reserves back in the stablecoin with the crypto exchanges, and then the crypto exchanges might pay rewards and other things to holders.
Those sorts of arrangements weren't explicitly banned by the GENIUS Act. There's been very intense lobbying in the US to sort of strengthen the prohibitions on interest on stablecoins, but it's very much to be seen whether the banks will be successful at banning those practices. We've seen Coinbase come out and say it won't support the CLARITY Act if it includes provisions like that.
Tim
If I'm sitting outside the US, how much does this matter to me? On the one hand, pretty much all stablecoins are US dollar. Do I look at this and say, “actually, US legislation is the only thing that matters”, or do I sit here and say, "well, I wait for my country to put its own legislation in place." How would you look at it?
Joe
I'd put different jurisdictions in different buckets on this. I think that there are some jurisdictions that have all but banned stablecoins, tokenized deposits, and so that's the approach they're taking. I think there are other jurisdictions.
Tim
—China.
Joe
China, for example. I think that there are other jurisdictions where it's still not very plausible that they will see significant retail adoption of US dollar stablecoins, like Japan, for example. In those cases, it's probably more about putting regulations in place that would facilitate local financial institutions, such as corporate and institutional payments, using stablecoins or tokenized deposits.
There are also the money center jurisdictions, which are trying to protect their domestic financial institutions and prerogatives around financial stability and the right of their institutions to play an important role in local capital flows and liquidity.
The third bucket of our jurisdictions where there is probably a significant risk of retail adoption of US dollar stablecoins. We’ve seen jurisdictions like India, Turkey, Argentina, Brazil, where there has been significant adoption of retail stablecoins, and the conversation is around potentially capital controls or mandatory conversion into local currency, but it's a very hard problem indeed.
Tim
The reason for that is it's not only about payments and cost, but it's also a store of value for these countries, where if you've got significant FX risk in your domestic currency, you might protect the value by just holding a US dollar stablecoin as an asset.
Joe
Yes, absolutely. I mean, even where a US dollar stablecoin might have some credit risk from the issuer, it might still be a better value proposition than holding a currency in a local bank, where you're exposed to credit risk from the bank and from your local government.
Tim
So maybe switching back to the banks – those banks that are launching their own stablecoin use cases, looking at what they can do for customers, what are the risks that they're facing, and how do you see banks thinking about digital asset risks? Is it a digital asset risk? Are there risks that are exacerbated or mitigated by digital assets? How are you seeing the industry respond to that?
Joe
Absolutely. The fundamental risk types are the same in any context: credit risk, liquidity risk and operational risk, but there are new manifestations of risk here, and in some cases, they can be quite novel and require new capabilities that banks might not have.
Some of the areas that are most interesting are definitely liquidity and funding risk, which we talked about a little bit before. I think the technology and operational risk here can be quite novel, particularly where banks are using blockchains that are public permissionless blockchains, where there are things like probabilistic settlement, where you have to have contractually defined settlement with your customers if they're using those networks. You are also relying on decentralized participants to effectuate settlement.
You're exposed to elevated cyber risk if you're custodying assets on immutable chains. You're also subject to elevated anti-financial crime risk because there are potentially malicious or sanctioned actors participating. So it does require some new capabilities, new ways of thinking about and mitigating that risk, but we are seeing good practices emerge that are giving greater comfort.
I will say that, in the particular case of anti-financial crime, this is probably one of the biggest impediments to banks issuing tokenized deposits that have some of the bearer instrument capabilities that are common with stablecoins.
Tim
To close, we'll get out our crystal ball. We'll think about where the world might be in five or 10 years. I'm going to ask you two questions as you gaze into the future.
One is: five, 10 years from now, where do you think we'll be in terms of stablecoin digital asset adoption? How prevalent do you think these are going to be, and who's going to have won and who's going to have lost in that?
Secondly, given that regulation responds to things going horribly wrong, what do you think are the things that will go horribly wrong and prompt a regulatory response in that timeframe as well?
Joe
Starting with the first one, we just put out our State of Financial Services report and leveraging some scenarios from Citi on the potential for stablecoin adoption by 2030. We found that the bear case is something like $1 trillion in stablecoins market cap, which would be about $300 million today. So it would be about triple, or on the bull case, about $4 trillion, which would be more than 10x over the next few years.
In the bull case, that would represent something like 6% of US deposits and something like 3% or 4% of global ex-China deposits. Meaningful, but not...
Tim
Not yet changing the world.
Joe
It would definitely represent a meaningful funding pinch, particularly as banks think about growth going forward. This would mean a significant share of what would have been funding growth for them would instead be migrating to stablecoins. In terms of the big winners, it really comes back to that idea of where the interoperability will be.
It's very clear in the market today that there are really only two major stablecoins, Tether and USDC. Those two stablecoins have enormous market share, interoperability, and acceptance networks.
You often see even major banks when they launch tokenized products or digital asset products. They're interchangeable with, particularly, one of those big stablecoins as opposed to a bank product. It’s certainly the trend for now that they look like big winners, but it's still very early, and we're seeing a lot of promising products by banks, whether it's interoperability consortia or just production-level capabilities, major market infrastructure and FMIs that are issuing tokenized financial assets. There’s plenty to fight for, but that perhaps dovetails your last question, which is what could go wrong.
If things go wrong, obviously, that would have a major impact on how the market develops. Thinking of my own history, I think that the crash of the Terra Stablecoin and then the series of crashes of other and failures of other financial institutions in crypto markets, culminating obviously with the collapse of FTX in 2022, really cooled regulatory interest in providing more permissibility and approvals for banks to sort of participate as crypto asset service providers. You could see something similar happen.
I do think that earlier stress events have taken some of the risk out of markets. Some of the leveraged vehicles already failed in 2022. I think that some of the risk practices of major stablecoin issuers and exchanges have gotten a lot stronger since then.
But I am confident that some things will go wrong, and I think that you're already seeing some messages from US policymakers around not overreacting to things going wrong, because fundamentally, there's just a lot to figure out and a lot of market evolution and innovation happening right now.
Tim
Thank you, Joe. It's been a super fascinating conversation. I've enjoyed it. Hope you have as well. You're one week into your Asian tour. What are your impressions so far of Asia? How have your conversations been going?
Joe
The conversations have been fantastic. I mean, there's just been a lot of interest. With the US setting the pace on the regulatory side, I think there's a lot of interest in what it means for banks and FMIs across Asia. There's also a lot of interest in where they can play and where the opportunities are.
I think we're going to see a lot of interesting digital asset and digital money projects coming online this year. I've also just had a lovely time with all my Oliver Wyman colleagues, including you, today.
Tim
And you've escaped all the snow back in DC while you're here.
Joe
My poor wife.
Tim
We now can't play this to your wife, who would be very jealous of this.
Joe
Thank you for taking care of the kids, Courtney, while I was in Singapore and Hong Kong.
Tim
Wonderful. Thank you very much.
Joe
Thank you, Tim.
This transcript has been edited for clarity.
