WEBVTT - Circle CEO Jeremy Allaire on US Crypto Regulation

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<v Speaker 1>I'm Stacy Marie Ishmel, Managing editor of Crypto for Bloomberg News,

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<v Speaker 1>and this is Bloomberg Crypto, a daily Bloomberg IHOD podcast.

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<v Speaker 1>It's Thursday, March ninth. If there's one thing that cryptoregulators

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<v Speaker 1>and people who want to be cryptoregulators and people who

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<v Speaker 1>are being regulated by cryptoregulators have been talking about this year,

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<v Speaker 1>it's stable coins. Stable Coins are the part of crypto

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<v Speaker 1>that's supposed to be, unlike say Bitcoin or ether, not

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<v Speaker 1>that volatile. The idea is that these tokens hold their value,

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<v Speaker 1>and that value is pegged one to one to something

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<v Speaker 1>like a US dollar or a euro or the Japanese yen.

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<v Speaker 1>Now that hasn't always turned out to be true, notably

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<v Speaker 1>in the case of a type of stable coin known

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<v Speaker 1>as algorithmic, but across the board, stable coins continue to

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<v Speaker 1>be both one of the most popularly traded forms of

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<v Speaker 1>crypto tokens and one of the ones under the most

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<v Speaker 1>amounts of regulatory scrutiny right now. Just recently, in New York,

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<v Speaker 1>regulators demanded that a company called Paxos, which had partnered

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<v Speaker 1>with Finance on a switchain type of stable coin, immediately

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<v Speaker 1>stopped creating any new ones of the tokens. These are

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<v Speaker 1>just some of the reasons that we asked Circle Internet

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<v Speaker 1>Financial CEO Jeremy Alair to join me in the studio.

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<v Speaker 1>Circle is the issuer of what's currently the second largest

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<v Speaker 1>stable coin, usd Coin or USDC, and Jeremy Lair himself

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<v Speaker 1>has some very specific opinions on who should and who

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<v Speaker 1>should not regulate stable coins. Our conversation lasted about an hour,

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<v Speaker 1>so we pull the highlights for you. Here's my conversation

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<v Speaker 1>with Circle CEO Jeremy Lair, edited for length and clarity. Jeremy,

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<v Speaker 1>Welcome to Bloomberg. Thank you. It is a pleasure to

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<v Speaker 1>have you in the podcast studio. What we can describe

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<v Speaker 1>as a fairly interesting time for stable cooin stablecoin issuer.

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<v Speaker 1>As folks working in the crypto space, it's always interesting

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<v Speaker 1>in crypto land. So tell our listeners who you are. So,

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<v Speaker 1>I'm Jeremy A. Lair. I'm the co founder and CEO

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<v Speaker 1>of Circle and Circle is a issue of a stable cooin,

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<v Speaker 1>as we'll talk about more, but it's a company that

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<v Speaker 1>I co founded ten years ago to build a new

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<v Speaker 1>layer for how money can be stored and used and

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<v Speaker 1>accessed on the Internet. So you're almost as old as bitcoin. Yeah,

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<v Speaker 1>I mean almost almost as old as bitcoin. Yeah. The

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<v Speaker 1>reason that I asked that is because sometimes when folks

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<v Speaker 1>hear crypto, they will thank immediately of a bitcoin or

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<v Speaker 1>an ether. Some of them might think of a non

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<v Speaker 1>fungible token or a board ape. It's reasonable to say

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<v Speaker 1>they're a few were people whose minds immediately jump to

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<v Speaker 1>a USDC, a stable coin like yours. Where do stable

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<v Speaker 1>coins fit in that overall crypto ecosystem. One thing to

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<v Speaker 1>note is, you know, the most widely used digital currencies

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<v Speaker 1>are stable coins, are dollar based digital currencies. And I

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<v Speaker 1>think the important thing to maybe you know, sort of

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<v Speaker 1>step back and realize is cryptodis stands for cryptography, and

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<v Speaker 1>the methods that became available with advancements in cryptography made

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<v Speaker 1>it possible to solve problems on the Internet that weren't

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<v Speaker 1>possible to solve until really recently, like the last ten

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<v Speaker 1>or fifteen years. You know, the Internet is a medium

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<v Speaker 1>where there's a lot of hacks, there's a lot of

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<v Speaker 1>data issues, cybersecurity issues, there's cyber threats, and you know,

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<v Speaker 1>there's no underlying basis for knowing what's true what's false.

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<v Speaker 1>We've seen that proliferate in things like social media, and

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<v Speaker 1>so cryptography allows you to verify data cryptographically approve of

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<v Speaker 1>a way. In other words, that's a fancy way of saying,

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<v Speaker 1>in a mathematically certain way one can prove something. And

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<v Speaker 1>so the birth of crypto the category is really applying

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<v Speaker 1>the advancements in cryptography and mathematics to be able to

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<v Speaker 1>be sure about certain pieces of data and transactions around

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<v Speaker 1>that data, and to do that on the public Internet,

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<v Speaker 1>to do that as a kind of shared good on

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<v Speaker 1>the public Internet. And that's really the breakthrough innovation of crypto.

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<v Speaker 1>What is the problem that Circle solves on? Who are

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<v Speaker 1>they solving this problem for? When we founded the company

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<v Speaker 1>ten years ago, approximately our vision ten years ago was

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<v Speaker 1>we believe that there could become like a protocol for

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<v Speaker 1>dollars on the internet. How do I take my computer

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<v Speaker 1>my device and connect to an information source that's out there.

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<v Speaker 1>So the idea is, wow, what if I could have

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<v Speaker 1>a device and I could connect to any other device

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<v Speaker 1>and the protocol would be something that could kind of

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<v Speaker 1>carry dollars and do that like we carry data on

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<v Speaker 1>the Internet. So that was the big idea and technologically,

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<v Speaker 1>it wasn't possible. For the first few years, we tried

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<v Speaker 1>to build ways to make it possible using bitcoin, the

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<v Speaker 1>technology layer of bitcoin, but eventually five years in so

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<v Speaker 1>now five years ago, we were able to invent what

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<v Speaker 1>is now known as USDC, a digital currency. And you know,

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<v Speaker 1>the goal was exactly that, how do we create something

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<v Speaker 1>that allows for dollars to be issued as digital currency

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<v Speaker 1>units that can then float around the Internet, just like

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<v Speaker 1>an image file or a text file, but with the

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<v Speaker 1>certainty that any individual token is unique, can't be counterfeit,

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<v Speaker 1>and then has all of the superpowers of the Internet

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<v Speaker 1>kind of applied to that medium of exchange, which is

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<v Speaker 1>I think really the heart of this, which is, hey,

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<v Speaker 1>the Internet's got superpowers, how do we give those superpowers

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<v Speaker 1>to the dollar? And so that's what we built up

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<v Speaker 1>over the last five years. And so Circle really runs

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<v Speaker 1>that infrastructure of USDC, and we're regulated as a global

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<v Speaker 1>Payment Technology company, and you know we store any dollars

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<v Speaker 1>in a safe and transparent way, literal safe. Well, you know,

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<v Speaker 1>Bank of New York Malon holds the Treasury bills in

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<v Speaker 1>their custody, and you know, they got twenty five trillion

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<v Speaker 1>dollars of assets that they're holding, and black Rock manages

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<v Speaker 1>the you know, tens of billions of dollars of of

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<v Speaker 1>of Treasury bill liquidity, buying and selling those on our behalf.

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<v Speaker 1>And then you know, publicly traded banks in the United States,

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<v Speaker 1>you know, hold in the aggregate about twenty percent of

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<v Speaker 1>the reserves in cash. And so you know, a USDC

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<v Speaker 1>token that you hold is always redeemable for a dollar,

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<v Speaker 1>and it's backed by the most reliable dollar assets in

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<v Speaker 1>the world. So we do that. And the important thing though,

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<v Speaker 1>is that once that person has a USDC token, they

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<v Speaker 1>can transact it and transmit it, just like they transact

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<v Speaker 1>and transmit information and data on the internet. You have

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<v Speaker 1>a lot of folks who are like, why would I

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<v Speaker 1>need some kind of cryptoe coin when I have zell

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<v Speaker 1>or PayPal or Venmo, or I can do a swift

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<v Speaker 1>transfer from my bank. What is the actual specific use

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<v Speaker 1>case that isn't being solved by any of these more

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<v Speaker 1>traditional or even more recent financial technology innovations. There are

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<v Speaker 1>huge problems today with the way that money works. Money

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<v Speaker 1>all almost all forms of payment live inside what I

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<v Speaker 1>liked referred to as walled gardens. There's a zell walled garden,

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<v Speaker 1>and there's a Venmo walled garden. What if you want

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<v Speaker 1>to send one hundred thousand dollars transaction over Zell or PayPal,

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<v Speaker 1>you can't do it. What if you want to send

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<v Speaker 1>a billion dollar transaction, you can't do it. If if

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<v Speaker 1>you want to send a dollar transaction, you can't do

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<v Speaker 1>that because they have too many embedded costs. Now, what

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<v Speaker 1>if you want to send value from Venmo to someone

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<v Speaker 1>who has Revolute in Europe? You can't do that. What

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<v Speaker 1>if someone has GRAB in Asia and wants to pay

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<v Speaker 1>someone in Africa, you can't do it. So you have

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<v Speaker 1>all these walled gardens. They tend to be narrowly defined

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<v Speaker 1>around small value transactions in a closed loop system. So

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<v Speaker 1>compare that to the Internet. I have a mobile device,

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<v Speaker 1>I have a messaging app. I can reach anyone in

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<v Speaker 1>the world. What digital currency does, what things like USDC

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<v Speaker 1>do is basically say any device endpoint in the world

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<v Speaker 1>can connect to an open network and transact at the

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<v Speaker 1>speed of the Internet at a very low cost, with

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<v Speaker 1>very high security and privacy assurances, and can do that

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<v Speaker 1>directly counterparty to counterparty, And that makes it possible to

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<v Speaker 1>transact act with anyone anywhere in the world at the

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<v Speaker 1>speed of the Internet. With that efficiency, there are a

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<v Speaker 1>lot of people in a lot of countries who cannot

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<v Speaker 1>access certain websites or cannot even access the public Internet

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<v Speaker 1>at all. And there are criticisms right now of products

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<v Speaker 1>like crypto very broadly, and stable coins in some cases

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<v Speaker 1>in particular, because the reason that it is hard for

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<v Speaker 1>you to send one hundred thousand dollars or a billion

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<v Speaker 1>dollars is because there are a lot of people who

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<v Speaker 1>have questions like where did you get that money from?

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<v Speaker 1>And how do we know you didn't steal it? And

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<v Speaker 1>so stable coins are finding themselves at a particularly pointy

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<v Speaker 1>end of a regulatory stick at the moment where you know,

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<v Speaker 1>folks are asking questions like, well, how do you make

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<v Speaker 1>sure that those counterparties are who they say they are,

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<v Speaker 1>and how do you make sure that in an environment

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<v Speaker 1>in which Russia is facing sanctions from most countries in

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<v Speaker 1>the world, the person of the other end of that

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<v Speaker 1>billion dollar transaction isn't someone in a sanctions list somewhere.

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<v Speaker 1>The invention of digital cash that exists on the Internet

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<v Speaker 1>is a big deal. It's a really big deal, and

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<v Speaker 1>I think people and businesses when presented with a product

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<v Speaker 1>of digital cash that has the safety and soundness and

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<v Speaker 1>assurance of ust bills and cash that has the medium

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<v Speaker 1>of exchange properties of the Internet, like, that's going to

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<v Speaker 1>be far preferable as a store of value and a

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<v Speaker 1>medium of exchange to the existing banking and many households

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<v Speaker 1>and firms in many places they don't trust even their

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<v Speaker 1>local banks, even if they had dollar banks, or they

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<v Speaker 1>don't trust their local currencies, and so the advent of

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<v Speaker 1>digital cash, of dollar based digital cash is a big

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<v Speaker 1>breakthrough and it's something that people want. Coming up next,

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<v Speaker 1>you'll hear more from my conversation with Circle CEO Jeremy Laire.

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<v Speaker 1>We'll be right back. One of the most interesting criticisms

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<v Speaker 1>of blockchain is that it's actually very difficult to launder

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<v Speaker 1>money on it because so much of it is visible

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<v Speaker 1>to these kinds of governments. But I think in twenty

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<v Speaker 1>twenty three, the specific objections regulators have had two stable

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<v Speaker 1>coins in crypto is less about the hacks, the frauds,

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<v Speaker 1>and the scams, because as you've just described, there's this

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<v Speaker 1>robust and frankly very intense framework to stop terror cells

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<v Speaker 1>from trying to have access to this kinds of technology

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<v Speaker 1>for them. They're making an argument from the perspective of

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<v Speaker 1>sovereignty right that these products undermine their ability to control

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<v Speaker 1>what they perceived to be their currency. Is if you

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<v Speaker 1>are a dollar backed product, the United States is going

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<v Speaker 1>to have opinions about what you do with treasury bills

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<v Speaker 1>or however else you're representing that. Or if you are

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<v Speaker 1>eurobacked product, same thing for the European Union. So they're

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<v Speaker 1>you know, they're worried about what does this mean for

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<v Speaker 1>our cross border control? And they're worried about consumer protection

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<v Speaker 1>because one of the big things that happened in twenty

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<v Speaker 1>twenty two is the crypto institutions that ever but he

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<v Speaker 1>thought looked like things you could trust, turned out to

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<v Speaker 1>be less than reliable. Those are social contract ish but

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<v Speaker 1>also very macro problems. I'll start with the ladder, which

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<v Speaker 1>is the transparency and disclosure are hallmarks of sound financial products.

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<v Speaker 1>And I think first of all, the good news about

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<v Speaker 1>products like USDC is that they have always been issued

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<v Speaker 1>under a very rigorous regulatory framework for electronic money in

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<v Speaker 1>the United States, and that is a framework that has

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<v Speaker 1>made it both possible but also allowed individuals to feel

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<v Speaker 1>comfortable transacting with things like PayPal and Venmo and Apple

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<v Speaker 1>Pay or Stripe or cash app. All of these software

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<v Speaker 1>innovations that are payment system innovations are all rounded under

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<v Speaker 1>these electronic money transmission rules, and those rules are very specific.

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<v Speaker 1>You have to hold one to one in stored value

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<v Speaker 1>for any of these electronic representations, and if you don't,

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<v Speaker 1>you're breaking the law and you're examined on it, and

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<v Speaker 1>the regulators are looking at where's the money, show me

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<v Speaker 1>the show me the data, etc. Now we've gone above

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<v Speaker 1>and beyond that, so we are regulated under that framework,

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<v Speaker 1>but we've gone to greater lengths for transparency because people

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<v Speaker 1>get more freaked out in crypto, let's just be honest.

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<v Speaker 1>So monthly incremental attestations that are from major accounting firms.

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<v Speaker 1>We're now at a point where we provide for substantially

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<v Speaker 1>all of the USDC reserves, daily reporting on every single

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<v Speaker 1>short duration T bill that is in the reserve. And

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<v Speaker 1>so there's increasing transparency, and I think what you're seeing

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<v Speaker 1>around the world is regulators are saying, yes, we need

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<v Speaker 1>very low risks, highly liquid reserves, you need reporting, you

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<v Speaker 1>need transparency. This is what these are allowed to do.

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<v Speaker 1>Largely follows the way we operate, but that's good because

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<v Speaker 1>it'll sort of make these a known safe instrument that

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<v Speaker 1>people can use in different currency zones and around the world.

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<v Speaker 1>So that piece, I think is being addressed, and there

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<v Speaker 1>needs to be more. We could come back to that,

0:14:20.880 --> 0:14:24.119
<v Speaker 1>like there needs to be in my view, federal statutes

0:14:24.560 --> 0:14:28.560
<v Speaker 1>that sort of define the requirements of being one of

0:14:28.560 --> 0:14:32.520
<v Speaker 1>these digital dollar issuers. And as Chairman Powell likes to say,

0:14:32.600 --> 0:14:35.800
<v Speaker 1>that is the dollar money creation and so that's a

0:14:35.840 --> 0:14:39.680
<v Speaker 1>federal banking like activity. It's not lending, but it's it's

0:14:39.680 --> 0:14:42.160
<v Speaker 1>sort of a you know, sits inside of the risk

0:14:42.600 --> 0:14:46.760
<v Speaker 1>and prudential kind of supervisory requirements of the core money

0:14:46.800 --> 0:14:48.960
<v Speaker 1>and payment systems of the country. And you're seeing that

0:14:49.000 --> 0:14:52.840
<v Speaker 1>replicated in the EU law in the UK, proposed law

0:14:52.960 --> 0:14:56.160
<v Speaker 1>in Singapore and Hong Kong other places. So we're seeing normalization.

0:14:56.240 --> 0:14:59.600
<v Speaker 1>And so in twenty twenty three we're going to, i believe,

0:14:59.640 --> 0:15:04.440
<v Speaker 1>see consistent stable coin regulation passed into law and go

0:15:04.520 --> 0:15:13.040
<v Speaker 1>effective in twenty twenty four. The SEC has, alongside other regulators,

0:15:13.120 --> 0:15:17.560
<v Speaker 1>kind of taken the position that one they're not necessarily

0:15:17.600 --> 0:15:20.720
<v Speaker 1>going to say new things about why they're paying so

0:15:20.760 --> 0:15:22.760
<v Speaker 1>much attention to everybody, they're going to double down some

0:15:22.800 --> 0:15:25.480
<v Speaker 1>of the previous things. But we've also started to hear,

0:15:25.600 --> 0:15:28.280
<v Speaker 1>especially in the US from other kinds of senators, that actually,

0:15:28.320 --> 0:15:30.200
<v Speaker 1>we do need new things because we need to be

0:15:30.240 --> 0:15:32.200
<v Speaker 1>thinking about crypto and we need to be thinking about

0:15:32.240 --> 0:15:36.800
<v Speaker 1>stable coins both as money and also as technology. And

0:15:37.120 --> 0:15:39.240
<v Speaker 1>you know, within technology, you mentioned that like the need

0:15:39.280 --> 0:15:43.520
<v Speaker 1>for privacy, the need for guidance around which types of

0:15:43.560 --> 0:15:45.720
<v Speaker 1>countries you can operate in what you can do, even

0:15:45.760 --> 0:15:49.120
<v Speaker 1>just like representation of how you do different products. When

0:15:49.200 --> 0:15:53.160
<v Speaker 1>you look at the regulatory landscape right now, what are

0:15:53.480 --> 0:15:56.920
<v Speaker 1>the biggest things that you are seeing that are you know,

0:15:56.920 --> 0:16:00.480
<v Speaker 1>however you want to characterize them, existential threats, opportunities, challenges

0:16:01.240 --> 0:16:03.920
<v Speaker 1>to get to this sort of a utopian ecosystem that

0:16:03.920 --> 0:16:09.680
<v Speaker 1>you're describing. The highest priority from regulators has been how

0:16:09.680 --> 0:16:12.800
<v Speaker 1>do we make sure that businesses that are you know,

0:16:14.160 --> 0:16:19.360
<v Speaker 1>providing services using what regulators called virtual assets, that they

0:16:19.440 --> 0:16:22.840
<v Speaker 1>follow you know, your customer procedures and any money launching

0:16:22.840 --> 0:16:27.520
<v Speaker 1>procedures and trying you know, kind of Ponzi schemes. The basis, yeah,

0:16:27.520 --> 0:16:30.760
<v Speaker 1>so and having firms need to register with a competent

0:16:30.840 --> 0:16:34.080
<v Speaker 1>regulator who's going to do background checks on the operators,

0:16:34.160 --> 0:16:36.840
<v Speaker 1>and he's going to do periodic examinations. I think you're

0:16:36.840 --> 0:16:39.360
<v Speaker 1>seeing a lot more focus on what i'll call the

0:16:39.480 --> 0:16:41.760
<v Speaker 1>enterprise risk side of this, which has to do with

0:16:41.800 --> 0:16:45.840
<v Speaker 1>the safeguarding itself. What kind of legal structure exists around

0:16:46.040 --> 0:16:50.360
<v Speaker 1>the safeguarded assets. Are the bankruptcy remote from the firm

0:16:50.400 --> 0:16:53.600
<v Speaker 1>that's operating it. So things that have existed in other

0:16:53.640 --> 0:16:56.640
<v Speaker 1>custodial spaces you're starting to see come into this space.

0:16:56.640 --> 0:16:59.040
<v Speaker 1>And clearly, with some of the things that we've seen happen,

0:16:59.400 --> 0:17:03.560
<v Speaker 1>that's an import thing. We're seeing markets regulators approach things

0:17:03.920 --> 0:17:08.720
<v Speaker 1>very differently around the world. So, you know, legislators need

0:17:08.760 --> 0:17:11.640
<v Speaker 1>to legislate in these moments and this is where new

0:17:11.720 --> 0:17:14.640
<v Speaker 1>rule books are required. And good news is you're seeing

0:17:14.640 --> 0:17:16.199
<v Speaker 1>a lot of that out around the world. But in

0:17:16.240 --> 0:17:20.200
<v Speaker 1>the United States, it's time for Congress to act. The

0:17:20.240 --> 0:17:24.520
<v Speaker 1>White House and major regulators have been compelling Congress, we

0:17:24.600 --> 0:17:28.040
<v Speaker 1>need you to act. It's urgent that Congress acts. Congress

0:17:28.119 --> 0:17:31.520
<v Speaker 1>hasn't acted. Lots of reasons for that. We've got a

0:17:31.520 --> 0:17:35.720
<v Speaker 1>new Congress, We've got you know, new leadership in different

0:17:35.720 --> 0:17:40.120
<v Speaker 1>financial services committees, and I think we will see legislation

0:17:40.600 --> 0:17:45.560
<v Speaker 1>finally and the American people and industry and regulators and

0:17:45.720 --> 0:17:48.480
<v Speaker 1>academics can all come together and say, Okay, what do

0:17:48.520 --> 0:17:51.000
<v Speaker 1>we want this to be for the United States? Is

0:17:51.040 --> 0:17:54.280
<v Speaker 1>the sec the right regulator for stable coins? No? I

0:17:54.320 --> 0:17:57.159
<v Speaker 1>don't think so. And there's a reason why everywhere in

0:17:57.200 --> 0:18:00.840
<v Speaker 1>the world, including in the United States, the government is

0:18:00.960 --> 0:18:04.680
<v Speaker 1>specifically saying payment stable coins are a payment system and

0:18:05.359 --> 0:18:10.679
<v Speaker 1>banking regulator activity. Now, does that mean that all projects

0:18:10.680 --> 0:18:14.240
<v Speaker 1>that hold themselves out as a stable coin are in fact?

0:18:14.359 --> 0:18:17.720
<v Speaker 1>That is it possible that there are products that hold

0:18:17.720 --> 0:18:20.240
<v Speaker 1>themselves out as stable coins that could in fact be

0:18:20.480 --> 0:18:25.440
<v Speaker 1>implicitly securities or have various types of derivative or synthetic

0:18:25.560 --> 0:18:29.440
<v Speaker 1>instruments embedded in them. And there's lots of different flavors.

0:18:29.760 --> 0:18:31.680
<v Speaker 1>We'd like to say not all stable coins are created equal,

0:18:31.960 --> 0:18:35.560
<v Speaker 1>but clearly from a policy perspective, the uniform view around

0:18:35.560 --> 0:18:38.800
<v Speaker 1>the world is this is a payment system predential regulator space.

0:18:39.600 --> 0:18:42.200
<v Speaker 1>But it'll define what is included in that and what's

0:18:42.240 --> 0:18:46.240
<v Speaker 1>not included in that will end up somewhere else. Jeremy,

0:18:46.240 --> 0:18:50.080
<v Speaker 1>thank you for coming on the show. Thank you, Thank

0:18:50.119 --> 0:18:52.359
<v Speaker 1>you to Jeremy Laire for joining the show today. For

0:18:52.480 --> 0:18:55.119
<v Speaker 1>more on all things stable coins and of course, everything

0:18:55.119 --> 0:18:57.920
<v Speaker 1>else in crypto, subscribe to our twice weekly news less

0:18:57.920 --> 0:19:06.560
<v Speaker 1>of It's also cooled, Bloomber crypt Do. This is Bloomberg Crypto,

0:19:06.760 --> 0:19:10.639
<v Speaker 1>a daily podcast from Bloomberg and iHeartRadio. For more shows

0:19:10.640 --> 0:19:14.840
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0:19:14.880 --> 0:19:18.440
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0:19:18.440 --> 0:19:21.480
<v Speaker 1>suggestions for the show to Crypto at Bloomberg dot net.

0:19:24.640 --> 0:19:28.360
<v Speaker 1>The supervising producer of Bloomberg Crypto is Vicky Vergelina. Our

0:19:28.440 --> 0:19:32.240
<v Speaker 1>senior producer is Janet Babin. Our producers are Mohammed Faroup

0:19:32.320 --> 0:19:35.679
<v Speaker 1>and Sharon Barrero. Our associate producers are Ty Butler and

0:19:35.760 --> 0:19:40.439
<v Speaker 1>Moses on Desto. Wander Ad is our engineer. Original music

0:19:40.560 --> 0:19:45.320
<v Speaker 1>by Leo Sidron. I'm Stacy Mariechmal. We'll be back tomorrow