Speaker 1: I'm Stacy Marie Ishmel, Managing editor of Crypto for Bloomberg News,
Speaker 1: and this is Bloomberg Crypto, a daily Bloomberg IHOD podcast.
Speaker 1: It's Thursday, March ninth. If there's one thing that cryptoregulators
Speaker 1: and people who want to be cryptoregulators and people who
Speaker 1: are being regulated by cryptoregulators have been talking about this year,
Speaker 1: it's stable coins. Stable Coins are the part of crypto
Speaker 1: that's supposed to be, unlike say Bitcoin or ether, not
Speaker 1: that volatile. The idea is that these tokens hold their value,
Speaker 1: and that value is pegged one to one to something
Speaker 1: like a US dollar or a euro or the Japanese yen.
Speaker 1: Now that hasn't always turned out to be true, notably
Speaker 1: in the case of a type of stable coin known
Speaker 1: as algorithmic, but across the board, stable coins continue to
Speaker 1: be both one of the most popularly traded forms of
Speaker 1: crypto tokens and one of the ones under the most
Speaker 1: amounts of regulatory scrutiny right now. Just recently, in New York,
Speaker 1: regulators demanded that a company called Paxos, which had partnered
Speaker 1: with Finance on a switchain type of stable coin, immediately
Speaker 1: stopped creating any new ones of the tokens. These are
Speaker 1: just some of the reasons that we asked Circle Internet
Speaker 1: Financial CEO Jeremy Alair to join me in the studio.
Speaker 1: Circle is the issuer of what's currently the second largest
Speaker 1: stable coin, usd Coin or USDC, and Jeremy Lair himself
Speaker 1: has some very specific opinions on who should and who
Speaker 1: should not regulate stable coins. Our conversation lasted about an hour,
Speaker 1: so we pull the highlights for you. Here's my conversation
Speaker 1: with Circle CEO Jeremy Lair, edited for length and clarity. Jeremy,
Speaker 1: Welcome to Bloomberg. Thank you. It is a pleasure to
Speaker 1: have you in the podcast studio. What we can describe
Speaker 1: as a fairly interesting time for stable cooin stablecoin issuer.
Speaker 1: As folks working in the crypto space, it's always interesting
Speaker 1: in crypto land. So tell our listeners who you are. So,
Speaker 1: I'm Jeremy A. Lair. I'm the co founder and CEO
Speaker 1: of Circle and Circle is a issue of a stable cooin,
Speaker 1: as we'll talk about more, but it's a company that
Speaker 1: I co founded ten years ago to build a new
Speaker 1: layer for how money can be stored and used and
Speaker 1: accessed on the Internet. So you're almost as old as bitcoin. Yeah,
Speaker 1: I mean almost almost as old as bitcoin. Yeah. The
Speaker 1: reason that I asked that is because sometimes when folks
Speaker 1: hear crypto, they will thank immediately of a bitcoin or
Speaker 1: an ether. Some of them might think of a non
Speaker 1: fungible token or a board ape. It's reasonable to say
Speaker 1: they're a few were people whose minds immediately jump to
Speaker 1: a USDC, a stable coin like yours. Where do stable
Speaker 1: coins fit in that overall crypto ecosystem. One thing to
Speaker 1: note is, you know, the most widely used digital currencies
Speaker 1: are stable coins, are dollar based digital currencies. And I
Speaker 1: think the important thing to maybe you know, sort of
Speaker 1: step back and realize is cryptodis stands for cryptography, and
Speaker 1: the methods that became available with advancements in cryptography made
Speaker 1: it possible to solve problems on the Internet that weren't
Speaker 1: possible to solve until really recently, like the last ten
Speaker 1: or fifteen years. You know, the Internet is a medium
Speaker 1: where there's a lot of hacks, there's a lot of
Speaker 1: data issues, cybersecurity issues, there's cyber threats, and you know,
Speaker 1: there's no underlying basis for knowing what's true what's false.
Speaker 1: We've seen that proliferate in things like social media, and
Speaker 1: so cryptography allows you to verify data cryptographically approve of
Speaker 1: a way. In other words, that's a fancy way of saying,
Speaker 1: in a mathematically certain way one can prove something. And
Speaker 1: so the birth of crypto the category is really applying
Speaker 1: the advancements in cryptography and mathematics to be able to
Speaker 1: be sure about certain pieces of data and transactions around
Speaker 1: that data, and to do that on the public Internet,
Speaker 1: to do that as a kind of shared good on
Speaker 1: the public Internet. And that's really the breakthrough innovation of crypto.
Speaker 1: What is the problem that Circle solves on? Who are
Speaker 1: they solving this problem for? When we founded the company
Speaker 1: ten years ago, approximately our vision ten years ago was
Speaker 1: we believe that there could become like a protocol for
Speaker 1: dollars on the internet. How do I take my computer
Speaker 1: my device and connect to an information source that's out there.
Speaker 1: So the idea is, wow, what if I could have
Speaker 1: a device and I could connect to any other device
Speaker 1: and the protocol would be something that could kind of
Speaker 1: carry dollars and do that like we carry data on
Speaker 1: the Internet. So that was the big idea and technologically,
Speaker 1: it wasn't possible. For the first few years, we tried
Speaker 1: to build ways to make it possible using bitcoin, the
Speaker 1: technology layer of bitcoin, but eventually five years in so
Speaker 1: now five years ago, we were able to invent what
Speaker 1: is now known as USDC, a digital currency. And you know,
Speaker 1: the goal was exactly that, how do we create something
Speaker 1: that allows for dollars to be issued as digital currency
Speaker 1: units that can then float around the Internet, just like
Speaker 1: an image file or a text file, but with the
Speaker 1: certainty that any individual token is unique, can't be counterfeit,
Speaker 1: and then has all of the superpowers of the Internet
Speaker 1: kind of applied to that medium of exchange, which is
Speaker 1: I think really the heart of this, which is, hey,
Speaker 1: the Internet's got superpowers, how do we give those superpowers
Speaker 1: to the dollar? And so that's what we built up
Speaker 1: over the last five years. And so Circle really runs
Speaker 1: that infrastructure of USDC, and we're regulated as a global
Speaker 1: Payment Technology company, and you know we store any dollars
Speaker 1: in a safe and transparent way, literal safe. Well, you know,
Speaker 1: Bank of New York Malon holds the Treasury bills in
Speaker 1: their custody, and you know, they got twenty five trillion
Speaker 1: dollars of assets that they're holding, and black Rock manages
Speaker 1: the you know, tens of billions of dollars of of
Speaker 1: of Treasury bill liquidity, buying and selling those on our behalf.
Speaker 1: And then you know, publicly traded banks in the United States,
Speaker 1: you know, hold in the aggregate about twenty percent of
Speaker 1: the reserves in cash. And so you know, a USDC
Speaker 1: token that you hold is always redeemable for a dollar,
Speaker 1: and it's backed by the most reliable dollar assets in
Speaker 1: the world. So we do that. And the important thing though,
Speaker 1: is that once that person has a USDC token, they
Speaker 1: can transact it and transmit it, just like they transact
Speaker 1: and transmit information and data on the internet. You have
Speaker 1: a lot of folks who are like, why would I
Speaker 1: need some kind of cryptoe coin when I have zell
Speaker 1: or PayPal or Venmo, or I can do a swift
Speaker 1: transfer from my bank. What is the actual specific use
Speaker 1: case that isn't being solved by any of these more
Speaker 1: traditional or even more recent financial technology innovations. There are
Speaker 1: huge problems today with the way that money works. Money
Speaker 1: all almost all forms of payment live inside what I
Speaker 1: liked referred to as walled gardens. There's a zell walled garden,
Speaker 1: and there's a Venmo walled garden. What if you want
Speaker 1: to send one hundred thousand dollars transaction over Zell or PayPal,
Speaker 1: you can't do it. What if you want to send
Speaker 1: a billion dollar transaction, you can't do it. If if
Speaker 1: you want to send a dollar transaction, you can't do
Speaker 1: that because they have too many embedded costs. Now, what
Speaker 1: if you want to send value from Venmo to someone
Speaker 1: who has Revolute in Europe? You can't do that. What
Speaker 1: if someone has GRAB in Asia and wants to pay
Speaker 1: someone in Africa, you can't do it. So you have
Speaker 1: all these walled gardens. They tend to be narrowly defined
Speaker 1: around small value transactions in a closed loop system. So
Speaker 1: compare that to the Internet. I have a mobile device,
Speaker 1: I have a messaging app. I can reach anyone in
Speaker 1: the world. What digital currency does, what things like USDC
Speaker 1: do is basically say any device endpoint in the world
Speaker 1: can connect to an open network and transact at the
Speaker 1: speed of the Internet at a very low cost, with
Speaker 1: very high security and privacy assurances, and can do that
Speaker 1: directly counterparty to counterparty, And that makes it possible to
Speaker 1: transact act with anyone anywhere in the world at the
Speaker 1: speed of the Internet. With that efficiency, there are a
Speaker 1: lot of people in a lot of countries who cannot
Speaker 1: access certain websites or cannot even access the public Internet
Speaker 1: at all. And there are criticisms right now of products
Speaker 1: like crypto very broadly, and stable coins in some cases
Speaker 1: in particular, because the reason that it is hard for
Speaker 1: you to send one hundred thousand dollars or a billion
Speaker 1: dollars is because there are a lot of people who
Speaker 1: have questions like where did you get that money from?
Speaker 1: And how do we know you didn't steal it? And
Speaker 1: so stable coins are finding themselves at a particularly pointy
Speaker 1: end of a regulatory stick at the moment where you know,
Speaker 1: folks are asking questions like, well, how do you make
Speaker 1: sure that those counterparties are who they say they are,
Speaker 1: and how do you make sure that in an environment
Speaker 1: in which Russia is facing sanctions from most countries in
Speaker 1: the world, the person of the other end of that
Speaker 1: billion dollar transaction isn't someone in a sanctions list somewhere.
Speaker 1: The invention of digital cash that exists on the Internet
Speaker 1: is a big deal. It's a really big deal, and
Speaker 1: I think people and businesses when presented with a product
Speaker 1: of digital cash that has the safety and soundness and
Speaker 1: assurance of ust bills and cash that has the medium
Speaker 1: of exchange properties of the Internet, like, that's going to
Speaker 1: be far preferable as a store of value and a
Speaker 1: medium of exchange to the existing banking and many households
Speaker 1: and firms in many places they don't trust even their
Speaker 1: local banks, even if they had dollar banks, or they
Speaker 1: don't trust their local currencies, and so the advent of
Speaker 1: digital cash, of dollar based digital cash is a big
Speaker 1: breakthrough and it's something that people want. Coming up next,
Speaker 1: you'll hear more from my conversation with Circle CEO Jeremy Laire.
Speaker 1: We'll be right back. One of the most interesting criticisms
Speaker 1: of blockchain is that it's actually very difficult to launder
Speaker 1: money on it because so much of it is visible
Speaker 1: to these kinds of governments. But I think in twenty
Speaker 1: twenty three, the specific objections regulators have had two stable
Speaker 1: coins in crypto is less about the hacks, the frauds,
Speaker 1: and the scams, because as you've just described, there's this
Speaker 1: robust and frankly very intense framework to stop terror cells
Speaker 1: from trying to have access to this kinds of technology
Speaker 1: for them. They're making an argument from the perspective of
Speaker 1: sovereignty right that these products undermine their ability to control
Speaker 1: what they perceived to be their currency. Is if you
Speaker 1: are a dollar backed product, the United States is going
Speaker 1: to have opinions about what you do with treasury bills
Speaker 1: or however else you're representing that. Or if you are
Speaker 1: eurobacked product, same thing for the European Union. So they're
Speaker 1: you know, they're worried about what does this mean for
Speaker 1: our cross border control? And they're worried about consumer protection
Speaker 1: because one of the big things that happened in twenty
Speaker 1: twenty two is the crypto institutions that ever but he
Speaker 1: thought looked like things you could trust, turned out to
Speaker 1: be less than reliable. Those are social contract ish but
Speaker 1: also very macro problems. I'll start with the ladder, which
Speaker 1: is the transparency and disclosure are hallmarks of sound financial products.
Speaker 1: And I think first of all, the good news about
Speaker 1: products like USDC is that they have always been issued
Speaker 1: under a very rigorous regulatory framework for electronic money in
Speaker 1: the United States, and that is a framework that has
Speaker 1: made it both possible but also allowed individuals to feel
Speaker 1: comfortable transacting with things like PayPal and Venmo and Apple
Speaker 1: Pay or Stripe or cash app. All of these software
Speaker 1: innovations that are payment system innovations are all rounded under
Speaker 1: these electronic money transmission rules, and those rules are very specific.
Speaker 1: You have to hold one to one in stored value
Speaker 1: for any of these electronic representations, and if you don't,
Speaker 1: you're breaking the law and you're examined on it, and
Speaker 1: the regulators are looking at where's the money, show me
Speaker 1: the show me the data, etc. Now we've gone above
Speaker 1: and beyond that, so we are regulated under that framework,
Speaker 1: but we've gone to greater lengths for transparency because people
Speaker 1: get more freaked out in crypto, let's just be honest.
Speaker 1: So monthly incremental attestations that are from major accounting firms.
Speaker 1: We're now at a point where we provide for substantially
Speaker 1: all of the USDC reserves, daily reporting on every single
Speaker 1: short duration T bill that is in the reserve. And
Speaker 1: so there's increasing transparency, and I think what you're seeing
Speaker 1: around the world is regulators are saying, yes, we need
Speaker 1: very low risks, highly liquid reserves, you need reporting, you
Speaker 1: need transparency. This is what these are allowed to do.
Speaker 1: Largely follows the way we operate, but that's good because
Speaker 1: it'll sort of make these a known safe instrument that
Speaker 1: people can use in different currency zones and around the world.
Speaker 1: So that piece, I think is being addressed, and there
Speaker 1: needs to be more. We could come back to that,
Speaker 1: like there needs to be in my view, federal statutes
Speaker 1: that sort of define the requirements of being one of
Speaker 1: these digital dollar issuers. And as Chairman Powell likes to say,
Speaker 1: that is the dollar money creation and so that's a
Speaker 1: federal banking like activity. It's not lending, but it's it's
Speaker 1: sort of a you know, sits inside of the risk
Speaker 1: and prudential kind of supervisory requirements of the core money
Speaker 1: and payment systems of the country. And you're seeing that
Speaker 1: replicated in the EU law in the UK, proposed law
Speaker 1: in Singapore and Hong Kong other places. So we're seeing normalization.
Speaker 1: And so in twenty twenty three we're going to, i believe,
Speaker 1: see consistent stable coin regulation passed into law and go
Speaker 1: effective in twenty twenty four. The SEC has, alongside other regulators,
Speaker 1: kind of taken the position that one they're not necessarily
Speaker 1: going to say new things about why they're paying so
Speaker 1: much attention to everybody, they're going to double down some
Speaker 1: of the previous things. But we've also started to hear,
Speaker 1: especially in the US from other kinds of senators, that actually,
Speaker 1: we do need new things because we need to be
Speaker 1: thinking about crypto and we need to be thinking about
Speaker 1: stable coins both as money and also as technology. And
Speaker 1: you know, within technology, you mentioned that like the need
Speaker 1: for privacy, the need for guidance around which types of
Speaker 1: countries you can operate in what you can do, even
Speaker 1: just like representation of how you do different products. When
Speaker 1: you look at the regulatory landscape right now, what are
Speaker 1: the biggest things that you are seeing that are you know,
Speaker 1: however you want to characterize them, existential threats, opportunities, challenges
Speaker 1: to get to this sort of a utopian ecosystem that
Speaker 1: you're describing. The highest priority from regulators has been how
Speaker 1: do we make sure that businesses that are you know,
Speaker 1: providing services using what regulators called virtual assets, that they
Speaker 1: follow you know, your customer procedures and any money launching
Speaker 1: procedures and trying you know, kind of Ponzi schemes. The basis, yeah,
Speaker 1: so and having firms need to register with a competent
Speaker 1: regulator who's going to do background checks on the operators,
Speaker 1: and he's going to do periodic examinations. I think you're
Speaker 1: seeing a lot more focus on what i'll call the
Speaker 1: enterprise risk side of this, which has to do with
Speaker 1: the safeguarding itself. What kind of legal structure exists around
Speaker 1: the safeguarded assets. Are the bankruptcy remote from the firm
Speaker 1: that's operating it. So things that have existed in other
Speaker 1: custodial spaces you're starting to see come into this space.
Speaker 1: And clearly, with some of the things that we've seen happen,
Speaker 1: that's an import thing. We're seeing markets regulators approach things
Speaker 1: very differently around the world. So, you know, legislators need
Speaker 1: to legislate in these moments and this is where new
Speaker 1: rule books are required. And good news is you're seeing
Speaker 1: a lot of that out around the world. But in
Speaker 1: the United States, it's time for Congress to act. The
Speaker 1: White House and major regulators have been compelling Congress, we
Speaker 1: need you to act. It's urgent that Congress acts. Congress
Speaker 1: hasn't acted. Lots of reasons for that. We've got a
Speaker 1: new Congress, We've got you know, new leadership in different
Speaker 1: financial services committees, and I think we will see legislation
Speaker 1: finally and the American people and industry and regulators and
Speaker 1: academics can all come together and say, Okay, what do
Speaker 1: we want this to be for the United States? Is
Speaker 1: the sec the right regulator for stable coins? No? I
Speaker 1: don't think so. And there's a reason why everywhere in
Speaker 1: the world, including in the United States, the government is
Speaker 1: specifically saying payment stable coins are a payment system and
Speaker 1: banking regulator activity. Now, does that mean that all projects
Speaker 1: that hold themselves out as a stable coin are in fact?
Speaker 1: That is it possible that there are products that hold
Speaker 1: themselves out as stable coins that could in fact be
Speaker 1: implicitly securities or have various types of derivative or synthetic
Speaker 1: instruments embedded in them. And there's lots of different flavors.
Speaker 1: We'd like to say not all stable coins are created equal,
Speaker 1: but clearly from a policy perspective, the uniform view around
Speaker 1: the world is this is a payment system predential regulator space.
Speaker 1: But it'll define what is included in that and what's
Speaker 1: not included in that will end up somewhere else. Jeremy,
Speaker 1: thank you for coming on the show. Thank you, Thank
Speaker 1: you to Jeremy Laire for joining the show today. For
Speaker 1: more on all things stable coins and of course, everything
Speaker 1: else in crypto, subscribe to our twice weekly news less
Speaker 1: of It's also cooled, Bloomber crypt Do. This is Bloomberg Crypto,
Speaker 1: a daily podcast from Bloomberg and iHeartRadio. For more shows
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Speaker 1: you get your podcasts. Send us your comments, questions, or
Speaker 1: suggestions for the show to Crypto at Bloomberg dot net.
Speaker 1: The supervising producer of Bloomberg Crypto is Vicky Vergelina. Our
Speaker 1: senior producer is Janet Babin. Our producers are Mohammed Faroup
Speaker 1: and Sharon Barrero. Our associate producers are Ty Butler and
Speaker 1: Moses on Desto. Wander Ad is our engineer. Original music
Speaker 1: by Leo Sidron. I'm Stacy Mariechmal. We'll be back tomorrow