Speaker 1: Since you're a subscriber to this Bloomberg podcast, we thought
Speaker 1: you'd be interested in a sponsored podcast called Evolving Money,
Speaker 1: produced by Coinbase and Bloomberg Media Studios. It explains how
Speaker 1: institutional investors are adopting the world's newest asset class, crypto.
Speaker 1: Here's a recent episode.
Speaker 2: You had the government sending a message to innovators and
Speaker 2: developers that they should basically take any ideas that they
Speaker 2: may have and take them overseas or put them in
Speaker 2: a drawer somewhere and just abandon them.
Speaker 3: That's forr. Shuerzode, the chief policy officer of Coinbase, talking
Speaker 3: about the way things used to be with stable coins.
Speaker 3: But the message from Washington has changed in the last year.
Speaker 2: And so what you're seeing now with this sea change
Speaker 2: in governmental attitude is it's actually a permission structure around
Speaker 2: developers and innovators who want to think creatively about different
Speaker 2: payment solutions that could be executed on with the use
Speaker 2: of stable coins.
Speaker 3: That unleashed creativity is powering a movement amongst major financial
Speaker 3: services companies who are now integrating crypto into their operations.
Speaker 3: In many cases, they're starting with stable coins. There are
Speaker 3: a number of reasons for that including the ability to
Speaker 3: move money more cheaply and efficiently.
Speaker 2: By our account, there's about two hundred and fifty different
Speaker 2: projects have been announced by any number of financial players
Speaker 2: and developers, So the biggest banks, the payment processors, the
Speaker 2: credit card companies, corporates and others to integrate, and I
Speaker 2: think we're just at the tip of the iceberg.
Speaker 3: I'll talk more with Fayr about policy trends in a
Speaker 3: couple of minutes, but first I want to give you
Speaker 3: a peek into one of those two hundred and fifty
Speaker 3: different projects he referred to check out dot Com. It's
Speaker 3: an example of a major financial player investing in stable
Speaker 3: coin infrastructure right now. They are a PSP that's a
Speaker 3: payment service provider, visible intermediary working behind the scenes when
Speaker 3: you buy something online. Checkout dot Com started out processing
Speaker 3: credit cards, then moved into debit cards, and because they're global,
Speaker 3: they also facilitate currency exchange. Now they're deploying a major
Speaker 3: upgrade to their platform that will allow consumers to shop
Speaker 3: using stable coins and vendors to get paid in stable coins.
Speaker 3: That's what we're going to explore today. Stable coins in
Speaker 3: practice and in policy. This is evolving money and I'm
Speaker 3: your host, Angie Lao. The show is co produced by Coinbase,
Speaker 3: one of the largest cryptocurrency platforms in the world, and
Speaker 3: Bloomberg Media Studios. Now in the series, we are exploring
Speaker 3: how crypto is being adopted by traditional financial institutions as
Speaker 3: the next logical evolution of the monetary system. And this
Speaker 3: episode is all about stable coins, which are cryptocurrencies designed
Speaker 3: to maintain a stable value because they're to a fiat
Speaker 3: currency like the US dollar, so the price is fixed,
Speaker 3: but the currency is highly liquid, and because it can
Speaker 3: be moved on crypto rails, it's faster and cheaper to
Speaker 3: transact compared to legacy banking systems. According to a report
Speaker 3: in Forbes, stable coins were used in more than thirty
Speaker 3: trillion dollars worth of transactions last year. To give you
Speaker 3: a sense of scale, that is more than Visa and
Speaker 3: MasterCard combined. Now, to be clear, the majority of those
Speaker 3: transactions were trading in cryptocurrencies, but other use cases are
Speaker 3: growing fast. Payroll, international purchasing, even retail shopping is all
Speaker 3: increasingly being done with stable coins. My first guest today
Speaker 3: is checkout dot COM's chief product officer, Moron Kilbeggi. I
Speaker 3: started our conversation by asking him to walk me through
Speaker 3: the firm's five year relationship with stable coins.
Speaker 4: Back in twenty twenty one, we were one of the
Speaker 4: first payment service provider to offer stable coins settlement to
Speaker 4: our merchants, and so this is already a very long
Speaker 4: time ago in crypto world, or in digital crypto years.
Speaker 5: In crypto years exactly.
Speaker 4: We offered a service that unfortunately we had to wind
Speaker 4: down because the regulatory framework was just not there and
Speaker 4: we were not able to find the right partners in
Speaker 4: banks and so forth in order to offer that service.
Speaker 4: But this is something that we are in the process
Speaker 4: of re launching as we speak. And essentially it's merchants
Speaker 4: that are acquiring funds with us want to get settled
Speaker 4: with stable coins. What does that mean. It means that
Speaker 4: they can settle. They can get settled twenty four by seven,
Speaker 4: which is one of the big advantages. The settlement is immediate,
Speaker 4: you're not dependent on the bank hours and so on
Speaker 4: and so forth, and you're not dependent on the bank rails,
Speaker 4: and the merchant will be able to you to choose
Speaker 4: how they get settled, whether they get settled with regular
Speaker 4: fiat or whether they get settled directly into their wallet
Speaker 4: will be up to them.
Speaker 3: What are the markets that you're focusing on and how
Speaker 3: is it all going to roll out?
Speaker 5: In your mind, we are an enterprise shop, right like,
Speaker 5: we support enterprise merchants that almost uniformly are international, like
Speaker 5: they operate in multiple markets all time, and this is
Speaker 5: part of what we abstract away that complexity.
Speaker 4: You know, we give them the ability to accept payments
Speaker 4: with one global API that they can just integrate and
Speaker 4: accept payment across the world. And so for sure international
Speaker 4: is a big part of this. You know, in terms
Speaker 4: of rollout, we're going to start rolling out something which
Speaker 4: is pretty unique for US because we're a europe based company,
Speaker 4: where a UK based company, But we're going to start
Speaker 4: with the US and we're going to roll out from there.
Speaker 3: Is the marketplace in the United States already asking for this,
Speaker 3: demanding it.
Speaker 4: So it's a very good question, and the honest answer
Speaker 4: is that I don't know. You know, we believe in
Speaker 4: the theology and the philosophy behind stable coins. We think
Speaker 4: that there's a future world where stable coins sit along
Speaker 4: other type of currency and enable cross border like borderless
Speaker 4: payments across the board. We look at this as an
Speaker 4: experiment as something that could potentially.
Speaker 5: Do good in the world.
Speaker 4: We want to put this out there, we want to
Speaker 4: see how people react to it. And the interesting bit
Speaker 4: is that in some of the big merchants in the
Speaker 4: world are interested and curious because they have customers that
Speaker 4: are cross border, that they have customers that have wallets
Speaker 4: with stable coins that they're currently not doing anything with
Speaker 4: except for buying other forms of crypto, and so using
Speaker 4: it for retail is a logical next step for them
Speaker 4: as well. And so I think that it's a it's
Speaker 4: kind of an experiment within the ecoss them where there's
Speaker 4: a merchant making it available for the consumer and seeing
Speaker 4: what the consumer adopts and chooses at that point in time.
Speaker 3: Checkout dot Com is upgrading their platform to handle a
Speaker 3: payment system that currently handles relatively speaking, little volume, but
Speaker 3: the word relatively is doing some pretty heavy lifting there.
Speaker 3: As I mentioned off the top, stable coins were used
Speaker 3: to settle more than thirty trillion US dollars in transactions
Speaker 3: in twenty twenty five, and thirty trillion is a number
Speaker 3: that has even the most traditional financial services companies asking themselves, Hey,
Speaker 3: how can we get involved. Morn says they see this
Speaker 3: as a market with substantial growth potential around the world,
Speaker 3: especially in developing economies.
Speaker 4: If you're living in in an economy that has a
Speaker 4: very high inflation rate and a very unstable currency, getting
Speaker 4: exposed to an equivalent of a US dollar is something
Speaker 4: that is good for you. You want to buy cross
Speaker 4: border and obviously not pay cross border fees and FX
Speaker 4: fees and so on and so forth, then there is
Speaker 4: another benefit for you. And you know, frankly, like in
Speaker 4: many countries, access to debit and credit card is not ubiquitous,
Speaker 4: and this is an alternative form of payment that has
Speaker 4: potentially a lower barrier of entry in multiple geographies. So
Speaker 4: I can definitely see a very good use case for
Speaker 4: cross border payments for cross border retail and for developing markets.
Speaker 3: But what about larger, more established markets.
Speaker 4: For developed markets like the US and Europe. I think
Speaker 4: a lot of this is going to come down to preference,
Speaker 4: and people sort of preferring stable coins because you know,
Speaker 4: they've they've traded to for other crypto and they have
Speaker 4: liquidity in their in their wallets, and you know, rather
Speaker 4: than trading again to a fiat currency, they just want
Speaker 4: to use it right there. And the convenience actually of
Speaker 4: paying with a stable coin through this experience that we're
Speaker 4: building is actually, it's going to be pretty convenient. It's
Speaker 4: going to be pretty good, and so I think consumer
Speaker 4: preference is probably going to drive that usage and utility.
Speaker 4: And if I switch over to the merchant side, it's
Speaker 4: all about liquidity and availability of funds. And the more
Speaker 4: the ecosystem builds itself out where vendor to vendor payments
Speaker 4: can happen on stable coins, where cross border payments can
Speaker 4: happen on stable coin, then there becomes a flywheel where
Speaker 4: it starts making more and more sense for merchants to
Speaker 4: do this. And then down the line, I think that
Speaker 4: some treasury teams are starting to think about, you know,
Speaker 4: managing their own treasury completely on stable coins and not
Speaker 4: having to deal with you know, cross entity settlement between
Speaker 4: multiple entities within one company. You can run it on
Speaker 4: a ledger internally, and so that sort of plugs into
Speaker 4: this settlement and acceptance page.
Speaker 5: If you look at it down the line.
Speaker 3: When you are getting ready to roll out in the US,
Speaker 3: what is the biggest current constraint that you're experiencing right now?
Speaker 3: Is it regulation? Is it consumer wallet adoption? Run't it readiness?
Speaker 3: Operational complexity? Which is it?
Speaker 4: Despite the fact that stable coins have been around for
Speaker 4: a number of years for US as a fiat based business,
Speaker 4: there are still a lot of stakeholders that you need
Speaker 4: to make sure that they're comfortable, and there are some
Speaker 4: operationalization hoops that you need to go through. It's about
Speaker 4: ensuring that our regulators know what we're doing and are
Speaker 4: happy with it and don't have concerns with it. It's
Speaker 4: getting the contracts in order and in place. Nothing is
Speaker 4: a blocker, but there are challenges, right like, even in
Speaker 4: the US, they are in different regimes, right Like there's
Speaker 4: New York which has its own license versus other states.
Speaker 4: There's complexity there and how you operate and where your
Speaker 4: entity is, and all of those things influence the timeline
Speaker 4: and the implementation path. The technological build is actually the
Speaker 4: easiest part, right everything around it is complexity.
Speaker 3: Complexity is the focus for my next guest, fiarshire Zod,
Speaker 3: because if the technological build is the easy part and
Speaker 3: everything around it is complex well, Farrier's goal is to
Speaker 3: make sense out of the complexity. He is the chief
Speaker 3: policy officer at coinbase, and his job is to work
Speaker 3: with governments and establish the regulatory framework that will let
Speaker 3: people like Moron launch their technical solutions. You're starting to
Speaker 3: see the enterprise and a lot more institutional players coming
Speaker 3: into the space. But where are we right now in
Speaker 3: terms of regulations? What is allowed right now? And where
Speaker 3: will we be allowed to go? What is the trajectory?
Speaker 2: It's a good question. It's also a very sophisticated question
Speaker 2: because you have two things happening simultaneously that are happy
Speaker 2: somewhat in parallel, but they will converge down the road.
Speaker 2: And that is you have the Genius Law having been
Speaker 2: passed by Congress and signed into law by the President
Speaker 2: in July, and this, as you know, well as the
Speaker 2: federal framework for regulating stable coin issuers. And so obviously,
Speaker 2: in a normal kind of calendar of regulatory action, you
Speaker 2: have legislation and then the implementing rags and then you
Speaker 2: go live. But interestingly with stable cooins, particularly under this administration,
Speaker 2: you have rapid movement by the regulators to allow a
Speaker 2: use of stable coins for some of the most complicated
Speaker 2: payment activities, even before Genius gets fully implemented. So you
Speaker 2: have Genius getting implemented, but then at the same time
Speaker 2: you have the CFTC, for example, allowing stable coins to
Speaker 2: be used for derivatives trade settlement, right, and that is
Speaker 2: enormously exciting. It's almost like a big sandbox for example,
Speaker 2: that is, you know what they call it in a
Speaker 2: regulatory perspective, where you've got market participants executing on and
Speaker 2: using the innovative technology with the blessing of the regulators,
Speaker 2: even as the actual regulations get you know, bedded down.
Speaker 2: And that's and that's really powerful.
Speaker 3: Right And and Moran Niclbetchy from checkout dot com I
Speaker 3: want to bring back what he said he mentioned earlier
Speaker 3: that as they design their processes, they have to account
Speaker 3: for not just different countries regulations, but even different states
Speaker 3: that have different rules.
Speaker 2: Well, you know, that's the that's the big dilemma I
Speaker 2: think the industry has at the moment. There's certain issues
Speaker 2: about how regulation takes place. So, for example, for exchanges
Speaker 2: who intermediate crypto trades spot market transactions, which are the
Speaker 2: bulk of the crypto trading that you see out there
Speaker 2: at the moment, that is subject to state regulation and
Speaker 2: it's not clear whether there's full federal preemptive authority over
Speaker 2: the states, and so that just creates a chaotic environment
Speaker 2: where you have fifty different regulators across fifty different states.
Speaker 2: Consumers don't know what rules are applied to them depending
Speaker 2: on where they live, and developers have a hard time
Speaker 2: implementing and managing the compliance burden of having fifty different rules,
Speaker 2: each different for each different state. And so there are
Speaker 2: issues like that, But generally speaking, you also have at
Speaker 2: the same time a real willingness on the part of
Speaker 2: the regulators under the Trumpe administration to use every bit
Speaker 2: of the authority that they have to provide the clarity
Speaker 2: that the street is looking for. So there's legislations critical.
Speaker 2: It's our number one objective from a policy perspective. I'm
Speaker 2: confident we're going to get it done, but we are
Speaker 2: at the same time working with the regulators to encourage
Speaker 2: them to provide clear rules. And what I mean by
Speaker 2: that is, for sure, every time you have a change
Speaker 2: in administration, new regulators come in and can change the rules,
Speaker 2: but it's very It's not as easy as it sounds
Speaker 2: for them to do a one eighty if the previous
Speaker 2: administration has finalized the rules and market practice has adapted
Speaker 2: and adopted those rules, because it becomes hard. The courts
Speaker 2: are careful not to allow regulators to engage in activities
Speaker 2: that creates sort of an unfair burden or chaos in
Speaker 2: the markets. And so there is a really interesting effort
Speaker 2: by the Trump administration to get legislation done, but at
Speaker 2: the same time to race ahead with sound regulation that
Speaker 2: they hope to bed down have market practice evolve around.
Speaker 2: So even if legislation doesn't get done, it becomes very
Speaker 2: hard for a future crypto hostile administration to reverse things.
Speaker 3: If I were to ask you to look at the
Speaker 3: Doppler radar of crypto regulatory development, what's the temperature right now,
Speaker 3: what's the weather, what's in the forecast.
Speaker 2: It's a really really interesting time because there's a lot
Speaker 2: of momentum, very fast momentum early in the in the
Speaker 2: Trump administration to make these changes that I was talking about.
Speaker 2: But what really has happened probably since Q three Q
Speaker 2: four of last year, and it's even stronger I would
Speaker 2: say now, is kind of the incumbent financial players have
Speaker 2: woken up and have launched some of the most furious
Speaker 2: attacks on these changes that we're talking about because of
Speaker 2: fears about what it'll do to the economic rents that
Speaker 2: come with you know, their incumbency, and so you see
Speaker 2: all the traditional financial groups kind of jump up and say,
Speaker 2: a wait a minute, we're not against this technology, but
Speaker 2: please not so fast. Do it more slowly, put more
Speaker 2: frictions on it, make it harder. And companies are like ours,
Speaker 2: are trying to be a counterbalance so that resistance.
Speaker 3: What do you think the stickiest issue is right now
Speaker 3: between incumbents and the crypto industry, the digital assets industry,
Speaker 3: the platforms.
Speaker 2: The rewards fight is the most obvious kind of visible
Speaker 2: example that you see written about in the press. But
Speaker 2: the other example is is the fight that's occurring at
Speaker 2: the SEC. The SEC chairman wants to migrate capital markets
Speaker 2: on chain T plus five, T plus six has gone
Speaker 2: down to T plus one plus two or three. We
Speaker 2: can take that down to teas plus zero do instantane settlement.
Speaker 2: But a lot of folks who make their money off
Speaker 2: of that lag don't want that to happen. It's a big,
Speaker 2: big issue because it implicates a lot of financial intermedias
Speaker 2: or huge economic rents by sitting in the middle of transactions.
Speaker 2: But just like you don't need a mailman to send
Speaker 2: an email to someone, you don't need to have necessarily
Speaker 2: have an intermediary to transfer value in the way you
Speaker 2: used to or transfer a stock or or a dollar.
Speaker 2: And the question is will public policy stop that or
Speaker 2: enable that?
Speaker 3: And we've talked a lot about what the US government
Speaker 3: is doing.
Speaker 2: What about internationally, Well, I think of it in two tracks,
Speaker 2: just to oversimplify it. One is the stable coin track,
Speaker 2: and the other is the market structure track. I think
Speaker 2: a lot of other jurisdictions move well before the US
Speaker 2: to establish rules around crypto trading, Europe being a great
Speaker 2: example of MIKA, the market and crypto assets regulation that
Speaker 2: they pass. Where the shoes are reversed is with regard
Speaker 2: to stable coins or digital money. In that other jurisdictions
Speaker 2: have moved much more slowly than the United States. In
Speaker 2: some places like the European Union are let's say, ambivalent
Speaker 2: about stable coins. But what's happened is this genius Act passed,
Speaker 2: You've had massive adoption and all around the world. Now
Speaker 2: there's an enormous concern that because the US has gone
Speaker 2: ahead and adopted so vigorously tokenized dollars, and given the
Speaker 2: insatiable demand the world has for dollars as a sore
Speaker 2: of value and as a transaction currency. That there will
Speaker 2: be enormous pressure on foreign currencies in terms of how
Speaker 2: relevant they can become if the dollar becomes more accessible
Speaker 2: in stable coin form. And so one of the messages
Speaker 2: that we've delivered to other jurisdictions is, whatever you think
Speaker 2: about this technology, the decision has been made. The US
Speaker 2: has moved forward dollars. Stable coins are going to scale dramatically,
Speaker 2: the adoptions happening by across the board, by corporates, financials, everybody.
Speaker 2: And so if you want your currency to remain relevant,
Speaker 2: you have to have a tokenized version of your currency.
Speaker 2: And I think that's why you see more more kind
Speaker 2: of rapid action in Canada the UK to adopt stable
Speaker 2: coin frameworks for their own currency, and we think that's
Speaker 2: actually a good thing. I think the more currencies are
Speaker 2: available in tokenized form, the healthier dynamic you have of
Speaker 2: you know, foreign exchange transactions occurring or transactions occurring in
Speaker 2: you know and settled in different currencies. And so we
Speaker 2: hope that will happen.
Speaker 3: So do you think global players need one harmonized model
Speaker 3: or can the market function with multiple national regulatory regimes.
Speaker 2: You don't have to have harmonization, but I would say
Speaker 2: I would say with stable coins, you know you'll have
Speaker 2: situations like right now in the UK where the Bank
Speaker 2: of England is proposing pretty tight caps on how much
Speaker 2: pound sterling stable coin any individual can hold or use,
Speaker 2: and they're trying to do that because they want to
Speaker 2: be careful about the transition from the analog system to
Speaker 2: a token I system. We think that's a big mistake
Speaker 2: and that they need to do what the US has done,
Speaker 2: which is to adopt it rapidly and integrate it into
Speaker 2: a broad range of institutional and retail use cases, and
Speaker 2: that flywheel of adoption will be healthy for the development
Speaker 2: of the pound sterling. So it's not an imperative that
Speaker 2: there are rules be harmonized, but there's a common sense
Speaker 2: dimension to it that we've sort of support on the
Speaker 2: market regulations. That is a place where having more consistent
Speaker 2: rules makes a lot of sense, because if you're building
Speaker 2: a financial product, or let's say you're building an update
Speaker 2: of a traditional app, you need to have some consistency
Speaker 2: so that that app can be accessed by users around
Speaker 2: the world under the same rules. There are also some
Speaker 2: kind of more esoteric sounding things like, for example, in Coinbase.
Speaker 2: I'll just give you kind of a more practically, very
Speaker 2: practical example. We want customers who want to use coinbase
Speaker 2: to ultimately be able to source the liquidity for their trade.
Speaker 2: So if you wanted to buy a bitcoin or whatever,
Speaker 2: have all of thatquidity as centralized as possible. That's actually
Speaker 2: a good thing because it creates deeper, more robust markets,
Speaker 2: It creates more effective price discovery, deeper larger pools of liquidity,
Speaker 2: or less susceptible to systemic events. But that requires some harmonization.
Speaker 2: But that's where you need a dialogue, and the US
Speaker 2: and UK happen to have a dialogue right now going
Speaker 2: on between the two treasuries coordinating and collaborating on crypto
Speaker 2: and blockchain based tokenization market regulation. This is one of
Speaker 2: those issues that we've verged them to look at, which
Speaker 2: is creating a system in which they recognize each other's
Speaker 2: regulatory system and so UK companies wo want to operate
Speaker 2: in the US can provide US customers access to UK
Speaker 2: liquidity and vice versa, and that requires harmonization.
Speaker 3: That's far our Cherzade, the chief policy officer for Coinbase.
Speaker 3: It's clear that things are trending in the right direction.
Speaker 3: The big questions focus on the pace of regulations and
Speaker 3: whether innovators feel there's enough certainty and stability to build
Speaker 3: products and push them into the market. Checkout dot Com
Speaker 3: certainly feels that way. It's going to be exciting to
Speaker 3: watch as they roll out their new platform. With that
Speaker 3: in mind, I want to go back to Moran Calbetcy
Speaker 3: and ask him if their rollout goes as planned and
Speaker 3: stable coins become more widely used as an easy to move,
Speaker 3: universal currency, how will it change the world.
Speaker 5: If this were to work.
Speaker 4: I think that seeing the ecosystem of money movement move
Speaker 4: towards rails that are digital, and having payments that are
Speaker 4: border less, that are free across borders, that don't suffer
Speaker 4: from the slowness that the existing system currently has, that
Speaker 4: don't suffer from the exchange fees that we're seeing.
Speaker 5: All of that makes for.
Speaker 4: I think, a better consumer experience and a better merchant experience,
Speaker 4: and that's what we as check Out are trying to
Speaker 4: facilitate all the time and trying to find.
Speaker 5: Ways to enable.
Speaker 4: So it's maybe utopic to think about it now, but
Speaker 4: I think that there is a few years down the
Speaker 4: line it could happen so fingers crossed.
Speaker 3: I'm Angie Lao and this is Evolving Money, a co
Speaker 3: production between Coinba and Bloomberg Media Studios. Thanks for listening.
Speaker 3: There are more than a dozen other conversations in our
Speaker 3: feed for you to check out, so don't hesitate to
Speaker 3: scroll back in time and listen to some of those
Speaker 3: today