WEBVTT - Silvergate CEO Alan Lane On the Business of Stablecoin 0:00:10.920 --> 0:00:15.480 Hello, and welcome to another episode of the Odd Lots podcast. 0:00:15.520 --> 0:00:19.800 I'm Joe Wisn't Thal and I'm Tracy Halloway. So, Tracy, 0:00:19.840 --> 0:00:24.320 you know, we recently had the collapse of the stable 0:00:24.400 --> 0:00:29.240 coin us T and the total disaster of that didn't 0:00:29.280 --> 0:00:31.840 turn out to be a particularly stable coin in the end. 0:00:32.760 --> 0:00:34.320 You're not gonna say it. You're not going to say 0:00:34.360 --> 0:00:38.680 unstable coin. You're so close, so close to to saying 0:00:38.680 --> 0:00:43.479 the cliche. Okay, Yes, so Tara slash Luna collapsed and 0:00:43.560 --> 0:00:47.360 that kicked off I would say soul searching. Maybe not 0:00:47.400 --> 0:00:52.240 soul searching, I think so searching is a fine word. Well, 0:00:52.320 --> 0:00:55.760 a vast amount of criticism of the stable coin space, 0:00:56.000 --> 0:00:59.680 and we saw some other stable coins, notably Tether start 0:00:59.720 --> 0:01:02.400 to cobble a bit, although it looks like it's gotten 0:01:02.440 --> 0:01:05.080 back closer to its PEG since all of this happened, 0:01:05.240 --> 0:01:08.600 but lots of people asking tough questions about the space. 0:01:08.760 --> 0:01:14.400 Are stable coins sustainable? Are they inherently susceptible to some 0:01:14.480 --> 0:01:18.959 sort of bank run like phenomenon? And then secondly, is 0:01:19.000 --> 0:01:22.080 this whole terror Luna collapse going to expose the sector 0:01:22.200 --> 0:01:24.560 to more regulation? Is there going to be even more 0:01:24.600 --> 0:01:28.520 attention trained on this, yeah, right, because if there are 0:01:28.560 --> 0:01:31.200 different models of stable coins, so this is really important. 0:01:31.240 --> 0:01:36.000 So there are stable coins where a issuer has a 0:01:36.080 --> 0:01:39.280 dollars equivalent of assets in a regulated bank. There are 0:01:39.280 --> 0:01:42.360 stable coins in which the issuer has in theory a 0:01:42.440 --> 0:01:45.000 dollar or more than a dollar's worth of crypto assets 0:01:45.080 --> 0:01:47.440 held up in some smart contract. And then there are 0:01:47.440 --> 0:01:51.200 these so called algorithmic stable coins in which I don't 0:01:51.200 --> 0:01:53.760 know through magic, they they don't really seem to work, 0:01:53.800 --> 0:01:55.800 but they keep trying. Whether it's like somehow the price 0:01:55.840 --> 0:01:58.320 is supposed to just stay there even without the money, 0:01:58.760 --> 0:02:01.400 but what if The point is, if you sell something 0:02:01.720 --> 0:02:04.840 that is nominally supposed to be worth a dollar and 0:02:04.880 --> 0:02:07.120 it doesn't stay at a dollar, then regulators are going 0:02:07.160 --> 0:02:09.639 to get interested. And of course we saw in the 0:02:09.639 --> 0:02:14.960 financial crisis that one of this sort of loci a 0:02:15.080 --> 0:02:19.799 source of instability, yeah, was money market mutual funds, which 0:02:19.800 --> 0:02:21.720 we're supposed to stay at a dollar and didn't the 0:02:21.760 --> 0:02:25.120 reserve the reserve funds. And so any time you have 0:02:25.160 --> 0:02:28.160 something that's supposed to hold a dollar or supposed to 0:02:28.160 --> 0:02:31.000 be stable and is not, this is a major source 0:02:31.120 --> 0:02:36.280 of regulatory interest, regardless of what the model is that's right, 0:02:36.440 --> 0:02:39.520 and regulators are well aware that when you have something 0:02:39.600 --> 0:02:41.960 that's supposed to be worth a dollar, if it dips 0:02:42.000 --> 0:02:44.880 below a dollar, like reserve primary did back in two 0:02:44.880 --> 0:02:48.320 thousand eight, it can actually have massive consequences for the 0:02:48.400 --> 0:02:51.080 rest of the financial system. You get a contagion effect. 0:02:51.120 --> 0:02:54.040 And I think this is partially why they're worried about 0:02:54.040 --> 0:02:56.079 the space. But the other thing I would say is 0:02:56.440 --> 0:02:59.240 this is why when people say, oh, Tera Luna, you 0:02:59.240 --> 0:03:01.720 should have known better. This was a terrible, you know, 0:03:01.880 --> 0:03:06.280 volatile asset, It's like, well, the marketing actually matters here. 0:03:06.400 --> 0:03:08.480 If you say this thing is always going to be 0:03:08.520 --> 0:03:11.840 worth a dollar. Yes, obviously people can do due diligence 0:03:11.919 --> 0:03:14.520 and decide for themselves whether or not that's true. But 0:03:14.639 --> 0:03:19.160 you're putting it forth as a stable, one dollar pegged asset, 0:03:19.400 --> 0:03:22.600 and that comes with some sort of responsibility that regulators 0:03:22.720 --> 0:03:26.400 might well want to enforce. Absolutely. Like that to me 0:03:26.520 --> 0:03:29.280 is the key thing, Like, Okay, yes, at some level, right, 0:03:29.360 --> 0:03:32.760 people can learn about the smart contract risk, and they 0:03:32.760 --> 0:03:35.800 can learn about you know, what theoretically isn't isn't back 0:03:35.840 --> 0:03:39.720 into coin, but call something a stable coinet falls that 0:03:39.840 --> 0:03:42.920 seems like a problem, so we need to learn more 0:03:43.040 --> 0:03:45.040 about the space. And the other question I have like 0:03:45.080 --> 0:03:46.880 why is it growing? I thought the whole point of 0:03:46.920 --> 0:03:48.640 crypto was to make a lot of money and have 0:03:48.680 --> 0:03:51.280 the number go up, So why the attraction to a 0:03:51.320 --> 0:03:55.640 coin that doesn't go up? Is another well? Also also 0:03:56.000 --> 0:03:59.800 to get away from fiat dollars, right, and instead of 0:04:00.200 --> 0:04:02.280 away from it, it seems like we've just created the 0:04:02.320 --> 0:04:05.960 shadow banking system, almost like the euro dollar market, just 0:04:06.040 --> 0:04:09.080 to create more dollars that are pegged to dollars. Anyway, 0:04:09.120 --> 0:04:11.360 I have so many questions. Let's let's get attitude. So 0:04:11.360 --> 0:04:14.480 I'm really excited about our guest because he has a 0:04:14.560 --> 0:04:18.320 great position within this world to understand the sort of 0:04:18.680 --> 0:04:23.080 intersection of crypto and traditional banking, which is kind of 0:04:23.120 --> 0:04:25.159 what a stable coin is. It is this attempt to 0:04:25.200 --> 0:04:28.040 sort of like bridge. Okay, you have the US dollar 0:04:28.760 --> 0:04:30.719 and you have crypto, and you sort of make a 0:04:30.720 --> 0:04:33.240 crypto version of the US dollar. We're gonna be talking 0:04:33.279 --> 0:04:35.840 to someone who is a great viewpoint on that. We're 0:04:35.839 --> 0:04:38.880 gonna be speaking with Allen Lane. He's the CEO of 0:04:39.240 --> 0:04:42.880 silver Gate Bank, which is a bank that has kind 0:04:42.920 --> 0:04:46.120 of become the bank that banks crypto. It's been banking 0:04:46.120 --> 0:04:50.760 and working with crypto companies since it is active in 0:04:50.800 --> 0:04:53.520 the sort of like plumbing the backside of the stable 0:04:53.560 --> 0:04:56.719 coin space. So we're gonna get all into the business 0:04:56.760 --> 0:04:59.280 of stable coins. So, Ellen, thank you so much for 0:04:59.360 --> 0:05:02.159 joining us. Yeah, thank you for the opportunity. It's it's 0:05:02.240 --> 0:05:04.200 great to be here with with both of you. Ellen, 0:05:04.360 --> 0:05:07.240 why do people why are people so excited about stable coins? 0:05:07.279 --> 0:05:09.880 I thought the whole point of cryptocurrency was like a 0:05:10.000 --> 0:05:12.520 number shooting up to the moon. What's so exciting about 0:05:12.560 --> 0:05:17.960 a coin that just stays flat at the U. S dollar? Yeah, yeah, 0:05:18.080 --> 0:05:22.200 you're you're you're referencing the number go up, right, you know, 0:05:22.200 --> 0:05:26.480 I mean point of a coin that doesn't go up. Yeah, well, um, 0:05:26.520 --> 0:05:31.640 you know. As a regulated financial institution UM Silvergate is 0:05:31.960 --> 0:05:35.760 a California State chartered bank. We are a member of 0:05:35.760 --> 0:05:38.480 the Federal Reserve. Our deposits are insured by the fdi 0:05:38.560 --> 0:05:42.880 C and so we're very interested in the stability of 0:05:43.120 --> 0:05:48.279 the US dollar and and making sure that anytime any 0:05:48.279 --> 0:05:51.200 of our customers show up, they you know, that they 0:05:51.200 --> 0:05:54.360 can get their dollars back out and and so you're 0:05:54.400 --> 0:05:58.039 absolutely right. I heard in your introductory comments that we've 0:05:58.040 --> 0:06:00.600 been banking this ecosystem since in your ray of two 0:06:00.600 --> 0:06:04.440 thousand fourteen, which is an important data point because back 0:06:04.480 --> 0:06:07.080 then it was bitcoin only, and so we entered the 0:06:07.120 --> 0:06:13.039 space really focused on this this new digital asset called bitcoin, 0:06:13.560 --> 0:06:16.240 and some of the companies that were being formed at 0:06:16.240 --> 0:06:21.799 the time to provide services to this budding bitcoin space, 0:06:22.440 --> 0:06:26.679 and many of them were struggling to find and maintain 0:06:26.760 --> 0:06:29.880 bank accounts, and so that was really where we started. 0:06:29.920 --> 0:06:32.800 We've obviously evolved quite a bit over the last eight years, 0:06:33.120 --> 0:06:35.400 and and happy to talk a little bit about that, 0:06:35.720 --> 0:06:37.840 but I don't want to derail the state the stable 0:06:37.839 --> 0:06:41.560 coin conversation. Well, I mean, I'll take you up on 0:06:42.120 --> 0:06:46.960 both those topics. So, you know, a regulated bank interested 0:06:47.040 --> 0:06:49.599 in the stability of the US dollar and presumably you know, 0:06:49.680 --> 0:06:53.640 relatively interested in kind of boring investments. You got into 0:06:53.640 --> 0:06:58.960 crypto in when stable coins didn't really exist, and you've 0:06:59.000 --> 0:07:03.280 since evolved old from becoming just a bank for crypto 0:07:03.320 --> 0:07:07.200 related businesses to one that is more intricately involved in 0:07:07.240 --> 0:07:11.960 the stable coin business. Can you explain that transition to 0:07:12.080 --> 0:07:15.280 us and what exactly is is the opportunity there for 0:07:15.320 --> 0:07:17.840 you when it comes to stable coins. Let's go back 0:07:18.320 --> 0:07:22.160 briefly to to our entrance into the space, and it 0:07:22.240 --> 0:07:29.040 was really preceded by intellectual cure curiosity on my behalf. Personally, 0:07:29.080 --> 0:07:31.480 I was looking at bitcoin in two thousand thirteen and 0:07:31.560 --> 0:07:34.040 this meme was with bitcoin you could be your own bank, 0:07:34.600 --> 0:07:37.200 and you know, being a career banker, I thought that 0:07:37.240 --> 0:07:41.200 was interesting. And so as I went down the bitcoin 0:07:41.320 --> 0:07:43.920 rabbit hole, as they as they say, back in two 0:07:43.960 --> 0:07:47.960 thousand thirteen, I was really intrigued by this concept of 0:07:49.040 --> 0:07:53.400 the fact that bitcoin had a fixed supply. And you know, 0:07:53.440 --> 0:07:55.600 we're talking a little bit here about the stability of 0:07:55.640 --> 0:07:59.160 the US dollar UM, and we know that the FEDS 0:07:59.240 --> 0:08:02.960 mandate is to try to to try to maintain inflation 0:08:03.600 --> 0:08:06.680 around two percent. You know, there's obviously we're quite a 0:08:06.680 --> 0:08:09.680 bit above that right now. But even with just that mandate, 0:08:09.760 --> 0:08:12.440 the fact that inflation at a target rate of two 0:08:12.440 --> 0:08:15.920 percent means that by definition, even though I mentioned at 0:08:15.920 --> 0:08:18.200 the outset that we're interested in the stability of the 0:08:18.280 --> 0:08:21.160 US dollar, the fact is the US dollar is destined 0:08:21.480 --> 0:08:24.160 to go down and value um if the FED hits 0:08:24.200 --> 0:08:27.080 their target by two percent a year UM. And so 0:08:27.240 --> 0:08:29.920 I fell down the bitcoin rabbit hole. Um, I was 0:08:29.960 --> 0:08:32.280 intrigued by it. I didn't buy as much as I 0:08:32.280 --> 0:08:36.000 should have. And that's probably the pointers there you go. 0:08:36.360 --> 0:08:39.520 That's that's probably every bitcoiners, um you know thought, no 0:08:39.559 --> 0:08:41.800 matter when you get in. But the fact of the 0:08:41.840 --> 0:08:44.560 matter is at once we got into the ecosystem and 0:08:44.600 --> 0:08:47.240 we were trying to help our customers. So the first 0:08:47.280 --> 0:08:49.480 thing we did, Tracy, is is we were just a 0:08:49.559 --> 0:08:52.920 bank willing to talk to these these new companies. And 0:08:52.960 --> 0:08:57.199 I should mention right up front. Silver Gate is institutionally focused, 0:08:57.280 --> 0:09:01.079 so we do not bank consumers directly. Uh So this 0:09:01.120 --> 0:09:04.640 is an important distinction because many of our customers provide 0:09:04.679 --> 0:09:08.440 services to consumers, but we are an institutionally focused bank. 0:09:08.640 --> 0:09:12.760 And so we were opening bank accounts for businesses who 0:09:12.800 --> 0:09:15.760 were providing services to the bitcoin ecosystem. And what did 0:09:15.800 --> 0:09:18.280 that look like back in two thousand fourteen, Well, it 0:09:18.320 --> 0:09:21.800 looked like Genesis, which at the time was still called 0:09:21.840 --> 0:09:25.560 second Market. Um. They were enabling some of their customers 0:09:25.640 --> 0:09:29.160 to um, you know, to buy and sell bitcoin. And 0:09:29.240 --> 0:09:32.640 we went deep on this early so um you know, 0:09:32.679 --> 0:09:36.000 because we needed to satisfy ourselves in our regulators that 0:09:36.120 --> 0:09:38.520 we knew what was the use of proceeds. You know, 0:09:38.559 --> 0:09:42.120 what was this money being used for. These businesses are 0:09:42.200 --> 0:09:45.720 deemed to be money service businesses. And so what we 0:09:45.760 --> 0:09:49.520 would do is when when Genesis then called Second Market, 0:09:49.960 --> 0:09:53.840 would actually UM try to transact on behalf of a customer. 0:09:53.880 --> 0:09:55.560 So one of their customers wanted to buy our self 0:09:55.600 --> 0:09:58.760 bitcoin and that meant that they were sending a wire 0:09:58.800 --> 0:10:02.600 transfer across our platform. We asked at the time, okay, 0:10:02.720 --> 0:10:06.360 give us the bitcoin address you know for this transaction. 0:10:06.480 --> 0:10:09.000 And what we wanted to see on the blockchain was 0:10:09.120 --> 0:10:11.160 if someone was sent in a hundred thousand dollars to 0:10:11.200 --> 0:10:13.280 buy ourselves bitcoin. We wanted to go out to the 0:10:13.280 --> 0:10:16.760 blockchain and see that there was in fact a transaction 0:10:17.160 --> 0:10:19.640 that represented a hundred thousand dollars of value. And I 0:10:19.679 --> 0:10:22.800 think at the time Second Market was was somewhat amazed 0:10:22.920 --> 0:10:27.480 that this this bank in southern California was actually asking, 0:10:28.120 --> 0:10:31.080 you know, for blockchain addresses, UM and I think we 0:10:31.120 --> 0:10:34.960 have a pretty deep understanding of of this ecosystem. To 0:10:35.040 --> 0:10:38.320 now get to the point of the story around stable Coin, 0:10:38.600 --> 0:10:41.839 you first have to understand what is silver Gate known 0:10:41.920 --> 0:10:46.160 for today, and that is a platform. It's a global 0:10:46.760 --> 0:10:51.440 payments platform that is referred to as the SIN, which 0:10:51.480 --> 0:10:53.680 is an acronym S E N. It stands for the 0:10:53.720 --> 0:10:57.440 silver Gate Exchange Network. And what that is is it 0:10:57.520 --> 0:11:02.280 is a two sided network where we connect digital asset 0:11:02.960 --> 0:11:07.680 exchange platforms such as coin base and Gemini and crack 0:11:07.800 --> 0:11:10.160 in and f t X. And as soon as I 0:11:10.160 --> 0:11:13.360 start naming, I'm I'm worried, I'm gonna let leave somebody out, 0:11:13.480 --> 0:11:16.480 We've We've got all of them, all of the major ones, 0:11:16.600 --> 0:11:19.920 anybody that is serious about regulation, and that's an important 0:11:19.960 --> 0:11:24.280 distinction because they have to satisfy not only their own 0:11:24.400 --> 0:11:27.319 legal and regulatory requirements, but then we have to verify 0:11:27.480 --> 0:11:31.440 that that that their compliance programs are sound. So that's 0:11:31.520 --> 0:11:33.800 one side of the network, um. And then on the 0:11:33.840 --> 0:11:38.439 other side of the network is institutional investors other folks 0:11:38.559 --> 0:11:44.400 who are providing access to to bitcoin and other digital assets, 0:11:44.640 --> 0:11:48.240 and we connect them across our platforms so that they 0:11:48.280 --> 0:11:51.520 can interact twenty four hours a day, seven days a week. 0:11:51.880 --> 0:11:54.800 It is only fiat currency, though, and that's that's another 0:11:54.800 --> 0:11:58.280 important distinction, especially as we moved to the stable coin topic, 0:11:58.400 --> 0:12:03.520 because our customers are dealing with US dollars and and 0:12:03.600 --> 0:12:07.760 now euros. We we launched the euro sand platform back 0:12:07.800 --> 0:12:10.240 in February so that we can provide this service over 0:12:10.280 --> 0:12:14.640 in Europe as well. But it is a seven A 0:12:14.800 --> 0:12:18.640 p I enabled connection, so that our customers can move 0:12:18.720 --> 0:12:23.599 US dollars amongst themselves around the ecosystem any time or 0:12:23.640 --> 0:12:25.640 the day of the day or night. We launched this 0:12:25.679 --> 0:12:28.280 back in two thousand seventeen, and it was really a 0:12:28.320 --> 0:12:32.360 game changer for the industry and for Silvergate because we 0:12:32.360 --> 0:12:35.400 were the first bank in the world to actually bring 0:12:35.559 --> 0:12:39.160 this the legacy banking system that only operates forty hours 0:12:39.160 --> 0:12:44.240 a week Monday through Friday, into the seven digital asset 0:12:44.320 --> 0:13:01.720 market that trade around the clock around the world. So 0:13:01.960 --> 0:13:07.720 can you describe how stable coin issuers use your services directly? 0:13:07.800 --> 0:13:11.800 Where are you in the ecosystem because obviously, as you mentioned, 0:13:11.800 --> 0:13:13.320 you have a lot of clients who are in the 0:13:13.360 --> 0:13:16.560 broader crypto space f t X and all these exchanges 0:13:16.600 --> 0:13:20.800 and so forth. How would a stable coin issuer what 0:13:21.040 --> 0:13:25.320 value do they get from silver Gate? Yeah, so, so 0:13:25.440 --> 0:13:29.440 they use the sen and our a p I for 0:13:30.200 --> 0:13:33.280 the important you know that that on ramp and off ramp. 0:13:33.880 --> 0:13:36.920 I've often tried to just describe what we do is, Hey, 0:13:36.960 --> 0:13:40.959 we are the regulated on ramp from the US dollar 0:13:41.040 --> 0:13:45.360 and other fiat currencies into the bitcoin and digital asset market. 0:13:45.920 --> 0:13:49.440 And then likewise we are the off ramp from that 0:13:49.559 --> 0:13:53.520 the digital asset market back into fiat currencies and the 0:13:53.600 --> 0:13:56.480 way that's done. And so let's talk about the stable coins, 0:13:57.000 --> 0:14:00.200 the stable coin issuers who use our platform. So, UM, 0:14:00.840 --> 0:14:06.679 they are all of the regulated US dollar backed stable 0:14:06.720 --> 0:14:11.720 coin issuers. And UM, by that distinction I heard in 0:14:11.760 --> 0:14:15.320 your opening remarks, you were you were distinguishing between the 0:14:15.360 --> 0:14:18.840 different types of stable coins, the dollar backed ones are 0:14:18.880 --> 0:14:21.120 the only ones we back. UM, So we don't bank 0:14:21.440 --> 0:14:26.880 bank the algorithmic stable coin offerings, nor do we, um, 0:14:26.960 --> 0:14:29.520 you know these other you know stable coins that are 0:14:29.560 --> 0:14:33.760 maybe collateralized by other digital assets. Um, those are those 0:14:33.800 --> 0:14:37.240 all they don't need a US dollar bank because they're 0:14:37.240 --> 0:14:40.320 not backed by U S dollars. So by definition, but importantly, 0:14:40.560 --> 0:14:43.600 we also don't bank Tether. And believe it or not, 0:14:43.680 --> 0:14:47.560 we had the opportunity to work with Tether very early on, 0:14:48.040 --> 0:14:51.920 but because they weren't inside the United States, and you know, 0:14:51.960 --> 0:14:56.120 again we're very serious about regulation and and so we 0:14:56.200 --> 0:14:58.200 looked at it and we thought, you know, this is 0:14:58.200 --> 0:15:03.160 an interesting idea Tether was launched before Circle um launched 0:15:03.160 --> 0:15:06.280 the U S you know USDC, so we thought, yeah, gosh, 0:15:06.320 --> 0:15:10.280 that's an interesting idea. But they're offshore. We can't really 0:15:10.320 --> 0:15:12.960 get our hands around, you know, their regulatory status in 0:15:13.160 --> 0:15:15.680 the United States and so so we were not able 0:15:15.720 --> 0:15:18.880 to bank them back then, so back in two thousand seventeen, 0:15:19.120 --> 0:15:21.280 nor do we bank them today. So that's what we 0:15:21.320 --> 0:15:24.520 don't do. What we do is for U S d C, 0:15:25.760 --> 0:15:29.760 for the packs dollar, which is issued by pass, for 0:15:29.840 --> 0:15:33.760 the Gemini dollar issued by Gemini, and for true US 0:15:33.840 --> 0:15:38.520 d UM they use the san and our a p 0:15:38.720 --> 0:15:42.440 I for the minting and burning of their tokens, so 0:15:42.480 --> 0:15:49.400 they're they're those tokens are issued when a dollar hits 0:15:49.480 --> 0:15:53.320 their silver Gate bank account, and it's all programmatic and 0:15:53.400 --> 0:15:58.440 so so if if somebody wants to purchase U S 0:15:58.520 --> 0:16:01.880 d C from Circle, what they would do is they 0:16:01.880 --> 0:16:06.720 would send dollars into circles bank account at silver Gate, 0:16:07.720 --> 0:16:11.920 and when those dollars hit the bank account, then at 0:16:11.960 --> 0:16:15.280 that moment, there is an a p I call from 0:16:15.320 --> 0:16:19.640 silver Gate to Circle that says we just received X 0:16:19.680 --> 0:16:24.120 amount of dollars from this customer, and at that point 0:16:24.680 --> 0:16:27.480 Circle knows we have the dollars in our possession, so 0:16:27.600 --> 0:16:30.720 they turn around and they meant the U s DC 0:16:30.880 --> 0:16:35.320 token and send it to the wallet address of that 0:16:35.320 --> 0:16:38.560 that institution that is looking to purchase the U s 0:16:38.640 --> 0:16:42.400 DC And then the same thing happens in reverse. So 0:16:43.000 --> 0:16:45.800 if someone wants to redeem their USDC and go back 0:16:45.840 --> 0:16:50.400 to U s dollars, they send the USDC to to 0:16:50.560 --> 0:16:53.600 the wallet at Circle Circle. At that point, once they 0:16:53.640 --> 0:16:55.760 have possession of the U s d C, they then 0:16:55.800 --> 0:16:59.000 send an instruction to us via a p I and 0:16:59.160 --> 0:17:01.960 we then in turn will send the dollars back to 0:17:02.080 --> 0:17:08.040 that prior USDC tokenhore. So, can I ask a step 0:17:08.040 --> 0:17:11.480 back question, a broader question about the space? Is there 0:17:11.480 --> 0:17:14.240 an irony here that you know, a lot of crypto 0:17:14.359 --> 0:17:18.119 is sold on the basis that you can have financial 0:17:18.200 --> 0:17:22.040 assets that sit outside of the traditional financial system. And 0:17:22.200 --> 0:17:24.520 you mentioned one of the things that got you interested 0:17:24.520 --> 0:17:26.880 in crypto in the first place was this idea of, 0:17:26.920 --> 0:17:30.639 you know, be your own bank with bitcoin. But you know, 0:17:30.760 --> 0:17:33.119 fast forward some years and you are a bank that 0:17:33.240 --> 0:17:37.120 deals in the crypto space. Isn't there a fundamental tension 0:17:37.200 --> 0:17:42.440 there about having a financial system outside of traditional regulation, 0:17:42.520 --> 0:17:49.440 but still needing to be plugged into a regulated financial entity. Yeah. So, um, 0:17:49.840 --> 0:17:53.800 so get an important distinction. What would be that these 0:17:54.440 --> 0:17:58.879 entities that we're banking aren't operating outside of regulations. That 0:17:58.920 --> 0:18:01.040 would be the first thing I would say. But to 0:18:01.119 --> 0:18:05.720 the broader kind of fundamental question, I distinctly remember when 0:18:05.840 --> 0:18:09.200 I was talking with our team internally about this back 0:18:09.240 --> 0:18:13.199 in two thousand thirteen, and um, you know I and 0:18:13.320 --> 0:18:16.280 this meme was be your own Bennic, and my thought 0:18:16.320 --> 0:18:20.760 process was, well, if this takes off, you know, it's 0:18:20.800 --> 0:18:22.920 going to take years. It's going to take decades. I've 0:18:22.920 --> 0:18:25.480 been in banking for forty years, so I've seen all 0:18:25.520 --> 0:18:28.840 the different things. I mean, I was there right as 0:18:29.000 --> 0:18:32.840 reg Hugh was being repealed, which limited the amount of 0:18:32.840 --> 0:18:35.280 interest that you could pay on deposits. I was there 0:18:35.280 --> 0:18:37.920 when the first A t M s were being installed. 0:18:37.960 --> 0:18:42.360 So I've seen all of this quote unquote innovation. Bitcoin 0:18:42.520 --> 0:18:45.760 is the true innovation in my opinion, but it's not 0:18:45.840 --> 0:18:51.120 going to displace government, sovereign government's desire to issue their 0:18:51.160 --> 0:18:56.280 own currencies. And so I view bitcoin as you know, 0:18:56.720 --> 0:18:59.399 you guys are very familiar with the meme. Digital gold, 0:18:59.600 --> 0:19:02.280 you know is a way to save a portion of 0:19:02.440 --> 0:19:06.639 your wealth. And I think that we still need to 0:19:06.680 --> 0:19:11.160 operate in the financial world with fiat currencies, the world 0:19:11.160 --> 0:19:13.960 that we actually live in UM and and just like 0:19:14.240 --> 0:19:17.480 some some people might might try to, you know, try 0:19:17.520 --> 0:19:20.240 to save some of their wealth in gold or in 0:19:20.320 --> 0:19:23.199 some other you know, in stocks and bonds, etcetera. I 0:19:23.240 --> 0:19:26.240 think bitcoin UM is certainly an alternative, but I don't 0:19:26.280 --> 0:19:29.320 think it's going to replace the dollar. And so I 0:19:29.359 --> 0:19:33.639 actually think silvergate is perfectly positioned to UM. You know, 0:19:33.720 --> 0:19:37.359 kind of have a foot in, you know, in both ecosystems. 0:19:37.440 --> 0:19:42.280 So you're the owner of the assets that were DM 0:19:42.400 --> 0:19:44.720 so Facebook for a few years at least, I think 0:19:44.760 --> 0:19:48.720 starting in twenty I think starting they tried to get 0:19:48.760 --> 0:19:52.520 their own stable coin off the ground. It's gonna be 0:19:52.560 --> 0:19:54.800 sort of a global thing. It just never really worked. 0:19:55.200 --> 0:19:57.840 Why couldn't What was the problem from your view? Why 0:19:57.840 --> 0:20:01.120 didn't that work? And one of the asset what constitutes 0:20:01.400 --> 0:20:03.760 the assets that were left over that you've played, Why 0:20:03.800 --> 0:20:07.560 it didn't work? You know? Unfortunately, I think it's because 0:20:07.560 --> 0:20:10.440 it was Facebook, you know, I I will say early on, 0:20:10.640 --> 0:20:13.680 I think you know, they not only you know, kind 0:20:13.720 --> 0:20:18.080 of raised the ire of the US government, but of 0:20:18.080 --> 0:20:21.560 of you know, a lot of governments when they when 0:20:21.560 --> 0:20:23.520 they announced that they were going to issue this and 0:20:23.560 --> 0:20:26.480 make it a you know, backed by a basket of currency. 0:20:26.600 --> 0:20:29.320 So it's like, well, let's let's not only you know, 0:20:29.480 --> 0:20:32.240 upset the US, you know, the US government, but let's 0:20:32.320 --> 0:20:35.680 upset you know, all of these other sovereign nations who 0:20:35.720 --> 0:20:38.600 are issuing their own currencies, and let's make it a basket, 0:20:38.640 --> 0:20:42.000 you know. So so I I think they quickly realized 0:20:42.320 --> 0:20:47.080 that that it needed to be backed by a single currency. Unfortunately, 0:20:47.560 --> 0:20:50.439 by that time, you know, I think they were just 0:20:50.600 --> 0:20:53.040 in the crosshairs and no matter what they did, you know, 0:20:53.040 --> 0:20:56.080 they tried to move off shore. Um. You know, they 0:20:56.080 --> 0:20:58.359 were a Swiss entity for a while trying to issue 0:20:58.400 --> 0:21:01.320 a U. S Dollar back token. That you know, if 0:21:01.320 --> 0:21:04.240 you just stop and think about what I just said, um, 0:21:04.280 --> 0:21:07.399 you know, that's you know, that's gonna be problematic, a 0:21:08.280 --> 0:21:11.919 Swiss entity issuing a U. S dollar back token. And 0:21:12.000 --> 0:21:14.359 so you know, there are a lot of challenges. But 0:21:14.480 --> 0:21:17.280 at the end of the day, what we saw as 0:21:17.320 --> 0:21:19.920 the opportunity, and I should mention we were not involved 0:21:19.960 --> 0:21:23.959 with Facebook um at all during any of that we 0:21:24.080 --> 0:21:27.680 ended up coming on the scenes late, so they had 0:21:27.720 --> 0:21:31.359 as as you'll know. Just remind you that they started 0:21:31.359 --> 0:21:34.240 out as Libra. They then switched to ink too d M. 0:21:34.359 --> 0:21:36.920 They then moved to UM at some point in that 0:21:36.960 --> 0:21:41.280 they moved from the US to Switzerland. And during that 0:21:41.520 --> 0:21:45.679 entire time, we at silver Gate we're looking at the 0:21:45.720 --> 0:21:49.239 feasibility of issuing our own stable coin. So we were 0:21:49.240 --> 0:21:52.920 already banking UM, USDC and some of the other early 0:21:53.119 --> 0:21:55.720 entrants UM, and we were looking at the pros and 0:21:55.760 --> 0:21:57.880 cons of whether or not we should issue our own 0:21:58.320 --> 0:22:00.760 Why would we do that? Well, back at that time, 0:22:01.560 --> 0:22:04.359 the thought process was what we've We've got this send 0:22:04.359 --> 0:22:06.800 the silver Gate Exchange networks. So a lot of our 0:22:06.800 --> 0:22:11.320 customers are using the send to transact dollars U seven. 0:22:11.400 --> 0:22:14.760 But that's not on a blockchain, it doesn't candidate, it 0:22:14.760 --> 0:22:17.200 doesn't need to be to do an an intra bank 0:22:17.280 --> 0:22:20.399 transfer UM. But if they want to take their dollars 0:22:20.440 --> 0:22:23.360 outside of silver Gate, well then oftentimes what they were 0:22:23.400 --> 0:22:25.840 doing was they were starting on the send, they were 0:22:25.880 --> 0:22:29.679 then buying a you know, USDC UM and then taking 0:22:29.680 --> 0:22:33.760 that U S D c UM to places where where UM, 0:22:33.800 --> 0:22:36.840 where they didn't have a silver Gate bank account, for instance, 0:22:37.000 --> 0:22:39.240 and so we started thinking about whether or not we 0:22:39.240 --> 0:22:42.960 should issue our own. We did the legal permissibility analysis, 0:22:43.520 --> 0:22:48.000 UM we we believe that it's legally permissible for UM 0:22:48.359 --> 0:22:50.480 for us to issue a stable coin. We have not 0:22:50.880 --> 0:22:54.520 actually heard anything to the contrary and all the conversations 0:22:54.560 --> 0:22:57.399 we've had with our regulators, so so we do believe 0:22:57.400 --> 0:23:00.679 it is legally permissible. And we were getting ready to, 0:23:01.000 --> 0:23:02.879 you know, kind as they say, go to Washington and 0:23:02.920 --> 0:23:05.760 talk about this back in March of right as the 0:23:05.760 --> 0:23:10.600 pandemic hit and so obviously everybody's priorities shifted a little bit, 0:23:10.760 --> 0:23:13.800 and so we we cooled our heels in the first 0:23:13.800 --> 0:23:17.240 and second quarter of but we were still working on 0:23:17.280 --> 0:23:23.000 the idea. And it was late where we actually were 0:23:23.040 --> 0:23:26.919 approached by the d M Association and they wanted to 0:23:26.920 --> 0:23:30.879 talk with us because they were familiar with our ability 0:23:31.000 --> 0:23:34.320 to mint and burn tokens. And at the time they 0:23:34.359 --> 0:23:36.560 were working with four other banks. I don't know who 0:23:36.560 --> 0:23:39.359 those banks were, but four other large banks, and the 0:23:39.400 --> 0:23:42.440 concept was these four banks were going to hold the reserves, 0:23:42.520 --> 0:23:44.200 but you know, each of them was going to hold 0:23:45.200 --> 0:23:47.960 of the dollars back in these tokens, So you're gonna 0:23:47.960 --> 0:23:51.399 have this this broad array of banks holding the reserves, 0:23:51.880 --> 0:23:54.720 but none of those banks really had the capability that 0:23:54.800 --> 0:23:58.040