Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.
Speaker 2: I'm Joe Wisenthal.
Speaker 3: And I'm Tracy Alloway.
Speaker 2: Tracy, we're recording this August sixth. The coins have been falling,
Speaker 2: the cryptos.
Speaker 3: That's right, the coins have been falling. Let's see, I'm
Speaker 3: bringing up bitcoin right now. Let's see, it's down from
Speaker 3: a little over seventy two thousand and it is now
Speaker 3: down to fifty six thousand, So fun times in crypto land.
Speaker 2: There's sort of two things. We have not done many
Speaker 2: crypto episodes. I think we did one. We did it
Speaker 2: one a couple months ago with a member of the
Speaker 2: Oudlaws discord talking about trading. I think that's really stood
Speaker 2: out to me about this really is like since twenty
Speaker 2: twenty two is I have to say I've found it
Speaker 2: kind of boring. And the reason I've found it boring
Speaker 2: is like, sure, the price has gone up from the lows,
Speaker 2: and that's always exciting, but unlike even twenty twenty one,
Speaker 2: twenty twenty two, when people are like talk about DeFi
Speaker 2: and Web three and stuff, I just feel like there
Speaker 2: hasn't been much new or exciting, like sort of narrative
Speaker 2: wise within crypto and so like there's not even like
Speaker 2: a thing to shoot down right now.
Speaker 3: No, I actually, well I agree that none of the
Speaker 3: narratives have been very interesting. However, the thing about bitcoin
Speaker 3: especially is the narratives always keep coming, and that's kind
Speaker 3: of the thing that I find fascinating about it. So
Speaker 3: let's see last year when you had the banking drama,
Speaker 3: people were pitching bitcoin and some other things as like
Speaker 3: safe haven from the financial system, and then fast forward
Speaker 3: to late last year, suddenly they are the beneficiaries of
Speaker 3: the financial system because everyone's excited about the ETF's coming
Speaker 3: on stream and you know, black Rock is going to
Speaker 3: buy bitcoin and all that stuff. And then fast forward
Speaker 3: to this year and it's like a Trump thing.
Speaker 2: Now, oh yeah, right.
Speaker 3: It's so it's so funny how much the narratives shift
Speaker 3: and are often very much at odds with each other.
Speaker 3: But the reason that can happen is because some people
Speaker 3: might argue that, like bitcoin is kind of this weird
Speaker 3: post modern thing. Yeah, it's just a token, Like it's
Speaker 3: just a symbol, and people aren't really using it for
Speaker 3: anything other than betting.
Speaker 2: You know what cryptocurrency actually has retained a real store
Speaker 2: of value property. Tell me Tether, I'm looking at it
Speaker 2: on the screen. It's a dollar right now and it's
Speaker 2: been a dollar forever, so you know, in circle, USDC
Speaker 2: also very big. The big stable coins have so far
Speaker 2: proven to infect be stable.
Speaker 3: Some caveats there, I mean, we still remember twenty twenty one,
Speaker 3: in early twenty twenty two when there was some discrepancy there.
Speaker 3: But yes, okay, stable coins buy and large have remained stable.
Speaker 2: And I do think you know, one of the you know,
Speaker 2: as you mentioned, narratives in crypto are always shape shifting,
Speaker 2: always evolving, but one of them has been this idea
Speaker 2: that stable coins. Specifically Nick Carter, who we've had on
Speaker 2: the show in the past, has been pushing this a lot,
Speaker 2: which is this idea that like stable coins and the
Speaker 2: ability to transact dollar denominated assets anywhere you want, that'll
Speaker 2: be the killer app of crypto. And to me, it's
Speaker 2: like I'm always like a little unsatisfied by it because
Speaker 2: it's like, well, you're still.
Speaker 3: Like Benmo exists, the name Pal exists.
Speaker 2: And you're then also those dollars at the stable coins,
Speaker 2: at least the centralized ones like Tether, like USDC, they're
Speaker 2: in a bank somewhere, right, So you're still relying on
Speaker 2: existing legacy financial market infrastructure. And if your whole point
Speaker 2: is to get away from that, then isn't it kind
Speaker 2: of like cheating to say crypto. Crypto's killer app is
Speaker 2: going to be dollars that you hold in a regulated bank.
Speaker 3: Yeah, dollars that are like backed by t bills. Yes,
Speaker 3: that's right, are the big innovation here? Okay, Well, I
Speaker 3: think we should get into this because, as you say,
Speaker 3: stable coins, they're still around, contrary to what a lot
Speaker 3: of people were expecting, especially with something like Tether, which
Speaker 3: has just behaved very weirdly over the years, and there
Speaker 3: are a lot of questions there about what exactly is
Speaker 3: backing their stable coin. But you're right, still kind of stable.
Speaker 3: People are using them, some people, so we should talk
Speaker 3: about it.
Speaker 2: And there's one other reason to talk about stable coins,
Speaker 2: which is I think there's this view that if crypto
Speaker 2: were to ever pose a systemic risk to the actual
Speaker 2: financial system, it's not going to be bitcoin volatility. It's
Speaker 2: the lesson that we all learned in two thousand and
Speaker 2: eight two thousand and nine, which is that systemic risk
Speaker 2: comes from the assets that you don't presume to be volatile, right,
Speaker 2: and so this is a reason why legislation exists about
Speaker 2: regulating should they just be regulated like money market mutual funds,
Speaker 2: things like this question, because we know that you really
Speaker 2: get into trouble when assets that are supposed to be
Speaker 2: dollar good or triple A or whatever don't behave as such.
Speaker 2: And so if there's ever going to be a time
Speaker 2: where there's gonna be a link between the real economy
Speaker 2: of the real financial system and crypto, would probably be
Speaker 2: something with stable coins.
Speaker 3: Yeah, let's get into it, all right.
Speaker 2: Well, I'm really excited. We do have the perfect guests,
Speaker 2: someone who's been out working in this area for a while,
Speaker 2: someone who knows both sides of both fis sort of
Speaker 2: trad FI and crypto, who's worked in both worlds, who's
Speaker 2: very interested in the stable coin world. Done a lot
Speaker 2: on that. We're going to be speaking with Austin Campbell.
Speaker 2: He is an adjunct professor at Columbia Business School. He
Speaker 2: is the founder and managing partner of Zero Knowledge Consulting,
Speaker 2: and he has previously done stints at City, JP Morgan
Speaker 2: and stone Ridge. So he really does know both worlds
Speaker 2: really well, which is where stable coins sit neatly in
Speaker 2: both worlds. So, Austin, thank you so much for on
Speaker 2: odd lots.
Speaker 4: Yeah, thank you for having me excited to be here.
Speaker 2: You've been in both worlds. You have zero knowledge consulting
Speaker 2: crypto stuff. You've been at legacy finance, having traded a
Speaker 2: city a JP Morgan done tech stuff there. What interests
Speaker 2: you about crypto? Why is this even an interesting topic
Speaker 2: that we should be talking about.
Speaker 4: Well, as I've joked with some of my other friends,
Speaker 4: I kind of had crypto come to me as opposed
Speaker 4: to most people who themselves went to crypto. So back
Speaker 4: in the day at JP Morgan, I ran a trading
Speaker 4: desk called stable value products. And stop me if you've
Speaker 4: heard this story before, But that was stuff where you
Speaker 4: were having a large pile of highly diversified bonds that
Speaker 4: were supposed to largely be safe with some guarantees on
Speaker 4: top of them, and people were supposed to be able
Speaker 4: to transact in and out at a fixed stable value. Well,
Speaker 4: this sounds a lot like a stable coin, only no,
Speaker 4: I'm talking about a trillion dollars of stuff in four
Speaker 4: oh when k markets largely in the United States. So
Speaker 4: I found these interesting because it's sort of crypto encroaching
Speaker 4: into a very tradfi space and being totally honest, probably
Speaker 4: largely misunderstanding it for a long time.
Speaker 3: Crypto came to me too. It is also something that's
Speaker 3: been inflicted on me throughout the years.
Speaker 4: Inflicted.
Speaker 3: Okay, But on that note, remind me when we talk
Speaker 3: about stable coins, what exactly are we talking about here?
Speaker 3: How do they differ from some other cryptocurrency or token,
Speaker 3: and crucially, how do they differ from me having a
Speaker 3: digital deposit line a number that appears in my account
Speaker 3: and then hitting the send button and sending money to
Speaker 3: someone else's account.
Speaker 4: Yeah, So the answer is they are both similar to
Speaker 4: that and different to some very important ways. So I'll
Speaker 4: start with answering your literal question, which is what we
Speaker 4: mean when we say stable coin and crypto is unfortunately
Speaker 4: like a horrible variety of things, many of which have
Speaker 4: not proven to be stable over time. So I would
Speaker 4: tell people you're talking about everything from things that look
Speaker 4: like money market funds and maybe bank deposits probably stable
Speaker 4: all the way to things that look like self reference
Speaker 4: equity sorts of structures like structured nodes, derivatives. That was
Speaker 4: like the algorithmic stable coin from Terraform Labs, which it
Speaker 4: was a coin, but definitely not so much on the
Speaker 4: stable part. I would say, what's important about them and
Speaker 4: where they differ to your question from a traditional bank
Speaker 4: account is you kind of have this bifurcation of where
Speaker 4: the money rests and is invested and where the token
Speaker 4: can move around to. Because the big contrast by putting
Speaker 4: them on a blockchain is if I have a bank
Speaker 4: account at say JP Morgan, and I want to send
Speaker 4: money to somebody at Bank of America. Simplifying away a
Speaker 4: lot of the details here, JP Morgan has to essentially
Speaker 4: take money out of their accounts whatever they were invested
Speaker 4: and send it over to b of A, who's going
Speaker 4: to reinvest it. In token world, with a stable coin,
Speaker 4: it just sort of sits at rest being invested the
Speaker 4: whole time, and the token represents an ownership interest in
Speaker 4: that moves around on a blockchain, which is also a
Speaker 4: very open access platform. It really is in many ways
Speaker 4: a bifurcation of rights that were not possible in the
Speaker 4: traditional system and changes how you can move money around
Speaker 4: it at what velocity.
Speaker 3: Oh I see, So if you have a bank transaction,
Speaker 3: if you're moving money, then there's sort of two separate
Speaker 3: things happening. So you're transferring the information about the money
Speaker 3: and the instruction and then the value, whereas with the
Speaker 3: token you can kind of transfer both at the same time.
Speaker 3: So the instruction, the information plus the value.
Speaker 4: Yeah, it would be as if So if we're all
Speaker 4: trading around tether on a blockchain, to use the previous
Speaker 4: example that was raised, that is almost as if everybody,
Speaker 4: like everybody banks at JP Morgan, right, so that everything
Speaker 4: is just an internal ledger transfer there.
Speaker 3: Got it like instantaneous intra bank transfer. So for instance,
Speaker 3: if you're with JP Morgan, you can more or less
Speaker 3: instantaneously transfer money into another JP Morgan account, But if
Speaker 3: you're transferring it to like somewhere in Europe, you have
Speaker 3: to provide all these additional instructions.
Speaker 2: It sort of feels to me like if you wanted
Speaker 2: to trans for money to me, rather than transferring the
Speaker 2: money to me, it's like you're transferring the password to
Speaker 2: your account, and so the money does not have to move.
Speaker 2: But now, because of tokenization and blockchains and digital signatures,
Speaker 2: you can transfer the pass if you want to send
Speaker 2: me one hundred dollars worth of coin. Tracy can send
Speaker 2: me a password for one hundred dollars worth of coins,
Speaker 2: and then when I want to spend it, I'm transferring
Speaker 2: that password. Would that be a good way to think
Speaker 2: about it?
Speaker 4: I think that's a good mental simplification. Yes, in many ways,
Speaker 4: Like if we really think about what legally they entitle
Speaker 4: you to. It's just I can go to the stable
Speaker 4: coin issuer and redeem this thing against them to get
Speaker 4: cash back. Right now, I'm just transferring the ability to
Speaker 4: redeem that cash around exactly as you said, kind of
Speaker 4: like a password, or it's like a vault receipt.
Speaker 2: Yeah, like a right, a vault receipt or a key
Speaker 2: or something like that. Of course, they talk about keys
Speaker 2: all the time in crypto, So the big thing when
Speaker 2: people talk about they show these charts of tether volume
Speaker 2: going to the moon or circle and all these lines
Speaker 2: that have generally gone up over time. My first reaction is, yeah,
Speaker 2: I guess that's kind of interesting. But if people are
Speaker 2: just using these coins to trade crypto itself, then it
Speaker 2: still feels very recursive to me. So it's like, oh,
Speaker 2: there is a use case stable coins. But if the
Speaker 2: use case of stable coins is to then do a
Speaker 2: levered long eh trade or a levered long Salona trade
Speaker 2: or whatever it is. Then I don't find that interesting.
Speaker 2: It's only I don't find that that interesting. It's only
Speaker 2: particularly interesting to me if people are using these dollar
Speaker 2: denominated assets for something other than trading crypto. Is that happening.
Speaker 4: So one, yes, post the twenty twenty two crash, we
Speaker 4: saw a very interesting phenomenon. And you reference Nick Carter
Speaker 4: who's been on earlier, and he has some very good
Speaker 4: data about this that's publicly available. But the correlation between
Speaker 4: crypto trading volumes and stable coin settlement volumes has really
Speaker 4: broken down significantly post twenty twenty two, and now there
Speaker 4: appear to be a decent body of people who are
Speaker 4: using stable coins for I will generically wrap it in
Speaker 4: the basket of something else, and that something else mostly
Speaker 4: seems to come in two forms. One is a lot
Speaker 4: of peer to peer transfers of stable coins, so that's
Speaker 4: people probably using it for things like business payments, individual payments,
Speaker 4: like settlement of call it real world activity where one
Speaker 4: leg is in crypto, and the other part that they
Speaker 4: seem to be using it for significantly is just dollar access.
Speaker 4: Because something we take for granted in the United States
Speaker 4: because our banking system, you know, for all our criticisms,
Speaker 4: is pretty good, largely works. It's easy for us to
Speaker 4: get dollars, and more importantly, it's easy for us to
Speaker 4: get dollars in a way that we feel good about
Speaker 4: being safe and secure. But if you live in like Argentina,
Speaker 4: if you live in Venezuela, if you live in like
Speaker 4: Southeast Asia, it can be much harder to get your
Speaker 4: hands on dollars. And this is definitely a tool where
Speaker 4: people are using that. Like when I was at Paxos
Speaker 4: and we were looking at our stable coins there, I
Speaker 4: would ask to make probably ninety five percent of our
Speaker 4: holders were non US persons, and many of them seem
Speaker 4: to just buy the coins and hold them.
Speaker 2: Huh.
Speaker 3: It almost sounds like a shadow dollar system, almost like
Speaker 3: a euro dollars type thing. But where is the dollarness
Speaker 3: of stable coins coming from? So I think in the intro,
Speaker 3: you know, we kind of mentioned the t bills backing
Speaker 3: something like tether. There have been rumors at various points
Speaker 3: in time that there are less safe things perhaps backing tether.
Speaker 3: Talk to us about how that dollarness is achieved.
Speaker 4: Yeah, So that's been done a little bit differently across
Speaker 4: multiple stable coins, which I think leads to the earlier
Speaker 4: point of a need for regulation in this space. So
Speaker 4: we can look at the three big models. The answer
Speaker 4: to Tether is they kind of won't totally tell you.
Speaker 4: They give suggestions about what they're doing, but they very
Speaker 4: much operate in the Swiss bank style of we're going
Speaker 4: to be very private. You just have to trust us.
Speaker 4: We have the money. Now. Recently at Bitcoin Nashville, Howard
Speaker 4: Lutnik from Canter Fitzgerald gave a talk about how they
Speaker 4: manage a significant portion of Tether's reserve. So now we
Speaker 4: know a significant portion of it's probably an overnight reverse
Speaker 4: repo in the United States, likely secured by mostly treasuries.
Speaker 4: That's a good sign, but Tether is unwilling to disclose
Speaker 4: this with specificity or disclose all of their partners.
Speaker 3: They also, you just reminded me, they also referred to
Speaker 3: it once as reverse repo notes, which was really weird
Speaker 3: because that does not exist, and they had it in
Speaker 3: like their financial statements, and everyone in the repo market
Speaker 3: was going, what the heck is a reverse repot note?
Speaker 4: What you are experiencing? I would suggest as crypto people
Speaker 4: attempting to talk about finance, which goes usually about as
Speaker 4: well as finance people attempting to talk about crypto. Yeah,
Speaker 4: the two sides have a long history of talking past
Speaker 4: each other.
Speaker 2: All right, so what are the other models you mentioned Tether?
Speaker 2: What are the other models for holding dollars?
Speaker 4: So Circle's current model is basically, hey, we're largely going
Speaker 4: to outsource this to Blackrock. Right, they have a captive
Speaker 4: fund with Blackrock. Blackrock is actually doing largely overnight reverse
Speaker 4: repe in there, and that is essentially saying this should
Speaker 4: look like some sort of tokenized government money market fund
Speaker 4: type construct. So we're just going to have a professional
Speaker 4: do that. Previously Circle had had some call it misadventures
Speaker 4: in the bank deposit world, and I think they had
Speaker 4: to learn some hard lessons there back to crypto people
Speaker 4: not understanding finance, but I think mostly now it is Blackrock.
Speaker 4: The last model, which is what we did at Paxos,
Speaker 4: was essentially running the thing internally like a traditional cash
Speaker 4: stability product. So when I was at Paxos in twenty
Speaker 4: twenty two, we started disclosing everything down to the q
Speaker 4: SIPs so you could see what we hold and it
Speaker 4: was a mix of insured bank deposits, T bills and
Speaker 4: overnight reverse repos spread across a number of different custodians
Speaker 4: and banks to diversify the risk. I would tell you
Speaker 4: in the future, if you're looking at what makes for
Speaker 4: a quote unquote safe stable coin, it's going to look
Speaker 4: more like that model. Or maybe what Circle is doing now,
Speaker 4: not what they've done in the past.
Speaker 3: What happens just on that note, but what happens when
Speaker 3: you start to see the sort of dollarness or the
Speaker 3: one to one dollar value breakdown, Because we have seen,
Speaker 3: you know, like little glimmers of that happen in the past.
Speaker 3: I think I mentioned twenty twenty one, and then in
Speaker 3: twenty twenty two as well there was a bit of
Speaker 3: a breakdown. What's happening?
Speaker 4: So the interesting part about crypto is it's sort of
Speaker 4: a microcosm of traditional finance. There's a couple of things
Speaker 4: that have happened in the past. One which I think
Speaker 4: is what you're probably alluding to, is fears about the
Speaker 4: balance sheet and solvency of the issuer. So Tether has
Speaker 4: had multiple periods in the past where they've depegged for
Speaker 4: moments in time, Circle certainly had a very large deepeg
Speaker 4: around the Silicon Valley bank incident where people didn't know
Speaker 4: if their reserve was totally money good. So Echoes of
Speaker 4: two thousand and eight right there, it's the classic can
Speaker 4: we trust you if we come to redeem our deposits
Speaker 4: with you. The other one that happens, which is fascinating,
Speaker 4: is you have stable coins that deepeg to the upside
Speaker 4: in times of crisis. Right, Like again back to my experience,
Speaker 4: we had busd trading at like a bucko six on
Speaker 4: Binance when Tara went down. And the reason there is
Speaker 4: they serve the opposite function, which is the flight to safety,
Speaker 4: especially if that happens during off hours. Because one of
Speaker 4: the things that's true about stable coins is I'm trying
Speaker 4: to weld essentially New York banking hours to the twenty
Speaker 4: four to seven NISS of crypto. So if something blows
Speaker 4: up at oh, I don't know, three am on a Friday,
Speaker 4: I might have an entire weekend of people trying to
Speaker 4: flee to safety and willing to pay a premium for that.
Speaker 2: All right, So here's my other My other big question is, like,
Speaker 2: all right, let's say we accept that the best stable
Speaker 2: coin model. It's something like with what Circle is doing now,
Speaker 2: or something like USDC where there as it's in regulated
Speaker 2: financial institutions, why do we need public blockchains to solve that?
Speaker 2: We If Tracy and I are trading claims from or
Speaker 2: transferring claims that are claims on a dollar held at
Speaker 2: a bank, why do we need ethereum and Solana to
Speaker 2: do that? Why not some other solution because we've already
Speaker 2: accepted the premise of centralized legacy infrastructure.
Speaker 4: So I think this goes back to our discussion on bifurcating.
Speaker 4: Call it the investment from the technological rights of transfer.
Speaker 4: And essentially what you're asking is what systems should we
Speaker 4: live in and whose rules should we play by? Because
Speaker 4: let me give you a couple of examples. If you're
Speaker 4: in the United States and you just want to pay
Speaker 4: people through regular channels, through like a sandwich, you know,
Speaker 4: or something as you're like more of the transaction, I'm
Speaker 4: at a deli, right, I don't think you need a
Speaker 4: public blockchain, like our infrastructure largely works. But on the
Speaker 4: other hand, let's say that I am a supplier in
Speaker 4: Thailand who needs to receive a payment from somebody in
Speaker 4: Finland for goods, and it's denominated in dollars. Sending that
Speaker 4: through the traditional infrastructure will take days and have relatively
Speaker 4: large fees attached to it, and in some jurisdictions, I'm
Speaker 4: not sure I trust my banks at all.
Speaker 2: Oh way, before you go on further, like, I get
Speaker 2: that there are all kinds of aspects of legacy finance
Speaker 2: that don't seem as efficient as they should be, and
Speaker 2: people like oh, T plus two and T plus three
Speaker 2: in settlement and blah blah blah, But like, why isn't
Speaker 2: that just a matter of Okay, Eventually the banks will
Speaker 2: upgrade their software and these are things that are being solved.
Speaker 4: Some of it's regulation, right, well, I think some of
Speaker 4: it is regulation. Some of it is quite frankly, I
Speaker 4: don't think the banks have a lot of incentive to
Speaker 4: solve it. They are largely the beneficiaries of the current system.
Speaker 4: Like you know, if you're looking at correspondent banks, they
Speaker 4: would prefer these payments to take as long as humanly possible.
Speaker 4: And then I think a third part that again we
Speaker 4: really take for granted in the United States is you're
Speaker 4: assuming that the financial system you're dealing with is legitimate
Speaker 4: in the first place. Right, So in the US, where
Speaker 4: things largely work and we have good rule of law,
Speaker 4: that's totally true. But there are many people who live
Speaker 4: in situations where the government itself is the bad guy
Speaker 4: and therefore going only through regulated banks captured by them
Speaker 4: is an excellent way to basically have all my money expropriated.
Speaker 4: Right Like if I am, say, to take an actual
Speaker 4: example of humanitarian aid with bitcoin, If I am a
Speaker 4: woman in Afghanistan trying to work and I don't want
Speaker 4: the Taliban just taking all of my money, I can't
Speaker 4: hold it in the local system, right.
Speaker 3: This actually reminds me of a very old episode we
Speaker 3: did with I think it was Joe Carlson from the
Speaker 3: Open Money Initiative. Do you remember that show where she
Speaker 3: was making the argument that you know, for people in
Speaker 3: Venezuela or other countries, there is that use case where
Speaker 3: you can use this as a story value that's separated
Speaker 3: from the government. But I guess my question is, like,
Speaker 3: it feels kind of weird to have this shadow financial
Speaker 3: system exist, and is there some like I guess what
Speaker 3: are the downsides to this? Let's just get to that.
Speaker 4: Yeah, And I would say you end up with in
Speaker 4: the current world three kinds of downsides, though I think
Speaker 4: some of them don't need to exist. I think they're
Speaker 4: a choice we've made based on some misunderstandings. So downside
Speaker 4: number one is with the lack of good regulation around
Speaker 4: stable coins globally, you have a lot of people reaching
Speaker 4: for these things of let's be generous and say highly
Speaker 4: variable quality, and the downside has been a lot of
Speaker 4: damage to people who were not super financially sophisticated, who
Speaker 4: got wiped out on their holdings. Again see like the
Speaker 4: terrorform Labs incident. These are I would say strictly bad
Speaker 4: that shouldn't be happening. Two. I think a public blockchain
Speaker 4: that operates where the criteria for being able to use
Speaker 4: it are basically the following is do you have the
Speaker 4: Internet and do you have something of value to trade,
Speaker 4: is in some way ways a challenged rule of law
Speaker 4: in many places. Now. I view that quite frankly as
Speaker 4: a positive in many areas, but there are also areas
Speaker 4: with pretty good rule of law where that could be
Speaker 4: a negative. Right you could look at that as pulling
Speaker 4: in both directions. I think that becomes a question of
Speaker 4: how do you regulate these what do we think of
Speaker 4: as systemic legitimacy. I think the third part that is
Speaker 4: a downside that people often under discuss is that you
Speaker 4: are inheriting a completely different set of problems by using
Speaker 4: these which is one people really underestimate the public part
Speaker 4: of public blockchains, right. It becomes much easier to track
Speaker 4: and trace people using these systems, especially once you have
Speaker 4: one or two pieces of information about where the money
Speaker 4: started and from whom, and two they are not totally
Speaker 4: free of regulation. I will remind everybody that all the
Speaker 4: FIAT backed stable coins have freeze and seas capability, which
Speaker 4: in many ways is even more power full than traditional finance.
Speaker 4: So like, if I am at one of the stable
Speaker 4: coins and I see somebody who has that stable coin
Speaker 4: in a wallet where I don't like them for some reason,
Speaker 4: maybe it's an o fact violation, maybe I just don't
Speaker 4: like the color of their hat, I have the ability
Speaker 4: to freeze their money in that wallet so they can't
Speaker 4: move it, and I have the ability to actually burn
Speaker 4: that money and take it back from them unilaterally.
Speaker 2: In that case, do stable coins solve the problem of, say,
Speaker 2: humanitarian aid to someone in an oppressive regime? If, as
Speaker 2: you say, the publicness block of public blockchains remains underappreciated.
Speaker 2: These things are much more easily traceable, that the idea
Speaker 2: that this is private money is largely not true. That
Speaker 2: analytics firms have gotten extremely good with very little amount
Speaker 2: of data to say I could say that this person
Speaker 2: owns this token. Does that not undermine the claim that
Speaker 2: stable coins are a powerful tool in these sort of
Speaker 2: oppressive regimes?
Speaker 4: I would say, One, it depends how good your opsec is,
Speaker 4: So the answer is maybe if you're not very careful
Speaker 4: with them, the answer will be yes to that. And
Speaker 4: then two, it does reveal sort of one of the
Speaker 4: underlying assumptions, which I think is something Tracy was driving
Speaker 4: towards earlier, which is that stable coins where the reserves
Speaker 4: are kept in call it traditional institutions, are only as
Speaker 4: good as the rule of law in those places. So
Speaker 4: the question to you of how good are these for
Speaker 4: humanitarian aid in many ways simplifies to how are we
Speaker 4: feeling about the US legal system?
Speaker 3: That's a fun thought. Just then, uh, I want to
Speaker 3: get into the financial stability aspect of this. But before
Speaker 3: I do, you mentioned regulation who should regulate stable coins?
Speaker 3: Given that you know the issuers tend to be in
Speaker 3: different places around the world. Tether where's tether again in
Speaker 3: like the Caymans or.
Speaker 4: Something British Virginiz very good.
Speaker 3: So, and there is this sort of like supernational aspect
Speaker 3: to some of this. You're talking about dollar like cross
Speaker 3: border payments. So who ultimately gets to decide what a
Speaker 3: good stable coin is or how the rules should be enforced?
Speaker 4: All right, So let's let's zoom out a little bit
Speaker 4: and look at the traditional financial system and ask how
Speaker 4: that question would be answered, and then we'll zoom back
Speaker 4: in on stable coins. So in traditional finance, there's two
Speaker 4: layers to that regulation. Layer number one is for issuers,
Speaker 4: it's usually the local jurisdiction, and in particular for things
Speaker 4: that are stable coins, usually the banking regulators in local
Speaker 4: jurisdictions that would look at these sorts of things, Right,
Speaker 4: So like, if you're in the United States, you probably
Speaker 4: don't have much of a say of how Deutsche Bank
Speaker 4: is running their operations in Germany that will be the boffin, right,
Speaker 4: So that's part one. Part two is then in your
Speaker 4: local area, if the issuer is from a foreign jurisdiction,
Speaker 4: are they permitted do you give them equivalency for their regimes?
Speaker 4: Do you trust them? Right? So this is sort of
Speaker 4: the patchwork of our current regulation and again zooming out.
Speaker 4: Stable coins work very much the same way. You would
Speaker 4: look at each one in the jurisdiction in which you're issued, Right,
Speaker 4: you look at regimes that exist. You've got like Bermuda,
Speaker 4: You've got like Singapore, You've got Hong Kong who have
Speaker 4: all booted things up. Do you trust them? Do you
Speaker 4: think they're good? And then the leverage that you would
Speaker 4: have in a place like the United States is do
Speaker 4: we think companies operating here should be able to accept
Speaker 4: or interact with those things?
Speaker 2: We say more on that. So is the idea that
Speaker 2: cryptocurrency exchanges in the United States there would be some
Speaker 2: rule that says you're not allowed to trade this, or
Speaker 2: you're not allowed to call this a stable coin on
Speaker 2: your website. Like I mean, this gets to the issue
Speaker 2: of we can't even really talk about regulating stable coins
Speaker 2: when both Circle and the Terra Lunar coin were both
Speaker 2: called stable coins on the internet, but we're radically different
Speaker 2: financial products.
Speaker 4: Yeah, no, that's exactly correct. And so if you look
Speaker 4: at something like McHenry Waters, right, which is one of
Speaker 4: the stable coin bills running around in front of the
Speaker 4: US legislature right now. They are trying to define in
Speaker 4: their words, what a stable coin actually is, and many
Speaker 4: of these bills include either bab uns on stable coins
Speaker 4: that're outside of that box. So that probably means both
Speaker 4: issuers and people using them for payments. It has stable coins,
Speaker 4: or if not bans, at least prohibitions on like calling
Speaker 4: them stable coins, representing them as safe, using them for payments.
Speaker 4: I tend to fall into the second camp, which is
Speaker 4: people should be able to experiment and try things. They
Speaker 4: just need to be honest about it and not lie
Speaker 4: about stability or get special treatment unless they've actually done
Speaker 4: the right things.
Speaker 3: So so far in the real world, we've seen a
Speaker 3: stable coin that was affected by the collapse of a bank,
Speaker 3: so Circle and SVB, which is kind of funny. But
Speaker 3: I'm going to ask you the complete opposite question, which is,
Speaker 3: if we have the collapse of a stable coin, what
Speaker 3: impact would that have on the traditional financial system.
Speaker 4: So the answer to that is we need to ask
Speaker 4: what we mean by quote unquote the collapse of a
Speaker 4: stable coin, right, because you're kind of looking at two
Speaker 4: scenarios and this reveals where you know, I said earlier,
Speaker 4: I think the discourse around these has been a little
Speaker 4: bit broken. This is why. So one would be the
Speaker 4: complete liquidation of a stable coin, but with sufficient preserves.
Speaker 4: So circle as of the time of US recording, this
Speaker 4: is somewhere in like the thirty four billion ish range,
Speaker 4: But they have the super majority of that money in
Speaker 4: a reverse repo fund that's being managed by a professional
Speaker 4: asset manager. If they had to liquidate one hundred percent
Speaker 4: of that thing, they could, And so the answer you're
Speaker 4: asking is what does liquidating thirty four billion of overnight
Speaker 4: reverse repo look like? And by the way, who's on
Speaker 4: the other side of that? Because that money has to
Speaker 4: go somewhere. It's not being vaporized, right Like, this is
Speaker 4: the classic problem of plus one minus one. I don't
Speaker 4: think that's really a systemic problem unless we're in a
Speaker 4: period of such deeply impacted liquidity that we can't move
Speaker 4: thirty four yards of that stuff. But in that case,
Speaker 4: I would tell you the problem is unlikely to be
Speaker 4: just the stable coin. The other option is did a
Speaker 4: stable coin hold reserves that themselves lost value? So, like,
Speaker 4: let's hypothetically say that the guys that circled use them
Speaker 4: again as the example, not an insult to circle decided
Speaker 4: instead of holding like overnight reverse repo, we're gonna YOLO
Speaker 4: into Tesla, and then that goes really badly, right, And
Speaker 4: so in that case, you're gonna have a bunch of
Speaker 4: people coming to redeem and what's gonna happen is you
Speaker 4: will have a ton of cell pressure on that asset
Speaker 4: as people bail out, and then you're gonna have the
Speaker 4: classic problem of at the end it's worth zero. I
Speaker 4: think that largely becomes a problem if you're using it
Speaker 4: for payments, or using it for savings, or using it
Speaker 4: with an expectation of safety. So in that case, there's
Speaker 4: this sort of intrinsic linkage between the safety of the
Speaker 4: reserves and the ability to cause shocks. That tether has
Speaker 4: been the main focus of these concerns, and it's been
Speaker 4: the main focus of these concerns because people don't know
Speaker 4: what tether is holding, right. But like take Paksos for example,
Speaker 4: BUSD was shut down by the NYDFS and at the
Speaker 4: time it was twenty two and a half billion and
Speaker 4: now today is under one billion, and absolutely nothing happened
Speaker 4: liquidating that.
Speaker 2: So let's say, you know, stable coin usage continues to
Speaker 2: grow in markets where people just want to have dollar exposure,
Speaker 2: so you're you know, you're obvious examples Argentina as your Venezuela's.
Speaker 2: And let's say people are using the popular public blockchains
Speaker 2: to exchange them, whether it's Ethereum, Solana, et cetera. There
Speaker 2: are people who are bullish on those changes the tokens
Speaker 2: of those chains, because people are gonna listen to the
Speaker 2: Austin Campbell scenario where this is a lot of real
Speaker 2: dollars are being traded or exchanged over these chains. In
Speaker 2: your in your view, does much value who does the
Speaker 2: value accru to? Does there accrue much value to the
Speaker 2: tokenholders of these chains?
Speaker 4: I'm not certain that it does. Again, this sort of
Speaker 4: comes back to crypto sort of reinventing things in finance
Speaker 4: and everybody talking past each other. Right, if you're an
Speaker 4: extremely high through put chain, but you charge extremely low
Speaker 4: fees for that high through put, it's not like a Solana.
Speaker 4: Like a Solana, it's not clear to me that value
Speaker 4: will accrue in a deep way to the Salana holders.
Speaker 4: It's also not clear to me that it won't. But
Speaker 4: I would say that is an area where many things
Speaker 4: are simply accepted as given in the crypto space, and
Speaker 4: I often have questions about them, which is not to
Speaker 4: say right skeptic in the sense of like it'll never work,
Speaker 4: but I'm I would say skeptical in the sense of
Speaker 4: I genuinely don't know, Like I have a lot of questions.
Speaker 3: Could we ever have a situation where the use of
Speaker 3: stable coins grows so enormously that at some point the
Speaker 3: banks are like, actually, we're going to get in on
Speaker 3: this cold Could they, in theory, like flip a switch
Speaker 3: and come up with a stable coin competitor or immediately
Speaker 3: convert to like atomic settle or instantaneous settlement or something
Speaker 3: like that, Or would that just be impossible, either because
Speaker 3: of their technological systems or because of regulations around remittances
Speaker 3: and things like that.
Speaker 4: So I think the current biggest problem is the legal
Speaker 4: structure and balance sheet of banks, right, which is to say,
Speaker 4: stable coins are trying to be this thing that everybody
Speaker 4: can transfer between everybody, and the reserves over time have
Speaker 4: trended towards being incredibly simplistic and call it mutually acceptable
Speaker 4: to everybody. That's not typically true of bank balance sheets right.
Speaker 4: Problem number one, bank deposits are not fungible. You would
Speaker 4: feel very differently last year owning a deposit at say
Speaker 4: Bank of America versus Silicon Valley Bank. These will not
Speaker 4: be priced identically and two banks moving money around between them.
Speaker 4: Back to our earlier example, if they actually have to
Speaker 4: net settle, are like deinvesting out of things and then
Speaker 4: reinvesting in other things. This is not really the same
Speaker 4: as moving a token around. So to answer that question,
Speaker 4: I think there's not a reason banks can't do it
Speaker 4: in theory, but it would require a pretty radical transformation
Speaker 4: of bank balance sheets. Like if all the banks set
Speaker 4: up call it bankruptcy remote trusts that represent a stable
Speaker 4: coin where they're just doing t bills, Yeah, this will
Speaker 4: work fine. Those will all largely be fungible, but right
Speaker 4: now with bank balance sheets unlikely.
Speaker 2: So basically, if JP Morgan and Bank of America, they're
Speaker 2: probably their asset book probably looks somewhat similar, but they're
Speaker 2: not identical. And therefore a transfer of value from a
Speaker 2: dollar of a JP Morgan deposit holder to a Bank
Speaker 2: of America means some reshuffling of the assets or the
Speaker 2: loans that they've made and they're not perfectly identical, and
Speaker 2: then this creates friction.
Speaker 4: And I would say importantly, the degree of difference between
Speaker 4: those things is going to be much larger than if
Speaker 4: we go look at like fidelities government money market fund
Speaker 4: versus Vanguard's government money market fund, which may not be
Speaker 4: perfectly identical but will be way closer.
Speaker 2: There is this toggers like, just treat these as money
Speaker 2: market funds. If your a stable coin issuer, your money
Speaker 2: market fund and all the obligations that they that a
Speaker 2: money market mutual fund has, that's your obligation. Does that work?
Speaker 2: Like what are the differences? Why or why not?
Speaker 4: Yeah, So that's a very like us peculiarity problem of
Speaker 4: it's really hard to pay for things with securities. So
Speaker 4: my question would be what do you mean by money
Speaker 4: market fund? If you mean we can put it in
Speaker 4: like a bank or a trust wrapper and own assets
Speaker 4: that look substantially similar to a government money market fund,
Speaker 4: I would tell you that's basically what mckenry waters does.
Speaker 4: So I think that works fine. If you want to
Speaker 4: say no, you le like literally need to be issued
Speaker 4: as a security and handled in that way, then no,
Speaker 4: that creates a whole host of other problems that will
Speaker 4: break things for payments.
Speaker 3: So here we are in early twenty twenty four. We're
Speaker 3: talking about stable coins, which a lot of people thought
Speaker 3: might go away at some point or there would be
Speaker 3: some sort of volatility event that would lead everyone to
Speaker 3: question whether or not these are a legitimate store of value,
Speaker 3: And instead they're still here. They've been pretty stable. What's
Speaker 3: next in the sort of stable coin either discourse or trajectory.
Speaker 4: So I think what we're starting to see right now
Speaker 4: is a growing realization among some of the regulators, mostly
Speaker 4: in Asia, who have looked most closely at crypto, that
Speaker 4: wait a minute, using these things properly is a way
Speaker 4: to fix some of our lingering problems from two thousand
Speaker 4: and eight, right, And then probably a increasing merging of
Speaker 4: call it crypto native stable coin thinking with traditional financial
Speaker 4: thinking into something that one hopes will get you the
Speaker 4: best of And those two problems you referenced one earlier
Speaker 4: are atomic settlement, right, which is to say, the ability
Speaker 4: to pay for something completely perfectly simultaneously on chain using
Speaker 4: a smart contract so that I don't have counterparty credit
Speaker 4: risk in my trades. That is actually a pretty big
Speaker 4: upgrade to the current system if we can get that
Speaker 4: done and then simultaneously having these very bankruptcy stable vehicles
Speaker 4: that can be held in self custody, because what that
Speaker 4: does is eliminates a lot of the run risk of
Speaker 4: the large banks and the systemicness there. Right like in
Speaker 4: two thousand and eight, if you owned USDC in its
Speaker 4: current form, which is basically a government money market fund
Speaker 4: under the hood, nobody's running that thing, nobody's panicking. They're
Speaker 4: all just sitting around looking marginally bored, instead of having
Speaker 4: a giant run on bank deposits. And so I think
Speaker 4: a system that starts embracing those things and then being
Speaker 4: able to move them around easily across borders both eliminates
Speaker 4: a huge amount of frictions and simultaneously reduces a lot
Speaker 4: of risk that's left from O eight.
Speaker 2: Tracy mentioned the prospect of a JPM stable coin or
Speaker 2: something like that. I believe, like has jp Morgan like,
Speaker 2: have they built their own like sort of e EVM
Speaker 2: compatible chain.
Speaker 4: So JPM has a project called Onyx and a thing
Speaker 4: called jpm coin, and back to using it for financial purposes.
Speaker 4: Now you have a twenty four to seven plat form
Speaker 4: that can do atomic settlement largely of things like repo,
Speaker 4: and you can do them outside of regular market hours.
Speaker 4: So yeah, these are very real.
Speaker 2: So is there any reason why a platform like onyx
Speaker 2: couldn't just be the chain that everyone around the world
Speaker 2: uses to transfer stable claims.
Speaker 4: Well, let me ask you a different question to reveal
Speaker 4: the problem with that question, which is, if you were
Speaker 4: the CEO of Goldman Sachs, would you use a trading
Speaker 4: and settlement platform unilaterally controlled by JP Morgan you get.
Speaker 2: A little consortium together, like, get six or seven banks
Speaker 2: to do.
Speaker 4: It, correct, So now you're leading down the path to
Speaker 4: like DTCC. So like, let's take this actually a few
Speaker 4: steps forward. If you get a large consortium of I
Speaker 4: would suggest in the US, this will not work with
Speaker 4: just banks. So let's say bank's asset managers and maybe
Speaker 4: insurance companies. Okay, that would probably work inside the US,
Speaker 4: But then you're going to have the problem of how
Speaker 4: do we get Europe to use it? How do we
Speaker 4: get Asia to use it? Okay, So now you're incorporating
Speaker 4: those entities as well. So if you're telling me the
Speaker 4: I'm gonna say public here in a very loose way
Speaker 4: blockchain of the future that everybody is using is a
Speaker 4: consortium of call it the five hundred largest financial entities
Speaker 4: globally that actually seems viable to me, Like that is
Speaker 4: decentralized in a slightly different way. I don't think anonymous
Speaker 4: public validators are necessarily the perfect answer. And by the way,
Speaker 4: even if you look at current technology, like if you're
Speaker 4: familiar with the Stellar blockchain, they have a fully doxed
Speaker 4: validator set and what I just described is essentially how
Speaker 4: they want it to work. So I do think in
Speaker 4: the future, more institutional if you will, chains could be
Speaker 4: the answer. I'm not like an ETHMAXI on that, but
Speaker 4: I do think they need to be neutral enough that
Speaker 4: everybody trusts them.
Speaker 3: I have another question just on why others aren't doing this.
Speaker 3: We've been talking about the banks, and you laid out
Speaker 3: a very clear argument why banks might be reticent to
Speaker 3: create their own stable coins, including that it would involve
Speaker 3: possibly rejigging the way their balance sheets are structured or
Speaker 3: creating some sort of shared balance sheet, which okay, obviously
Speaker 3: banks don't want to do it. What about other financial
Speaker 3: intermediaries like a PayPal? Is this something they would ostensibly
Speaker 3: be interested in, and could they create their own.
Speaker 4: Competitor, Well, I mean I built the back end for
Speaker 4: PayPal stable corner. The answer there is, oh, yeah, they're
Speaker 4: very interested. I would say as you look at the
Speaker 4: groups who are threatened by this, banks and payments companies
Speaker 4: are probably the most exposed to the technological change, and
Speaker 4: the majority of them are currently paralyzed by a combination
Speaker 4: of the innovator's dilemma and regulation. Whoever moves first there
Speaker 4: and gets this right is probably your leader in the
Speaker 4: next generation of how these things are going to work.
Speaker 4: So to your point, you'd much rather cannibalize yourself than
Speaker 4: have other people cannibalize you. And there are very much
Speaker 4: people at like PayPal, Visa and others who are thinking
Speaker 4: about this exact problem and building things right now. I
Speaker 4: would also say the other big thrust is the asset managers,
Speaker 4: because they're the ones probably with the biggest incentive to
Speaker 4: dis intermediate the banks. I would say black rocks interest
Speaker 4: in blockchain is not a coincidence economically, going.
Speaker 2: Back to the countries or the regimes in which someone
Speaker 2: might want to hold dollar denominated assets and let's bracket
Speaker 2: out the Afghanistans or the world, which is an extreme scenario,
Speaker 2: but the places that just do not have stable domestic currencies,
Speaker 2: et cetera. Can they presumably don't want all of their
Speaker 2: domestic savers to like hold hold dollars, right, They presumably
Speaker 2: don't want people swapping their money into dollars as soon
Speaker 2: as they can. Do they have mechanisms of pushing back
Speaker 2: against this? Does an Argentinian government like I, you know,
Speaker 2: anyone can download and eth wallet onto their phone, get
Speaker 2: transferred onto it, et cetera. Do they at some point?
Speaker 2: Does it scare them? And do they have ways of
Speaker 2: pushing back against their domestic savers automatically being able to
Speaker 2: hold dollars?
Speaker 4: So one, it one hundred percent scares them. If you
Speaker 4: look at what's going on in Nigel area right now
Speaker 4: and them taking like executives from Binance hostage literally like
Speaker 4: this as part of the driver. So I would say
Speaker 4: to you there's two things you need to think about there.
Speaker 4: One is do they have ways to stop them that
Speaker 4: involve coercive measures? Yes, but they have to be extreme.
Speaker 4: Like again, to go back to having run a stable coin,
Speaker 4: the only country where we were totally certain nobody owned
Speaker 4: a stable coin was North Korea, right, And the answer
Speaker 4: is you have to take the Internet away from your
Speaker 4: people right to be able to totally stop it, so
Speaker 4: there will always be some degree of leakage. Now you
Speaker 4: can get more and more coercive and abuse human rights
Speaker 4: more and more to try to turn it down, but
Speaker 4: that's gonna have other negative effects on your economy that
Speaker 4: go hand in hand with that. The other part, which
Speaker 4: I would call the positive case, is you know you
Speaker 4: could just run your currency better and cut it with
Speaker 4: the inflation. Right If you look at places like Switzerland
Speaker 4: and Singapore, they're not seeing massive outflows into dollars out
Speaker 4: of their local currency because people trust the local currency
Speaker 4: in many ways. If you give people the option but
Speaker 4: not the requirement, to substitute into dollars, it's going to
Speaker 4: If people want their local currencies to survive, have to
Speaker 4: raise the level of behavior so that you're at least
Speaker 4: close to the dollar, or you are eventually going to
Speaker 4: get wiped out.
Speaker 3: Conversely, asking the same question from the other side, is
Speaker 3: there a reason that the US should be concerned about this?
Speaker 3: I mean, we are kind of talking about a shadow
Speaker 3: dollar system. There is this ongoing discussion about the pros
Speaker 3: and cons of the dollar being the reserve asset to
Speaker 3: the US economy. Is there a reason that people in
Speaker 3: America or policy makers in America should be concerned about.
Speaker 4: This, Well, I would say from a policy makers standpoint,
Speaker 4: my biggest concerns would be two, which is, one, we
Speaker 4: restrict these things so much that something other than the
Speaker 4: dollar becomes the dominant currency on a blockchain, because if
Speaker 4: this process essentially continues to run of people getting access
Speaker 4: to other financial systems but they prefer like the euro
Speaker 4: or the yen or something like that, that could have
Speaker 4: a major impact on dollar dominance. And whether you think
Speaker 4: the dollars should be the reserve currency or not, I
Speaker 4: would hope everybody is an agreement that a call it
Speaker 4: unpredictable sort of technology driven catastrophic onwind of that system
Speaker 4: is probably bad for everybody. Two, there are a lot
Speaker 4: of national security implications to dollar stable coins working properly.
Speaker 4: Back to what I just said about public blockchains. If
Speaker 4: you have all of the KYC information and you know
Speaker 4: where the reserves are, you are in very good shape
Speaker 4: to interdict bad actors and retain some degree of control
Speaker 4: over a system. If everything moves off shore in a
Speaker 4: way that you have no access to it, things are
Speaker 4: worse instead. So I think we have a real fork
Speaker 4: in the road here of being able to call it
Speaker 4: enforced dollar norms in a more effective, targeted and quite
Speaker 4: frankly transparent way, or having that breakdown even further, and
Speaker 4: that is based on getting US dollar coins on shore,
Speaker 4: structured properly and in a way where we can interact
Speaker 4: with them easily.
Speaker 2: Norms is a really good phrase. I might use that
Speaker 2: at some point in the future. All Right, I just
Speaker 2: have one last question. You know, you mentioned that sort
Speaker 2: of like circle due to its own I don't know,
Speaker 2: maybe misunderstanding aspects of the traditional financial system did not
Speaker 2: have particularly good risk management, and they had some money
Speaker 2: in SVB, and for a while they had a pretty
Speaker 2: significant DEPEG, but then SVB got built out and it
Speaker 2: was fine. What are the when you talk to crypto people,
Speaker 2: what are their sort of frequent misunderstandings? And I again,
Speaker 2: I imagine we could go hours and hours with a series
Speaker 2: of things crypto people don't get about the financial system.
Speaker 2: But what are the consistent patterns that you see failure
Speaker 2: patterns in people in crypto not getting some aspect of
Speaker 2: trad five.
Speaker 4: Yeah, so I would say there's a couple of big themes.
Speaker 4: One of the biggest is sort of extrapolating from personal finance,
Speaker 4: which is a big problem in finance in general. Like
Speaker 4: the way you or local bank account works for five
Speaker 4: thousand dollars is not the way that like Ford's balance
Speaker 4: sheet works, and that is a big problem because when
Speaker 4: you have people being like, well, I own USDC, won't
Speaker 4: the FDIC protect the deposits at SVB. It's like they
Speaker 4: have three point three billion of deposits and two hundred
Speaker 4: and fifty thousand dollars of FDIC coverage. I don't like
Speaker 4: your odds, and very basic misunderstandings like that happen frequently.
Speaker 4: Number two is this thing that happens a lot with
Speaker 4: tech where when you look at Silicon Valley companies, right,
Speaker 4: the tech people drive it, the product people drive it.
Speaker 4: They are the rock stars, and the finance people are
Speaker 4: kind of in a broom closet in the back room
Speaker 4: and not even in the decision loops. So a lot
Speaker 4: of its information accessibility, like there may have been people
Speaker 4: who knew this, but nobody was talking to them or
Speaker 4: taking them seriously. It's kind of the reverse of what
Speaker 4: a lot of banks do, where they don't spend enough
Speaker 4: time on the tech and let the investment bankers drive
Speaker 4: everything right. So there's a cultural problem there in crypto.
Speaker 4: And then the third part is you have a lot
Speaker 4: of people who have these ideological stances on I want
Speaker 4: hard money, I want to reinvent the system, we shouldn't
Speaker 4: have leverage or credit at all, without understanding the implications
Speaker 4: of what they're saying. And I often, like I've had
Speaker 4: this discussion with students in my class, if you guys
Speaker 4: want to go back to a system where there's no lending,
Speaker 4: everything is hard money and it's just do you have
Speaker 4: it or not. We've had that before. It's basically like
Speaker 4: European feudalism, Like why would you want to go back there?
Speaker 4: So there's very core misunderstandings of how the monetary system
Speaker 4: works that I would say are a subset, but unfortunately
Speaker 4: still a significant subset of people in crypto.
Speaker 2: Austin Campbell, thank you so much for coming on outlast.
Speaker 2: That was great, Tracy. I really enjoyed that conversation. It
Speaker 2: was just, you know, zoom a someone, So it was
Speaker 2: nxe to talk to someone who genuinely seems grounded in
Speaker 2: multi yeah, which is extremely rare. Frankly, honestly, in any perspective,
Speaker 2: most people have a worldview that's extremely skewed to one.
Speaker 3: Well, it was very impressive when I asked about PayPal
Speaker 3: and he's like, I got the back end. Okay, you
Speaker 3: know what I remembered while we were you asked that
Speaker 3: question about JP Morgan and eth and I remembered in
Speaker 3: twenty thirteen finding a patent application for JP Morgan to do.
Speaker 3: At the time, it was described by me as a
Speaker 3: bitcoin like online payment system, but it was basically like
Speaker 3: on chain payments. And it's so funny reading this. I
Speaker 3: just dug it up and I was reading it, and
Speaker 3: there's a line like traditional finance companies have had to
Speaker 3: contend with new types of virtual currencies, which some people
Speaker 3: view as viable alternative payment systems that could one day
Speaker 3: challenge the biggest banks and credit cards. That was twenty thirteen,
Speaker 3: and it's funny how much has changed, but also how
Speaker 3: the conversation is still very similar totally.
Speaker 4: You know.
Speaker 2: It's so like I think Austin made a very good
Speaker 2: case that there are some very deep institutional headwinds so
Speaker 2: to speak, with banks going fully crypto, either launching their
Speaker 2: own stable coins, or launching their own their own EVM
Speaker 2: compatible chains, et cetera. That being said, you know, it's
Speaker 2: hard for me to imagine the banks just sort of
Speaker 2: sitting idly by, particularly in the scenario in which and
Speaker 2: Austin is sort of seemed to be sort of agnostic
Speaker 2: on this question. If it turns out that a lot
Speaker 2: of value is accruing to the holders of eth tokens
Speaker 2: or the holders of Solana tokens, or the holders of
Speaker 2: tron tokens or whatever chain people are exchanging stable coins on,
Speaker 2: I doubt they're gonna like sort of sit idly by
Speaker 2: and just sort of let those let them, and we're
Speaker 2: it's like, oh, we're just we're just the custodian that
Speaker 2: holds the dollars while everyone else makes the money on
Speaker 2: the payments.
Speaker 3: Well, on the other hand, I mean, if the price
Speaker 3: of developing or if the cost of developing your own
Speaker 3: stable coin is that you have to, as Austin said,
Speaker 3: radically reimagine your balance sheet and also cooperate in some
Speaker 3: ways with other banks, which banks don't tend to be
Speaker 3: very good at cooperating with each other. Like maybe the
Speaker 3: business play is just become the custodian for those assets
Speaker 3: and make money that way.
Speaker 2: Yeah, it could be. It's also we didn't really bring
Speaker 2: it up in this conversation, like especially in the last
Speaker 2: couple of years. I mean, the stable coin business like
Speaker 2: the best business coin, the best, the best business in
Speaker 2: the entire world, because you you're getting all this yield
Speaker 2: on your t bill, holdings, et cetera. And for the
Speaker 2: most part, none of them. I think there are some
Speaker 2: like theoretically yielding stable coins, but for the most part
Speaker 2: they're just keeping all that yield and the end owner,
Speaker 2: you know. So it's like, do not use these as
Speaker 2: a money market mutual fund because those who are giving
Speaker 2: up they're giving up the yield.
Speaker 4: Yeah.
Speaker 3: But still a fascinating conversation. And we'll have to keep
Speaker 3: track of coins again. Yeah, yeah, because it's been a while,
Speaker 3: hasn't it all right? Shall we leave it there?
Speaker 2: Let's leave it there.
Speaker 3: This has been another episode of the Authoughts podcast. I'm
Speaker 3: Tracy Alloway. You can follow me at Tracy Alloway.
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