WEBVTT - The Booming Crypto Use Case That's Happening Right Now 0:00:03.120 --> 0:00:18.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:21.120 --> 0:00:25.040 Hello and welcome to another episode of the Odd Lots podcast. 0:00:25.120 --> 0:00:26.880 I'm Joe Wisenthal. 0:00:26.480 --> 0:00:27.560 And I'm Tracy Alloway. 0:00:27.920 --> 0:00:31.720 Tracy, we're recording this August sixth. The coins have been falling, 0:00:32.360 --> 0:00:33.000 the cryptos. 0:00:33.479 --> 0:00:36.479 That's right, the coins have been falling. Let's see, I'm 0:00:36.479 --> 0:00:40.160 bringing up bitcoin right now. Let's see, it's down from 0:00:40.640 --> 0:00:43.880 a little over seventy two thousand and it is now 0:00:44.040 --> 0:00:49.600 down to fifty six thousand, So fun times in crypto land. 0:00:49.920 --> 0:00:52.560 There's sort of two things. We have not done many 0:00:52.640 --> 0:00:55.480 crypto episodes. I think we did one. We did it 0:00:55.520 --> 0:00:57.080 one a couple months ago with a member of the 0:00:57.080 --> 0:01:00.840 Oudlaws discord talking about trading. I think that's really stood 0:01:00.840 --> 0:01:03.600 out to me about this really is like since twenty 0:01:03.640 --> 0:01:06.000 twenty two is I have to say I've found it 0:01:06.080 --> 0:01:08.880 kind of boring. And the reason I've found it boring 0:01:09.000 --> 0:01:12.200 is like, sure, the price has gone up from the lows, 0:01:12.240 --> 0:01:16.200 and that's always exciting, but unlike even twenty twenty one, 0:01:16.319 --> 0:01:18.840 twenty twenty two, when people are like talk about DeFi 0:01:18.880 --> 0:01:21.680 and Web three and stuff, I just feel like there 0:01:21.720 --> 0:01:24.520 hasn't been much new or exciting, like sort of narrative 0:01:24.560 --> 0:01:27.200 wise within crypto and so like there's not even like 0:01:27.240 --> 0:01:28.560 a thing to shoot down right now. 0:01:28.600 --> 0:01:30.520 No, I actually, well I agree that none of the 0:01:30.600 --> 0:01:36.119 narratives have been very interesting. However, the thing about bitcoin 0:01:36.280 --> 0:01:41.080 especially is the narratives always keep coming, and that's kind 0:01:41.080 --> 0:01:43.440 of the thing that I find fascinating about it. So 0:01:44.040 --> 0:01:47.080 let's see last year when you had the banking drama, 0:01:47.480 --> 0:01:50.960 people were pitching bitcoin and some other things as like 0:01:52.200 --> 0:01:55.880 safe haven from the financial system, and then fast forward 0:01:55.880 --> 0:01:59.400 to late last year, suddenly they are the beneficiaries of 0:01:59.440 --> 0:02:03.680 the financial system because everyone's excited about the ETF's coming 0:02:03.720 --> 0:02:06.600 on stream and you know, black Rock is going to 0:02:06.640 --> 0:02:09.560 buy bitcoin and all that stuff. And then fast forward 0:02:09.560 --> 0:02:12.399 to this year and it's like a Trump thing. 0:02:12.520 --> 0:02:13.200 Now, oh yeah, right. 0:02:14.280 --> 0:02:18.480 It's so it's so funny how much the narratives shift 0:02:18.639 --> 0:02:21.359 and are often very much at odds with each other. 0:02:21.560 --> 0:02:25.320 But the reason that can happen is because some people 0:02:25.480 --> 0:02:27.959 might argue that, like bitcoin is kind of this weird 0:02:28.000 --> 0:02:32.000 post modern thing. Yeah, it's just a token, Like it's 0:02:32.320 --> 0:02:35.240 just a symbol, and people aren't really using it for 0:02:35.280 --> 0:02:36.400 anything other than betting. 0:02:37.040 --> 0:02:40.320 You know what cryptocurrency actually has retained a real store 0:02:40.320 --> 0:02:44.160 of value property. Tell me Tether, I'm looking at it 0:02:44.160 --> 0:02:46.040 on the screen. It's a dollar right now and it's 0:02:46.080 --> 0:02:49.840 been a dollar forever, so you know, in circle, USDC 0:02:50.160 --> 0:02:54.119 also very big. The big stable coins have so far 0:02:54.360 --> 0:02:56.080 proven to infect be stable. 0:02:56.639 --> 0:02:59.880 Some caveats there, I mean, we still remember twenty twenty one, 0:03:00.120 --> 0:03:03.880 in early twenty twenty two when there was some discrepancy there. 0:03:03.919 --> 0:03:07.960 But yes, okay, stable coins buy and large have remained stable. 0:03:08.080 --> 0:03:10.160 And I do think you know, one of the you know, 0:03:10.320 --> 0:03:14.480 as you mentioned, narratives in crypto are always shape shifting, 0:03:14.639 --> 0:03:18.120 always evolving, but one of them has been this idea 0:03:18.240 --> 0:03:22.520 that stable coins. Specifically Nick Carter, who we've had on 0:03:22.560 --> 0:03:24.560 the show in the past, has been pushing this a lot, 0:03:24.639 --> 0:03:27.680 which is this idea that like stable coins and the 0:03:27.720 --> 0:03:31.760 ability to transact dollar denominated assets anywhere you want, that'll 0:03:31.760 --> 0:03:34.320 be the killer app of crypto. And to me, it's 0:03:34.360 --> 0:03:37.040 like I'm always like a little unsatisfied by it because 0:03:37.040 --> 0:03:38.960 it's like, well, you're still. 0:03:38.680 --> 0:03:42.000 Like Benmo exists, the name Pal exists. 0:03:41.920 --> 0:03:44.760 And you're then also those dollars at the stable coins, 0:03:44.800 --> 0:03:48.800 at least the centralized ones like Tether, like USDC, they're 0:03:48.800 --> 0:03:51.600 in a bank somewhere, right, So you're still relying on 0:03:51.880 --> 0:03:55.760 existing legacy financial market infrastructure. And if your whole point 0:03:55.840 --> 0:03:58.400 is to get away from that, then isn't it kind 0:03:58.440 --> 0:04:02.320 of like cheating to say crypto. Crypto's killer app is 0:04:02.400 --> 0:04:04.680 going to be dollars that you hold in a regulated bank. 0:04:04.760 --> 0:04:07.640 Yeah, dollars that are like backed by t bills. Yes, 0:04:07.760 --> 0:04:10.200 that's right, are the big innovation here? Okay, Well, I 0:04:10.240 --> 0:04:12.080 think we should get into this because, as you say, 0:04:12.160 --> 0:04:16.120 stable coins, they're still around, contrary to what a lot 0:04:16.200 --> 0:04:20.599 of people were expecting, especially with something like Tether, which 0:04:20.640 --> 0:04:24.280 has just behaved very weirdly over the years, and there 0:04:24.320 --> 0:04:26.800 are a lot of questions there about what exactly is 0:04:26.880 --> 0:04:30.200 backing their stable coin. But you're right, still kind of stable. 0:04:30.480 --> 0:04:33.680 People are using them, some people, so we should talk 0:04:33.720 --> 0:04:34.080 about it. 0:04:34.160 --> 0:04:36.880 And there's one other reason to talk about stable coins, 0:04:36.960 --> 0:04:39.719 which is I think there's this view that if crypto 0:04:39.800 --> 0:04:43.479 were to ever pose a systemic risk to the actual 0:04:43.520 --> 0:04:47.000 financial system, it's not going to be bitcoin volatility. It's 0:04:47.040 --> 0:04:49.240 the lesson that we all learned in two thousand and 0:04:49.240 --> 0:04:51.560 eight two thousand and nine, which is that systemic risk 0:04:51.920 --> 0:04:55.880 comes from the assets that you don't presume to be volatile, right, 0:04:56.080 --> 0:04:59.080 and so this is a reason why legislation exists about 0:04:59.120 --> 0:05:02.120 regulating should they just be regulated like money market mutual funds, 0:05:02.160 --> 0:05:05.719 things like this question, because we know that you really 0:05:05.800 --> 0:05:08.440 get into trouble when assets that are supposed to be 0:05:08.560 --> 0:05:12.400 dollar good or triple A or whatever don't behave as such. 0:05:12.760 --> 0:05:14.120 And so if there's ever going to be a time 0:05:14.160 --> 0:05:16.719 where there's gonna be a link between the real economy 0:05:16.720 --> 0:05:19.080 of the real financial system and crypto, would probably be 0:05:19.120 --> 0:05:20.120 something with stable coins. 0:05:20.240 --> 0:05:21.600 Yeah, let's get into it, all right. 0:05:21.600 --> 0:05:24.360 Well, I'm really excited. We do have the perfect guests, 0:05:24.400 --> 0:05:27.240 someone who's been out working in this area for a while, 0:05:27.520 --> 0:05:31.320 someone who knows both sides of both fis sort of 0:05:31.400 --> 0:05:35.000 trad FI and crypto, who's worked in both worlds, who's 0:05:35.120 --> 0:05:38.720 very interested in the stable coin world. Done a lot 0:05:38.760 --> 0:05:40.919 on that. We're going to be speaking with Austin Campbell. 0:05:40.960 --> 0:05:43.719 He is an adjunct professor at Columbia Business School. He 0:05:43.800 --> 0:05:46.920 is the founder and managing partner of Zero Knowledge Consulting, 0:05:47.279 --> 0:05:50.760 and he has previously done stints at City, JP Morgan 0:05:50.880 --> 0:05:54.240 and stone Ridge. So he really does know both worlds 0:05:54.400 --> 0:05:57.159 really well, which is where stable coins sit neatly in 0:05:57.279 --> 0:06:00.240 both worlds. So, Austin, thank you so much for on 0:06:00.279 --> 0:06:00.799 odd lots. 0:06:01.000 --> 0:06:02.880 Yeah, thank you for having me excited to be here. 0:06:02.960 --> 0:06:06.280 You've been in both worlds. You have zero knowledge consulting 0:06:06.680 --> 0:06:10.719 crypto stuff. You've been at legacy finance, having traded a 0:06:10.800 --> 0:06:14.080 city a JP Morgan done tech stuff there. What interests 0:06:14.160 --> 0:06:17.239 you about crypto? Why is this even an interesting topic 0:06:17.279 --> 0:06:18.480 that we should be talking about. 0:06:18.720 --> 0:06:20.760 Well, as I've joked with some of my other friends, 0:06:21.320 --> 0:06:23.560 I kind of had crypto come to me as opposed 0:06:23.600 --> 0:06:26.240 to most people who themselves went to crypto. So back 0:06:26.240 --> 0:06:28.680 in the day at JP Morgan, I ran a trading 0:06:28.720 --> 0:06:31.599 desk called stable value products. And stop me if you've 0:06:31.600 --> 0:06:34.719 heard this story before, But that was stuff where you 0:06:34.760 --> 0:06:37.960 were having a large pile of highly diversified bonds that 0:06:38.000 --> 0:06:40.640 were supposed to largely be safe with some guarantees on 0:06:40.680 --> 0:06:42.640 top of them, and people were supposed to be able 0:06:42.640 --> 0:06:46.800 to transact in and out at a fixed stable value. Well, 0:06:46.839 --> 0:06:48.720 this sounds a lot like a stable coin, only no, 0:06:48.839 --> 0:06:50.960 I'm talking about a trillion dollars of stuff in four 0:06:51.000 --> 0:06:53.560 oh when k markets largely in the United States. So 0:06:54.200 --> 0:06:57.600 I found these interesting because it's sort of crypto encroaching 0:06:57.640 --> 0:07:01.800 into a very tradfi space and being totally honest, probably 0:07:01.880 --> 0:07:04.160 largely misunderstanding it for a long time. 0:07:04.240 --> 0:07:06.520 Crypto came to me too. It is also something that's 0:07:06.560 --> 0:07:08.240 been inflicted on me throughout the years. 0:07:08.279 --> 0:07:08.719 Inflicted. 0:07:09.160 --> 0:07:12.280 Okay, But on that note, remind me when we talk 0:07:12.280 --> 0:07:15.680 about stable coins, what exactly are we talking about here? 0:07:15.880 --> 0:07:20.000 How do they differ from some other cryptocurrency or token, 0:07:20.160 --> 0:07:24.920 and crucially, how do they differ from me having a 0:07:25.200 --> 0:07:28.760 digital deposit line a number that appears in my account 0:07:29.040 --> 0:07:31.680 and then hitting the send button and sending money to 0:07:31.840 --> 0:07:32.840 someone else's account. 0:07:33.680 --> 0:07:36.320 Yeah, So the answer is they are both similar to 0:07:36.360 --> 0:07:39.120 that and different to some very important ways. So I'll 0:07:39.160 --> 0:07:42.560 start with answering your literal question, which is what we 0:07:42.680 --> 0:07:45.880 mean when we say stable coin and crypto is unfortunately 0:07:46.080 --> 0:07:48.600 like a horrible variety of things, many of which have 0:07:48.720 --> 0:07:51.320 not proven to be stable over time. So I would 0:07:51.320 --> 0:07:53.920 tell people you're talking about everything from things that look 0:07:54.000 --> 0:07:57.480 like money market funds and maybe bank deposits probably stable 0:07:57.920 --> 0:08:00.000 all the way to things that look like self reference 0:08:00.360 --> 0:08:04.200 equity sorts of structures like structured nodes, derivatives. That was 0:08:04.320 --> 0:08:07.840 like the algorithmic stable coin from Terraform Labs, which it 0:08:07.920 --> 0:08:10.080 was a coin, but definitely not so much on the 0:08:10.080 --> 0:08:12.880 stable part. I would say, what's important about them and 0:08:12.920 --> 0:08:15.720 where they differ to your question from a traditional bank 0:08:15.760 --> 0:08:19.200 account is you kind of have this bifurcation of where 0:08:19.240 --> 0:08:22.080 the money rests and is invested and where the token 0:08:22.120 --> 0:08:25.200 can move around to. Because the big contrast by putting 0:08:25.200 --> 0:08:27.320 them on a blockchain is if I have a bank 0:08:27.360 --> 0:08:30.200 account at say JP Morgan, and I want to send 0:08:30.240 --> 0:08:33.679 money to somebody at Bank of America. Simplifying away a 0:08:33.720 --> 0:08:36.240 lot of the details here, JP Morgan has to essentially 0:08:36.280 --> 0:08:38.800 take money out of their accounts whatever they were invested 0:08:38.840 --> 0:08:40.320 and send it over to b of A, who's going 0:08:40.400 --> 0:08:43.480 to reinvest it. In token world, with a stable coin, 0:08:43.559 --> 0:08:45.679 it just sort of sits at rest being invested the 0:08:45.720 --> 0:08:49.360 whole time, and the token represents an ownership interest in 0:08:49.440 --> 0:08:51.720 that moves around on a blockchain, which is also a 0:08:51.800 --> 0:08:56.080 very open access platform. It really is in many ways 0:08:56.200 --> 0:08:58.920 a bifurcation of rights that were not possible in the 0:08:58.960 --> 0:09:01.960 traditional system and changes how you can move money around 0:09:02.000 --> 0:09:03.040 it at what velocity. 0:09:03.440 --> 0:09:07.480 Oh I see, So if you have a bank transaction, 0:09:07.640 --> 0:09:10.960 if you're moving money, then there's sort of two separate 0:09:11.000 --> 0:09:14.839 things happening. So you're transferring the information about the money 0:09:14.880 --> 0:09:18.960 and the instruction and then the value, whereas with the 0:09:19.000 --> 0:09:22.200 token you can kind of transfer both at the same time. 0:09:22.280 --> 0:09:24.880 So the instruction, the information plus the value. 0:09:25.440 --> 0:09:27.840 Yeah, it would be as if So if we're all 0:09:27.880 --> 0:09:30.960 trading around tether on a blockchain, to use the previous 0:09:31.000 --> 0:09:34.800 example that was raised, that is almost as if everybody, 0:09:35.000 --> 0:09:38.480 like everybody banks at JP Morgan, right, so that everything 0:09:38.520 --> 0:09:40.640 is just an internal ledger transfer there. 0:09:40.600 --> 0:09:45.760 Got it like instantaneous intra bank transfer. So for instance, 0:09:45.800 --> 0:09:47.920 if you're with JP Morgan, you can more or less 0:09:47.960 --> 0:09:52.560 instantaneously transfer money into another JP Morgan account, But if 0:09:52.559 --> 0:09:55.520 you're transferring it to like somewhere in Europe, you have 0:09:55.600 --> 0:09:57.520 to provide all these additional instructions. 0:09:57.559 --> 0:09:59.560 It sort of feels to me like if you wanted 0:09:59.559 --> 0:10:02.960 to trans for money to me, rather than transferring the 0:10:03.000 --> 0:10:06.120 money to me, it's like you're transferring the password to 0:10:06.480 --> 0:10:09.000 your account, and so the money does not have to move. 0:10:09.400 --> 0:10:13.839 But now, because of tokenization and blockchains and digital signatures, 0:10:14.200 --> 0:10:16.080 you can transfer the pass if you want to send 0:10:16.080 --> 0:10:19.680 me one hundred dollars worth of coin. Tracy can send 0:10:19.679 --> 0:10:22.440 me a password for one hundred dollars worth of coins, 0:10:22.559 --> 0:10:24.559 and then when I want to spend it, I'm transferring 0:10:24.600 --> 0:10:26.839 that password. Would that be a good way to think 0:10:26.840 --> 0:10:27.240 about it? 0:10:27.440 --> 0:10:31.120 I think that's a good mental simplification. Yes, in many ways, 0:10:31.280 --> 0:10:33.680 Like if we really think about what legally they entitle 0:10:33.720 --> 0:10:36.320 you to. It's just I can go to the stable 0:10:36.360 --> 0:10:39.400 coin issuer and redeem this thing against them to get 0:10:39.480 --> 0:10:42.600 cash back. Right now, I'm just transferring the ability to 0:10:42.600 --> 0:10:44.920 redeem that cash around exactly as you said, kind of 0:10:45.000 --> 0:10:47.120 like a password, or it's like a vault receipt. 0:10:47.280 --> 0:10:49.920 Yeah, like a right, a vault receipt or a key 0:10:50.080 --> 0:10:52.400 or something like that. Of course, they talk about keys 0:10:52.440 --> 0:10:54.960 all the time in crypto, So the big thing when 0:10:54.960 --> 0:10:59.800 people talk about they show these charts of tether volume 0:10:59.840 --> 0:11:03.280 going to the moon or circle and all these lines 0:11:03.320 --> 0:11:08.240 that have generally gone up over time. My first reaction is, yeah, 0:11:08.240 --> 0:11:10.760 I guess that's kind of interesting. But if people are 0:11:10.800 --> 0:11:14.680 just using these coins to trade crypto itself, then it 0:11:14.760 --> 0:11:17.000 still feels very recursive to me. So it's like, oh, 0:11:17.000 --> 0:11:19.440 there is a use case stable coins. But if the 0:11:19.520 --> 0:11:22.720 use case of stable coins is to then do a 0:11:22.960 --> 0:11:25.800 levered long eh trade or a levered long Salona trade 0:11:25.840 --> 0:11:28.959 or whatever it is. Then I don't find that interesting. 0:11:29.000 --> 0:11:31.800 It's only I don't find that that interesting. It's only 0:11:31.920 --> 0:11:35.320 particularly interesting to me if people are using these dollar 0:11:35.480 --> 0:11:38.800 denominated assets for something other than trading crypto. Is that happening. 0:11:39.400 --> 0:11:44.160 So one, yes, post the twenty twenty two crash, we 0:11:44.200 --> 0:11:47.040 saw a very interesting phenomenon. And you reference Nick Carter 0:11:47.080 --> 0:11:48.839 who's been on earlier, and he has some very good 0:11:48.920 --> 0:11:52.800 data about this that's publicly available. But the correlation between 0:11:52.840 --> 0:11:56.480 crypto trading volumes and stable coin settlement volumes has really 0:11:56.480 --> 0:12:00.560 broken down significantly post twenty twenty two, and now there 0:12:00.559 --> 0:12:03.640 appear to be a decent body of people who are 0:12:03.800 --> 0:12:06.600 using stable coins for I will generically wrap it in 0:12:06.640 --> 0:12:10.760 the basket of something else, and that something else mostly 0:12:10.760 --> 0:12:13.160 seems to come in two forms. One is a lot 0:12:13.160 --> 0:12:16.280 of peer to peer transfers of stable coins, so that's 0:12:16.320 --> 0:12:20.520 people probably using it for things like business payments, individual payments, 0:12:20.640 --> 0:12:24.000 like settlement of call it real world activity where one 0:12:24.080 --> 0:12:26.640 leg is in crypto, and the other part that they 0:12:26.679 --> 0:12:29.920 seem to be using it for significantly is just dollar access. 0:12:30.000 --> 0:12:32.640 Because something we take for granted in the United States 0:12:32.640 --> 0:12:35.080 because our banking system, you know, for all our criticisms, 0:12:35.200 --> 0:12:38.400 is pretty good, largely works. It's easy for us to 0:12:38.400 --> 0:12:40.840 get dollars, and more importantly, it's easy for us to 0:12:40.840 --> 0:12:42.880 get dollars in a way that we feel good about 0:12:42.880 --> 0:12:46.640 being safe and secure. But if you live in like Argentina, 0:12:46.679 --> 0:12:48.960 if you live in Venezuela, if you live in like 0:12:49.040 --> 0:12:51.760 Southeast Asia, it can be much harder to get your 0:12:51.800 --> 0:12:54.840 hands on dollars. And this is definitely a tool where 0:12:54.840 --> 0:12:57.119 people are using that. Like when I was at Paxos 0:12:57.640 --> 0:12:59.559 and we were looking at our stable coins there, I 0:12:59.559 --> 0:13:02.040 would ask to make probably ninety five percent of our 0:13:02.040 --> 0:13:05.280 holders were non US persons, and many of them seem 0:13:05.360 --> 0:13:07.280 to just buy the coins and hold them. 0:13:07.400 --> 0:13:08.520 Huh. 0:13:08.600 --> 0:13:11.280 It almost sounds like a shadow dollar system, almost like 0:13:11.320 --> 0:13:15.800 a euro dollars type thing. But where is the dollarness 0:13:16.120 --> 0:13:19.240 of stable coins coming from? So I think in the intro, 0:13:19.480 --> 0:13:22.360 you know, we kind of mentioned the t bills backing 0:13:22.679 --> 0:13:25.680 something like tether. There have been rumors at various points 0:13:25.720 --> 0:13:30.440 in time that there are less safe things perhaps backing tether. 0:13:30.880 --> 0:13:33.720 Talk to us about how that dollarness is achieved. 0:13:34.320 --> 0:13:36.920 Yeah, So that's been done a little bit differently across 0:13:37.040 --> 0:13:40.079 multiple stable coins, which I think leads to the earlier 0:13:40.120 --> 0:13:42.640 point of a need for regulation in this space. So 0:13:42.679 --> 0:13:44.560 we can look at the three big models. The answer 0:13:44.600 --> 0:13:47.720 to Tether is they kind of won't totally tell you. 0:13:48.280 --> 0:13:51.319 They give suggestions about what they're doing, but they very 0:13:51.400 --> 0:13:53.640 much operate in the Swiss bank style of we're going 0:13:53.679 --> 0:13:55.600 to be very private. You just have to trust us. 0:13:55.640 --> 0:13:59.320 We have the money. Now. Recently at Bitcoin Nashville, Howard 0:13:59.360 --> 0:14:02.480 Lutnik from Canter Fitzgerald gave a talk about how they 0:14:02.520 --> 0:14:05.760 manage a significant portion of Tether's reserve. So now we 0:14:05.840 --> 0:14:08.360 know a significant portion of it's probably an overnight reverse 0:14:08.400 --> 0:14:12.000 repo in the United States, likely secured by mostly treasuries. 0:14:12.240 --> 0:14:15.240 That's a good sign, but Tether is unwilling to disclose 0:14:15.280 --> 0:14:17.880 this with specificity or disclose all of their partners. 0:14:18.280 --> 0:14:20.760 They also, you just reminded me, they also referred to 0:14:20.800 --> 0:14:24.160 it once as reverse repo notes, which was really weird 0:14:24.240 --> 0:14:27.440 because that does not exist, and they had it in 0:14:27.520 --> 0:14:30.560 like their financial statements, and everyone in the repo market 0:14:30.640 --> 0:14:33.120 was going, what the heck is a reverse repot note? 0:14:33.280 --> 0:14:37.320 What you are experiencing? I would suggest as crypto people 0:14:37.320 --> 0:14:40.280 attempting to talk about finance, which goes usually about as 0:14:40.280 --> 0:14:42.840 well as finance people attempting to talk about crypto. Yeah, 0:14:42.960 --> 0:14:45.080 the two sides have a long history of talking past 0:14:45.080 --> 0:14:45.480 each other. 0:14:46.280 --> 0:14:48.480 All right, so what are the other models you mentioned Tether? 0:14:48.520 --> 0:14:50.400 What are the other models for holding dollars? 0:14:50.600 --> 0:14:53.800 So Circle's current model is basically, hey, we're largely going 0:14:53.840 --> 0:14:56.600 to outsource this to Blackrock. Right, they have a captive 0:14:56.640 --> 0:14:59.760 fund with Blackrock. Blackrock is actually doing largely overnight reverse 0:14:59.760 --> 0:15:03.480 repe in there, and that is essentially saying this should 0:15:03.520 --> 0:15:06.560 look like some sort of tokenized government money market fund 0:15:06.640 --> 0:15:08.960 type construct. So we're just going to have a professional 0:15:09.000 --> 0:15:12.960 do that. Previously Circle had had some call it misadventures 0:15:12.960 --> 0:15:14.960 in the bank deposit world, and I think they had 0:15:14.960 --> 0:15:17.320 to learn some hard lessons there back to crypto people 0:15:17.360 --> 0:15:20.960 not understanding finance, but I think mostly now it is Blackrock. 0:15:21.720 --> 0:15:24.000 The last model, which is what we did at Paxos, 0:15:24.080 --> 0:15:27.760 was essentially running the thing internally like a traditional cash 0:15:27.760 --> 0:15:30.720 stability product. So when I was at Paxos in twenty 0:15:30.760 --> 0:15:33.200 twenty two, we started disclosing everything down to the q 0:15:33.400 --> 0:15:35.520 SIPs so you could see what we hold and it 0:15:35.600 --> 0:15:39.800 was a mix of insured bank deposits, T bills and 0:15:40.000 --> 0:15:44.520 overnight reverse repos spread across a number of different custodians 0:15:44.520 --> 0:15:47.560 and banks to diversify the risk. I would tell you 0:15:47.600 --> 0:15:49.760 in the future, if you're looking at what makes for 0:15:49.760 --> 0:15:53.160 a quote unquote safe stable coin, it's going to look 0:15:53.200 --> 0:15:56.280 more like that model. Or maybe what Circle is doing now, 0:15:56.640 --> 0:16:08.720 not what they've done in the past. 0:16:13.600 --> 0:16:16.280 What happens just on that note, but what happens when 0:16:16.360 --> 0:16:19.640 you start to see the sort of dollarness or the 0:16:19.680 --> 0:16:23.760 one to one dollar value breakdown, Because we have seen, 0:16:23.880 --> 0:16:26.840 you know, like little glimmers of that happen in the past. 0:16:26.880 --> 0:16:29.200 I think I mentioned twenty twenty one, and then in 0:16:29.280 --> 0:16:31.080 twenty twenty two as well there was a bit of 0:16:31.120 --> 0:16:32.640 a breakdown. What's happening? 0:16:33.520 --> 0:16:36.960 So the interesting part about crypto is it's sort of 0:16:37.040 --> 0:16:40.120 a microcosm of traditional finance. There's a couple of things 0:16:40.160 --> 0:16:42.800 that have happened in the past. One which I think 0:16:42.920 --> 0:16:45.840 is what you're probably alluding to, is fears about the 0:16:45.840 --> 0:16:49.240 balance sheet and solvency of the issuer. So Tether has 0:16:49.280 --> 0:16:51.960 had multiple periods in the past where they've depegged for 0:16:52.040 --> 0:16:54.960 moments in time, Circle certainly had a very large deepeg 0:16:55.000 --> 0:16:58.120 around the Silicon Valley bank incident where people didn't know 0:16:58.160 --> 0:17:00.840 if their reserve was totally money good. So Echoes of 0:17:00.880 --> 0:17:03.800 two thousand and eight right there, it's the classic can 0:17:03.840 --> 0:17:06.280 we trust you if we come to redeem our deposits 0:17:06.320 --> 0:17:09.440 with you. The other one that happens, which is fascinating, 0:17:09.760 --> 0:17:13.040 is you have stable coins that deepeg to the upside 0:17:13.160 --> 0:17:16.720 in times of crisis. Right, Like again back to my experience, 0:17:16.760 --> 0:17:19.240 we had busd trading at like a bucko six on 0:17:19.320 --> 0:17:22.719 Binance when Tara went down. And the reason there is 0:17:22.760 --> 0:17:25.880 they serve the opposite function, which is the flight to safety, 0:17:26.520 --> 0:17:29.320 especially if that happens during off hours. Because one of 0:17:29.359 --> 0:17:31.840 the things that's true about stable coins is I'm trying 0:17:31.880 --> 0:17:35.560 to weld essentially New York banking hours to the twenty 0:17:35.560 --> 0:17:38.520 four to seven NISS of crypto. So if something blows 0:17:38.600 --> 0:17:41.160 up at oh, I don't know, three am on a Friday, 0:17:41.359 --> 0:17:43.720 I might have an entire weekend of people trying to 0:17:43.760 --> 0:17:46.040 flee to safety and willing to pay a premium for that. 0:17:46.520 --> 0:17:50.359 All right, So here's my other My other big question is, like, 0:17:50.600 --> 0:17:52.800 all right, let's say we accept that the best stable 0:17:52.880 --> 0:17:56.199 coin model. It's something like with what Circle is doing now, 0:17:56.480 --> 0:18:01.919 or something like USDC where there as it's in regulated 0:18:02.320 --> 0:18:07.720 financial institutions, why do we need public blockchains to solve that? 0:18:08.040 --> 0:18:11.720 We If Tracy and I are trading claims from or 0:18:11.760 --> 0:18:15.760 transferring claims that are claims on a dollar held at 0:18:15.760 --> 0:18:19.560 a bank, why do we need ethereum and Solana to 0:18:19.680 --> 0:18:22.800 do that? Why not some other solution because we've already 0:18:22.800 --> 0:18:27.879 accepted the premise of centralized legacy infrastructure. 0:18:28.920 --> 0:18:31.880 So I think this goes back to our discussion on bifurcating. 0:18:31.960 --> 0:18:35.240 Call it the investment from the technological rights of transfer. 0:18:35.359 --> 0:18:39.240 And essentially what you're asking is what systems should we 0:18:39.280 --> 0:18:41.640 live in and whose rules should we play by? Because 0:18:41.680 --> 0:18:44.160 let me give you a couple of examples. If you're 0:18:44.160 --> 0:18:46.160 in the United States and you just want to pay 0:18:46.160 --> 0:18:49.280 people through regular channels, through like a sandwich, you know, 0:18:49.600 --> 0:18:52.080 or something as you're like more of the transaction, I'm 0:18:52.080 --> 0:18:54.320 at a deli, right, I don't think you need a 0:18:54.359 --> 0:18:57.439 public blockchain, like our infrastructure largely works. But on the 0:18:57.480 --> 0:19:02.600 other hand, let's say that I am a supplier in 0:19:02.840 --> 0:19:05.679 Thailand who needs to receive a payment from somebody in 0:19:05.760 --> 0:19:09.920 Finland for goods, and it's denominated in dollars. Sending that 0:19:10.040 --> 0:19:14.600 through the traditional infrastructure will take days and have relatively 0:19:14.680 --> 0:19:17.680 large fees attached to it, and in some jurisdictions, I'm 0:19:17.720 --> 0:19:19.119 not sure I trust my banks at all. 0:19:19.160 --> 0:19:22.560 Oh way, before you go on further, like, I get 0:19:22.560 --> 0:19:25.520 that there are all kinds of aspects of legacy finance 0:19:25.560 --> 0:19:27.399 that don't seem as efficient as they should be, and 0:19:27.400 --> 0:19:29.400 people like oh, T plus two and T plus three 0:19:29.440 --> 0:19:32.080 in settlement and blah blah blah, But like, why isn't 0:19:32.080 --> 0:19:35.840 that just a matter of Okay, Eventually the banks will 0:19:35.920 --> 0:19:38.920 upgrade their software and these are things that are being solved. 0:19:39.080 --> 0:19:43.000 Some of it's regulation, right, well, I think some of 0:19:43.000 --> 0:19:45.679 it is regulation. Some of it is quite frankly, I 0:19:45.680 --> 0:19:47.480 don't think the banks have a lot of incentive to 0:19:47.520 --> 0:19:50.359 solve it. They are largely the beneficiaries of the current system. 0:19:50.440 --> 0:19:52.720 Like you know, if you're looking at correspondent banks, they 0:19:52.720 --> 0:19:55.640 would prefer these payments to take as long as humanly possible. 0:19:56.359 --> 0:19:58.520 And then I think a third part that again we 0:19:58.600 --> 0:20:01.680 really take for granted in the United States is you're 0:20:01.720 --> 0:20:05.399 assuming that the financial system you're dealing with is legitimate 0:20:05.440 --> 0:20:08.880 in the first place. Right, So in the US, where 0:20:08.960 --> 0:20:10.840 things largely work and we have good rule of law, 0:20:10.880 --> 0:20:13.000 that's totally true. But there are many people who live 0:20:13.000 --> 0:20:15.720 in situations where the government itself is the bad guy 0:20:16.280 --> 0:20:19.800 and therefore going only through regulated banks captured by them 0:20:19.920 --> 0:20:23.160 is an excellent way to basically have all my money expropriated. 0:20:23.240 --> 0:20:25.600 Right Like if I am, say, to take an actual 0:20:25.640 --> 0:20:28.840 example of humanitarian aid with bitcoin, If I am a 0:20:28.920 --> 0:20:31.600 woman in Afghanistan trying to work and I don't want 0:20:31.600 --> 0:20:33.920 the Taliban just taking all of my money, I can't 0:20:33.920 --> 0:20:36.760 hold it in the local system, right. 0:20:36.920 --> 0:20:39.679 This actually reminds me of a very old episode we 0:20:39.760 --> 0:20:42.280 did with I think it was Joe Carlson from the 0:20:42.440 --> 0:20:44.760 Open Money Initiative. Do you remember that show where she 0:20:44.920 --> 0:20:47.320 was making the argument that you know, for people in 0:20:47.400 --> 0:20:52.040 Venezuela or other countries, there is that use case where 0:20:52.080 --> 0:20:54.760 you can use this as a story value that's separated 0:20:55.080 --> 0:20:57.919 from the government. But I guess my question is, like, 0:20:58.880 --> 0:21:03.160 it feels kind of weird to have this shadow financial 0:21:03.240 --> 0:21:08.560 system exist, and is there some like I guess what 0:21:08.640 --> 0:21:11.159 are the downsides to this? Let's just get to that. 0:21:12.000 --> 0:21:15.040 Yeah, And I would say you end up with in 0:21:15.080 --> 0:21:17.560 the current world three kinds of downsides, though I think 0:21:17.600 --> 0:21:19.800 some of them don't need to exist. I think they're 0:21:19.800 --> 0:21:24.040 a choice we've made based on some misunderstandings. So downside 0:21:24.119 --> 0:21:27.480 number one is with the lack of good regulation around 0:21:27.560 --> 0:21:30.080 stable coins globally, you have a lot of people reaching 0:21:30.160 --> 0:21:33.000 for these things of let's be generous and say highly 0:21:33.080 --> 0:21:36.560 variable quality, and the downside has been a lot of 0:21:36.640 --> 0:21:40.040 damage to people who were not super financially sophisticated, who 0:21:40.080 --> 0:21:42.640 got wiped out on their holdings. Again see like the 0:21:42.760 --> 0:21:46.320 terrorform Labs incident. These are I would say strictly bad 0:21:46.480 --> 0:21:51.359 that shouldn't be happening. Two. I think a public blockchain 0:21:51.440 --> 0:21:53.960 that operates where the criteria for being able to use 0:21:54.000 --> 0:21:56.040 it are basically the following is do you have the 0:21:56.080 --> 0:21:58.719 Internet and do you have something of value to trade, 0:21:59.440 --> 0:22:01.640 is in some way ways a challenged rule of law 0:22:01.680 --> 0:22:04.600 in many places. Now. I view that quite frankly as 0:22:04.600 --> 0:22:07.040 a positive in many areas, but there are also areas 0:22:07.040 --> 0:22:08.639 with pretty good rule of law where that could be 0:22:08.640 --> 0:22:11.040 a negative. Right you could look at that as pulling 0:22:11.080 --> 0:22:14.439 in both directions. I think that becomes a question of 0:22:14.480 --> 0:22:16.240 how do you regulate these what do we think of 0:22:16.280 --> 0:22:19.879 as systemic legitimacy. I think the third part that is 0:22:19.920 --> 0:22:23.439 a downside that people often under discuss is that you 0:22:23.680 --> 0:22:27.200 are inheriting a completely different set of problems by using 0:22:27.240 --> 0:22:31.160 these which is one people really underestimate the public part 0:22:31.240 --> 0:22:34.200 of public blockchains, right. It becomes much easier to track 0:22:34.680 --> 0:22:37.480 and trace people using these systems, especially once you have 0:22:37.520 --> 0:22:40.119 one or two pieces of information about where the money 0:22:40.160 --> 0:22:43.080 started and from whom, and two they are not totally 0:22:43.080 --> 0:22:45.800 free of regulation. I will remind everybody that all the 0:22:45.840 --> 0:22:49.320 FIAT backed stable coins have freeze and seas capability, which 0:22:49.359 --> 0:22:52.440 in many ways is even more power full than traditional finance. 0:22:52.520 --> 0:22:54.359 So like, if I am at one of the stable 0:22:54.400 --> 0:22:57.960 coins and I see somebody who has that stable coin 0:22:58.000 --> 0:22:59.960 in a wallet where I don't like them for some reason, 0:23:00.040 --> 0:23:02.240 maybe it's an o fact violation, maybe I just don't 0:23:02.280 --> 0:23:04.640 like the color of their hat, I have the ability 0:23:04.640 --> 0:23:06.640 to freeze their money in that wallet so they can't 0:23:06.680 --> 0:23:09.200 move it, and I have the ability to actually burn 0:23:09.280 --> 0:23:11.920 that money and take it back from them unilaterally. 0:23:12.800 --> 0:23:18.280 In that case, do stable coins solve the problem of, say, 0:23:18.359 --> 0:23:22.640 humanitarian aid to someone in an oppressive regime? If, as 0:23:22.680 --> 0:23:29.560 you say, the publicness block of public blockchains remains underappreciated. 0:23:29.720 --> 0:23:32.560 These things are much more easily traceable, that the idea 0:23:32.600 --> 0:23:36.040 that this is private money is largely not true. That 0:23:36.160 --> 0:23:39.199 analytics firms have gotten extremely good with very little amount 0:23:39.200 --> 0:23:42.119 of data to say I could say that this person 0:23:42.200 --> 0:23:45.719 owns this token. Does that not undermine the claim that 0:23:45.760 --> 0:23:49.760 stable coins are a powerful tool in these sort of 0:23:50.040 --> 0:23:51.000 oppressive regimes? 0:23:51.680 --> 0:23:54.959 I would say, One, it depends how good your opsec is, 0:23:55.040 --> 0:23:58.240 So the answer is maybe if you're not very careful 0:23:58.240 --> 0:24:00.119 with them, the answer will be yes to that. And 0:24:00.160 --> 0:24:02.639 then two, it does reveal sort of one of the 0:24:02.720 --> 0:24:05.840 underlying assumptions, which I think is something Tracy was driving 0:24:05.840 --> 0:24:09.520 towards earlier, which is that stable coins where the reserves 0:24:09.560 --> 0:24:12.679 are kept in call it traditional institutions, are only as 0:24:12.760 --> 0:24:15.159 good as the rule of law in those places. So 0:24:15.240 --> 0:24:17.119 the question to you of how good are these for 0:24:17.240 --> 0:24:20.359 humanitarian aid in many ways simplifies to how are we 0:24:20.440 --> 0:24:22.119 feeling about the US legal system? 0:24:22.240 --> 0:24:25.560 That's a fun thought. Just then, uh, I want to 0:24:25.560 --> 0:24:29.320 get into the financial stability aspect of this. But before 0:24:29.359 --> 0:24:34.040 I do, you mentioned regulation who should regulate stable coins? 0:24:34.160 --> 0:24:37.600 Given that you know the issuers tend to be in 0:24:37.680 --> 0:24:41.600 different places around the world. Tether where's tether again in 0:24:41.640 --> 0:24:42.640 like the Caymans or. 0:24:42.560 --> 0:24:44.360 Something British Virginiz very good. 0:24:46.280 --> 0:24:50.480 So, and there is this sort of like supernational aspect 0:24:50.560 --> 0:24:53.960 to some of this. You're talking about dollar like cross 0:24:54.000 --> 0:24:58.240 border payments. So who ultimately gets to decide what a 0:24:58.280 --> 0:25:01.360 good stable coin is or how the rules should be enforced? 0:25:01.480 --> 0:25:03.880 All right, So let's let's zoom out a little bit 0:25:03.880 --> 0:25:06.360 and look at the traditional financial system and ask how 0:25:06.359 --> 0:25:08.480 that question would be answered, and then we'll zoom back 0:25:08.480 --> 0:25:11.400 in on stable coins. So in traditional finance, there's two 0:25:11.440 --> 0:25:16.040 layers to that regulation. Layer number one is for issuers, 0:25:16.119 --> 0:25:19.600 it's usually the local jurisdiction, and in particular for things 0:25:19.600 --> 0:25:22.600 that are stable coins, usually the banking regulators in local 0:25:22.720 --> 0:25:25.760 jurisdictions that would look at these sorts of things, Right, 0:25:25.840 --> 0:25:28.880 So like, if you're in the United States, you probably 0:25:28.920 --> 0:25:31.160 don't have much of a say of how Deutsche Bank 0:25:31.240 --> 0:25:34.840 is running their operations in Germany that will be the boffin, right, 0:25:34.920 --> 0:25:38.280 So that's part one. Part two is then in your 0:25:38.440 --> 0:25:41.480 local area, if the issuer is from a foreign jurisdiction, 0:25:42.119 --> 0:25:45.280 are they permitted do you give them equivalency for their regimes? 0:25:45.320 --> 0:25:47.240 Do you trust them? Right? So this is sort of 0:25:47.240 --> 0:25:51.000 the patchwork of our current regulation and again zooming out. 0:25:51.119 --> 0:25:53.400 Stable coins work very much the same way. You would 0:25:53.440 --> 0:25:56.640 look at each one in the jurisdiction in which you're issued, Right, 0:25:56.720 --> 0:25:59.159 you look at regimes that exist. You've got like Bermuda, 0:25:59.600 --> 0:26:01.960 You've got like Singapore, You've got Hong Kong who have 0:26:02.000 --> 0:26:04.679 all booted things up. Do you trust them? Do you 0:26:04.720 --> 0:26:07.200 think they're good? And then the leverage that you would 0:26:07.200 --> 0:26:09.320 have in a place like the United States is do 0:26:09.359 --> 0:26:11.960 we think companies operating here should be able to accept 0:26:12.040 --> 0:26:13.320 or interact with those things? 0:26:14.119 --> 0:26:16.600 We say more on that. So is the idea that 0:26:17.040 --> 0:26:21.240 cryptocurrency exchanges in the United States there would be some 0:26:21.480 --> 0:26:24.840 rule that says you're not allowed to trade this, or 0:26:24.880 --> 0:26:27.399 you're not allowed to call this a stable coin on 0:26:27.440 --> 0:26:30.000 your website. Like I mean, this gets to the issue 0:26:30.040 --> 0:26:33.680 of we can't even really talk about regulating stable coins 0:26:34.000 --> 0:26:37.880 when both Circle and the Terra Lunar coin were both 0:26:37.960 --> 0:26:41.280 called stable coins on the internet, but we're radically different 0:26:41.320 --> 0:26:42.240 financial products. 0:26:42.800 --> 0:26:45.000 Yeah, no, that's exactly correct. And so if you look 0:26:45.040 --> 0:26:47.800 at something like McHenry Waters, right, which is one of 0:26:47.840 --> 0:26:50.240 the stable coin bills running around in front of the 0:26:50.359 --> 0:26:54.199 US legislature right now. They are trying to define in 0:26:54.280 --> 0:26:57.440 their words, what a stable coin actually is, and many 0:26:57.480 --> 0:27:01.399 of these bills include either bab uns on stable coins 0:27:01.440 --> 0:27:04.240 that're outside of that box. So that probably means both 0:27:04.320 --> 0:27:07.719 issuers and people using them for payments. It has stable coins, 0:27:07.960 --> 0:27:11.800 or if not bans, at least prohibitions on like calling 0:27:11.800 --> 0:27:15.160 them stable coins, representing them as safe, using them for payments. 0:27:15.720 --> 0:27:17.879 I tend to fall into the second camp, which is 0:27:18.600 --> 0:27:20.920 people should be able to experiment and try things. They 0:27:20.960 --> 0:27:22.800 just need to be honest about it and not lie 0:27:22.800 --> 0:27:25.760 about stability or get special treatment unless they've actually done 0:27:25.760 --> 0:27:26.359 the right things. 0:27:27.040 --> 0:27:30.119 So so far in the real world, we've seen a 0:27:30.160 --> 0:27:34.040 stable coin that was affected by the collapse of a bank, 0:27:34.200 --> 0:27:38.199 so Circle and SVB, which is kind of funny. But 0:27:38.359 --> 0:27:40.840 I'm going to ask you the complete opposite question, which is, 0:27:40.880 --> 0:27:43.600 if we have the collapse of a stable coin, what 0:27:43.840 --> 0:27:46.920 impact would that have on the traditional financial system. 0:27:47.640 --> 0:27:49.600 So the answer to that is we need to ask 0:27:49.680 --> 0:27:51.840 what we mean by quote unquote the collapse of a 0:27:51.840 --> 0:27:54.400 stable coin, right, because you're kind of looking at two 0:27:54.440 --> 0:27:57.960 scenarios and this reveals where you know, I said earlier, 0:27:58.000 --> 0:27:59.800 I think the discourse around these has been a little 0:27:59.800 --> 0:28:02.480 bit broken. This is why. So one would be the 0:28:02.520 --> 0:28:05.920 complete liquidation of a stable coin, but with sufficient preserves. 0:28:06.000 --> 0:28:08.560 So circle as of the time of US recording, this 0:28:08.600 --> 0:28:11.639 is somewhere in like the thirty four billion ish range, 0:28:12.119 --> 0:28:14.600 But they have the super majority of that money in 0:28:14.640 --> 0:28:17.920 a reverse repo fund that's being managed by a professional 0:28:17.920 --> 0:28:21.000 asset manager. If they had to liquidate one hundred percent 0:28:21.000 --> 0:28:24.000 of that thing, they could, And so the answer you're 0:28:24.040 --> 0:28:28.160 asking is what does liquidating thirty four billion of overnight 0:28:28.200 --> 0:28:30.520 reverse repo look like? And by the way, who's on 0:28:30.560 --> 0:28:32.399 the other side of that? Because that money has to 0:28:32.440 --> 0:28:35.040 go somewhere. It's not being vaporized, right Like, this is 0:28:35.080 --> 0:28:37.960 the classic problem of plus one minus one. I don't 0:28:38.000 --> 0:28:41.200 think that's really a systemic problem unless we're in a 0:28:41.240 --> 0:28:45.160 period of such deeply impacted liquidity that we can't move 0:28:45.280 --> 0:28:47.600 thirty four yards of that stuff. But in that case, 0:28:47.640 --> 0:28:49.320 I would tell you the problem is unlikely to be 0:28:49.600 --> 0:28:53.000 just the stable coin. The other option is did a 0:28:53.040 --> 0:28:57.520 stable coin hold reserves that themselves lost value? So, like, 0:28:57.640 --> 0:29:00.400 let's hypothetically say that the guys that circled use them 0:29:00.400 --> 0:29:02.840 again as the example, not an insult to circle decided 0:29:02.880 --> 0:29:06.160 instead of holding like overnight reverse repo, we're gonna YOLO 0:29:06.240 --> 0:29:10.080 into Tesla, and then that goes really badly, right, And 0:29:10.120 --> 0:29:11.800 so in that case, you're gonna have a bunch of 0:29:11.800 --> 0:29:14.080 people coming to redeem and what's gonna happen is you 0:29:14.080 --> 0:29:16.160 will have a ton of cell pressure on that asset 0:29:16.160 --> 0:29:18.520 as people bail out, and then you're gonna have the 0:29:18.520 --> 0:29:21.959 classic problem of at the end it's worth zero. I 0:29:22.040 --> 0:29:25.120 think that largely becomes a problem if you're using it 0:29:25.160 --> 0:29:27.640 for payments, or using it for savings, or using it 0:29:27.680 --> 0:29:30.840 with an expectation of safety. So in that case, there's 0:29:30.880 --> 0:29:33.680 this sort of intrinsic linkage between the safety of the 0:29:33.760 --> 0:29:38.120 reserves and the ability to cause shocks. That tether has 0:29:38.120 --> 0:29:40.440 been the main focus of these concerns, and it's been 0:29:40.480 --> 0:29:43.120 the main focus of these concerns because people don't know 0:29:43.200 --> 0:29:47.120 what tether is holding, right. But like take Paksos for example, 0:29:47.200 --> 0:29:50.600 BUSD was shut down by the NYDFS and at the 0:29:50.600 --> 0:29:52.560 time it was twenty two and a half billion and 0:29:52.640 --> 0:29:55.920 now today is under one billion, and absolutely nothing happened 0:29:56.000 --> 0:29:56.680 liquidating that. 0:30:13.600 --> 0:30:17.600 So let's say, you know, stable coin usage continues to 0:30:17.760 --> 0:30:22.440 grow in markets where people just want to have dollar exposure, 0:30:22.600 --> 0:30:26.720 so you're you know, you're obvious examples Argentina as your Venezuela's. 0:30:27.080 --> 0:30:30.400 And let's say people are using the popular public blockchains 0:30:30.400 --> 0:30:35.000 to exchange them, whether it's Ethereum, Solana, et cetera. There 0:30:35.040 --> 0:30:38.120 are people who are bullish on those changes the tokens 0:30:38.160 --> 0:30:41.120 of those chains, because people are gonna listen to the 0:30:41.200 --> 0:30:43.880 Austin Campbell scenario where this is a lot of real 0:30:43.960 --> 0:30:48.600 dollars are being traded or exchanged over these chains. In 0:30:48.720 --> 0:30:52.520 your in your view, does much value who does the 0:30:52.600 --> 0:30:55.520 value accru to? Does there accrue much value to the 0:30:55.520 --> 0:30:56.880 tokenholders of these chains? 0:30:57.680 --> 0:31:00.320 I'm not certain that it does. Again, this sort of 0:31:00.320 --> 0:31:04.680 comes back to crypto sort of reinventing things in finance 0:31:04.720 --> 0:31:07.800 and everybody talking past each other. Right, if you're an 0:31:07.800 --> 0:31:11.680 extremely high through put chain, but you charge extremely low 0:31:11.800 --> 0:31:14.680 fees for that high through put, it's not like a Solana. 0:31:14.760 --> 0:31:17.720 Like a Solana, it's not clear to me that value 0:31:17.760 --> 0:31:20.160 will accrue in a deep way to the Salana holders. 0:31:20.160 --> 0:31:22.560 It's also not clear to me that it won't. But 0:31:22.720 --> 0:31:25.400 I would say that is an area where many things 0:31:25.440 --> 0:31:28.640 are simply accepted as given in the crypto space, and 0:31:28.680 --> 0:31:31.240 I often have questions about them, which is not to 0:31:31.280 --> 0:31:34.880 say right skeptic in the sense of like it'll never work, 0:31:34.960 --> 0:31:37.200 but I'm I would say skeptical in the sense of 0:31:37.320 --> 0:31:39.840 I genuinely don't know, Like I have a lot of questions. 0:31:40.080 --> 0:31:43.240 Could we ever have a situation where the use of 0:31:43.280 --> 0:31:46.920 stable coins grows so enormously that at some point the 0:31:47.000 --> 0:31:49.360 banks are like, actually, we're going to get in on 0:31:49.440 --> 0:31:53.640 this cold Could they, in theory, like flip a switch 0:31:53.840 --> 0:31:57.720 and come up with a stable coin competitor or immediately 0:31:57.800 --> 0:32:02.800 convert to like atomic settle or instantaneous settlement or something 0:32:02.840 --> 0:32:05.400 like that, Or would that just be impossible, either because 0:32:05.440 --> 0:32:10.440 of their technological systems or because of regulations around remittances 0:32:10.480 --> 0:32:11.160 and things like that. 0:32:11.280 --> 0:32:13.560 So I think the current biggest problem is the legal 0:32:13.600 --> 0:32:16.640 structure and balance sheet of banks, right, which is to say, 0:32:17.200 --> 0:32:19.840 stable coins are trying to be this thing that everybody 0:32:19.840 --> 0:32:22.640 can transfer between everybody, and the reserves over time have 0:32:22.760 --> 0:32:26.640 trended towards being incredibly simplistic and call it mutually acceptable 0:32:26.640 --> 0:32:30.360 to everybody. That's not typically true of bank balance sheets right. 0:32:30.440 --> 0:32:33.560 Problem number one, bank deposits are not fungible. You would 0:32:33.600 --> 0:32:36.480 feel very differently last year owning a deposit at say 0:32:36.520 --> 0:32:39.120 Bank of America versus Silicon Valley Bank. These will not 0:32:39.160 --> 0:32:44.000 be priced identically and two banks moving money around between them. 0:32:44.040 --> 0:32:46.400 Back to our earlier example, if they actually have to 0:32:46.440 --> 0:32:49.040 net settle, are like deinvesting out of things and then 0:32:49.120 --> 0:32:52.360 reinvesting in other things. This is not really the same 0:32:52.400 --> 0:32:56.160 as moving a token around. So to answer that question, 0:32:56.240 --> 0:32:59.280 I think there's not a reason banks can't do it 0:32:59.360 --> 0:33:03.000 in theory, but it would require a pretty radical transformation 0:33:03.040 --> 0:33:05.760 of bank balance sheets. Like if all the banks set 0:33:05.840 --> 0:33:09.440 up call it bankruptcy remote trusts that represent a stable 0:33:09.520 --> 0:33:11.680 coin where they're just doing t bills, Yeah, this will 0:33:11.680 --> 0:33:14.920 work fine. Those will all largely be fungible, but right 0:33:14.960 --> 0:33:16.720 now with bank balance sheets unlikely. 0:33:16.960 --> 0:33:21.360 So basically, if JP Morgan and Bank of America, they're 0:33:21.360 --> 0:33:25.480 probably their asset book probably looks somewhat similar, but they're 0:33:25.480 --> 0:33:28.480 not identical. And therefore a transfer of value from a 0:33:28.520 --> 0:33:31.280 dollar of a JP Morgan deposit holder to a Bank 0:33:31.280 --> 0:33:35.719 of America means some reshuffling of the assets or the 0:33:35.760 --> 0:33:38.400 loans that they've made and they're not perfectly identical, and 0:33:38.440 --> 0:33:39.800 then this creates friction. 0:33:40.120 --> 0:33:43.040 And I would say importantly, the degree of difference between 0:33:43.040 --> 0:33:45.280 those things is going to be much larger than if 0:33:45.280 --> 0:33:48.120 we go look at like fidelities government money market fund 0:33:48.240 --> 0:33:51.080 versus Vanguard's government money market fund, which may not be 0:33:51.120 --> 0:33:53.160 perfectly identical but will be way closer. 0:33:53.400 --> 0:33:55.280 There is this toggers like, just treat these as money 0:33:55.280 --> 0:33:58.640 market funds. If your a stable coin issuer, your money 0:33:58.640 --> 0:34:01.440 market fund and all the obligations that they that a 0:34:01.480 --> 0:34:04.800 money market mutual fund has, that's your obligation. Does that work? 0:34:05.000 --> 0:34:07.080 Like what are the differences? Why or why not? 0:34:07.560 --> 0:34:11.080 Yeah, So that's a very like us peculiarity problem of 0:34:11.239 --> 0:34:14.680 it's really hard to pay for things with securities. So 0:34:15.000 --> 0:34:17.160 my question would be what do you mean by money 0:34:17.160 --> 0:34:19.759 market fund? If you mean we can put it in 0:34:19.880 --> 0:34:23.120 like a bank or a trust wrapper and own assets 0:34:23.160 --> 0:34:26.080 that look substantially similar to a government money market fund, 0:34:26.080 --> 0:34:29.120 I would tell you that's basically what mckenry waters does. 0:34:29.680 --> 0:34:32.000 So I think that works fine. If you want to 0:34:32.040 --> 0:34:34.360 say no, you le like literally need to be issued 0:34:34.400 --> 0:34:36.640 as a security and handled in that way, then no, 0:34:36.760 --> 0:34:39.239 that creates a whole host of other problems that will 0:34:39.239 --> 0:34:40.560 break things for payments. 0:34:41.040 --> 0:34:44.439 So here we are in early twenty twenty four. We're 0:34:44.440 --> 0:34:47.560 talking about stable coins, which a lot of people thought 0:34:47.960 --> 0:34:50.279 might go away at some point or there would be 0:34:50.320 --> 0:34:52.840 some sort of volatility event that would lead everyone to 0:34:52.960 --> 0:34:55.880 question whether or not these are a legitimate store of value, 0:34:56.239 --> 0:35:00.239 And instead they're still here. They've been pretty stable. What's 0:35:00.440 --> 0:35:04.680 next in the sort of stable coin either discourse or trajectory. 0:35:05.520 --> 0:35:08.320 So I think what we're starting to see right now 0:35:08.440 --> 0:35:12.200 is a growing realization among some of the regulators, mostly 0:35:12.200 --> 0:35:14.880 in Asia, who have looked most closely at crypto, that 0:35:15.120 --> 0:35:18.439 wait a minute, using these things properly is a way 0:35:18.480 --> 0:35:21.880 to fix some of our lingering problems from two thousand 0:35:21.880 --> 0:35:26.400 and eight, right, And then probably a increasing merging of 0:35:26.560 --> 0:35:30.200 call it crypto native stable coin thinking with traditional financial 0:35:30.239 --> 0:35:33.520 thinking into something that one hopes will get you the 0:35:33.600 --> 0:35:37.360 best of And those two problems you referenced one earlier 0:35:37.880 --> 0:35:41.400 are atomic settlement, right, which is to say, the ability 0:35:41.440 --> 0:35:46.439 to pay for something completely perfectly simultaneously on chain using 0:35:46.480 --> 0:35:49.240 a smart contract so that I don't have counterparty credit 0:35:49.320 --> 0:35:52.319 risk in my trades. That is actually a pretty big 0:35:52.400 --> 0:35:54.279 upgrade to the current system if we can get that 0:35:54.400 --> 0:35:59.280 done and then simultaneously having these very bankruptcy stable vehicles 0:35:59.320 --> 0:36:01.920 that can be held in self custody, because what that 0:36:02.000 --> 0:36:04.120 does is eliminates a lot of the run risk of 0:36:04.160 --> 0:36:06.880 the large banks and the systemicness there. Right like in 0:36:06.920 --> 0:36:09.960 two thousand and eight, if you owned USDC in its 0:36:09.960 --> 0:36:13.280 current form, which is basically a government money market fund 0:36:13.360 --> 0:36:16.759 under the hood, nobody's running that thing, nobody's panicking. They're 0:36:16.760 --> 0:36:20.000 all just sitting around looking marginally bored, instead of having 0:36:20.000 --> 0:36:23.160 a giant run on bank deposits. And so I think 0:36:23.200 --> 0:36:25.960 a system that starts embracing those things and then being 0:36:26.000 --> 0:36:29.880 able to move them around easily across borders both eliminates 0:36:29.880 --> 0:36:33.160 a huge amount of frictions and simultaneously reduces a lot 0:36:33.200 --> 0:36:34.680 of risk that's left from O eight. 0:36:35.800 --> 0:36:40.319 Tracy mentioned the prospect of a JPM stable coin or 0:36:40.360 --> 0:36:44.160 something like that. I believe, like has jp Morgan like, 0:36:44.200 --> 0:36:47.920 have they built their own like sort of e EVM 0:36:47.960 --> 0:36:48.920 compatible chain. 0:36:49.800 --> 0:36:52.560 So JPM has a project called Onyx and a thing 0:36:52.600 --> 0:36:57.480 called jpm coin, and back to using it for financial purposes. 0:36:58.040 --> 0:37:00.399 Now you have a twenty four to seven plat form 0:37:00.440 --> 0:37:03.120 that can do atomic settlement largely of things like repo, 0:37:03.760 --> 0:37:06.120 and you can do them outside of regular market hours. 0:37:06.160 --> 0:37:07.279 So yeah, these are very real. 0:37:07.400 --> 0:37:11.880 So is there any reason why a platform like onyx 0:37:11.960 --> 0:37:15.760 couldn't just be the chain that everyone around the world 0:37:15.920 --> 0:37:18.680 uses to transfer stable claims. 0:37:19.040 --> 0:37:22.040 Well, let me ask you a different question to reveal 0:37:22.040 --> 0:37:24.160 the problem with that question, which is, if you were 0:37:24.160 --> 0:37:26.880 the CEO of Goldman Sachs, would you use a trading 0:37:26.880 --> 0:37:30.680 and settlement platform unilaterally controlled by JP Morgan you get. 0:37:30.600 --> 0:37:33.920 A little consortium together, like, get six or seven banks 0:37:33.920 --> 0:37:34.080 to do. 0:37:34.120 --> 0:37:36.920 It, correct, So now you're leading down the path to 0:37:37.040 --> 0:37:40.160 like DTCC. So like, let's take this actually a few 0:37:40.200 --> 0:37:42.960 steps forward. If you get a large consortium of I 0:37:42.960 --> 0:37:45.080 would suggest in the US, this will not work with 0:37:45.280 --> 0:37:47.839 just banks. So let's say bank's asset managers and maybe 0:37:47.840 --> 0:37:51.240 insurance companies. Okay, that would probably work inside the US, 0:37:51.400 --> 0:37:52.719 But then you're going to have the problem of how 0:37:52.719 --> 0:37:54.080 do we get Europe to use it? How do we 0:37:54.080 --> 0:37:56.520 get Asia to use it? Okay, So now you're incorporating 0:37:56.560 --> 0:38:00.239 those entities as well. So if you're telling me the 0:38:00.600 --> 0:38:03.239 I'm gonna say public here in a very loose way 0:38:03.800 --> 0:38:06.440 blockchain of the future that everybody is using is a 0:38:06.480 --> 0:38:09.560 consortium of call it the five hundred largest financial entities 0:38:09.600 --> 0:38:12.640 globally that actually seems viable to me, Like that is 0:38:12.760 --> 0:38:16.440 decentralized in a slightly different way. I don't think anonymous 0:38:16.480 --> 0:38:19.600 public validators are necessarily the perfect answer. And by the way, 0:38:20.080 --> 0:38:22.239 even if you look at current technology, like if you're 0:38:22.280 --> 0:38:25.040 familiar with the Stellar blockchain, they have a fully doxed 0:38:25.120 --> 0:38:27.759 validator set and what I just described is essentially how 0:38:27.760 --> 0:38:30.200 they want it to work. So I do think in 0:38:30.239 --> 0:38:34.319 the future, more institutional if you will, chains could be 0:38:34.400 --> 0:38:37.000 the answer. I'm not like an ETHMAXI on that, but 0:38:37.040 --> 0:38:39.160 I do think they need to be neutral enough that 0:38:39.200 --> 0:38:40.920 everybody trusts them. 0:38:41.600 --> 0:38:44.719 I have another question just on why others aren't doing this. 0:38:44.840 --> 0:38:46.680 We've been talking about the banks, and you laid out 0:38:46.719 --> 0:38:50.360 a very clear argument why banks might be reticent to 0:38:50.480 --> 0:38:53.800 create their own stable coins, including that it would involve 0:38:53.880 --> 0:38:57.440 possibly rejigging the way their balance sheets are structured or 0:38:57.440 --> 0:39:00.120 creating some sort of shared balance sheet, which okay, obviously 0:39:00.160 --> 0:39:03.239 banks don't want to do it. What about other financial 0:39:03.239 --> 0:39:07.480 intermediaries like a PayPal? Is this something they would ostensibly 0:39:07.520 --> 0:39:10.280 be interested in, and could they create their own. 0:39:10.160 --> 0:39:12.440 Competitor, Well, I mean I built the back end for 0:39:12.480 --> 0:39:15.520 PayPal stable corner. The answer there is, oh, yeah, they're 0:39:15.600 --> 0:39:19.239 very interested. I would say as you look at the 0:39:19.280 --> 0:39:22.360 groups who are threatened by this, banks and payments companies 0:39:22.400 --> 0:39:26.000 are probably the most exposed to the technological change, and 0:39:26.000 --> 0:39:29.520 the majority of them are currently paralyzed by a combination 0:39:29.600 --> 0:39:34.319 of the innovator's dilemma and regulation. Whoever moves first there 0:39:34.320 --> 0:39:37.520 and gets this right is probably your leader in the 0:39:37.560 --> 0:39:40.280 next generation of how these things are going to work. 0:39:40.719 --> 0:39:44.000 So to your point, you'd much rather cannibalize yourself than 0:39:44.040 --> 0:39:47.520 have other people cannibalize you. And there are very much 0:39:47.560 --> 0:39:50.719 people at like PayPal, Visa and others who are thinking 0:39:50.760 --> 0:39:54.120 about this exact problem and building things right now. I 0:39:54.160 --> 0:39:57.200 would also say the other big thrust is the asset managers, 0:39:57.239 --> 0:39:59.719 because they're the ones probably with the biggest incentive to 0:39:59.719 --> 0:40:03.000 dis intermediate the banks. I would say black rocks interest 0:40:03.040 --> 0:40:07.680 in blockchain is not a coincidence economically, going. 0:40:07.480 --> 0:40:11.200 Back to the countries or the regimes in which someone 0:40:11.280 --> 0:40:15.000 might want to hold dollar denominated assets and let's bracket 0:40:15.040 --> 0:40:17.840 out the Afghanistans or the world, which is an extreme scenario, 0:40:17.840 --> 0:40:20.960 but the places that just do not have stable domestic currencies, 0:40:21.239 --> 0:40:25.560 et cetera. Can they presumably don't want all of their 0:40:25.600 --> 0:40:30.239 domestic savers to like hold hold dollars, right, They presumably 0:40:30.239 --> 0:40:33.719 don't want people swapping their money into dollars as soon 0:40:33.760 --> 0:40:37.680 as they can. Do they have mechanisms of pushing back 0:40:37.719 --> 0:40:41.560 against this? Does an Argentinian government like I, you know, 0:40:41.600 --> 0:40:44.600 anyone can download and eth wallet onto their phone, get 0:40:44.880 --> 0:40:47.840 transferred onto it, et cetera. Do they at some point? 0:40:47.880 --> 0:40:49.799 Does it scare them? And do they have ways of 0:40:49.840 --> 0:40:54.640 pushing back against their domestic savers automatically being able to 0:40:54.640 --> 0:40:55.240 hold dollars? 0:40:56.040 --> 0:40:58.759 So one, it one hundred percent scares them. If you 0:40:58.800 --> 0:41:00.879 look at what's going on in Nigel area right now 0:41:00.920 --> 0:41:05.440 and them taking like executives from Binance hostage literally like 0:41:05.560 --> 0:41:08.160 this as part of the driver. So I would say 0:41:08.200 --> 0:41:10.719 to you there's two things you need to think about there. 0:41:10.880 --> 0:41:13.360 One is do they have ways to stop them that 0:41:13.480 --> 0:41:17.440 involve coercive measures? Yes, but they have to be extreme. 0:41:17.640 --> 0:41:19.799 Like again, to go back to having run a stable coin, 0:41:19.840 --> 0:41:22.359 the only country where we were totally certain nobody owned 0:41:22.360 --> 0:41:24.960 a stable coin was North Korea, right, And the answer 0:41:25.000 --> 0:41:26.640 is you have to take the Internet away from your 0:41:26.640 --> 0:41:29.040 people right to be able to totally stop it, so 0:41:29.080 --> 0:41:31.440 there will always be some degree of leakage. Now you 0:41:31.440 --> 0:41:34.360 can get more and more coercive and abuse human rights 0:41:34.360 --> 0:41:36.680 more and more to try to turn it down, but 0:41:36.800 --> 0:41:39.279 that's gonna have other negative effects on your economy that 0:41:39.360 --> 0:41:41.919 go hand in hand with that. The other part, which 0:41:41.920 --> 0:41:44.799 I would call the positive case, is you know you 0:41:44.840 --> 0:41:47.200 could just run your currency better and cut it with 0:41:47.239 --> 0:41:49.920 the inflation. Right If you look at places like Switzerland 0:41:49.920 --> 0:41:54.319 and Singapore, they're not seeing massive outflows into dollars out 0:41:54.320 --> 0:41:57.440 of their local currency because people trust the local currency 0:41:58.080 --> 0:42:00.480 in many ways. If you give people the option but 0:42:00.560 --> 0:42:04.319 not the requirement, to substitute into dollars, it's going to 0:42:04.440 --> 0:42:07.600 If people want their local currencies to survive, have to 0:42:08.080 --> 0:42:10.680 raise the level of behavior so that you're at least 0:42:10.719 --> 0:42:13.480 close to the dollar, or you are eventually going to 0:42:13.480 --> 0:42:14.120 get wiped out. 0:42:14.600 --> 0:42:18.000 Conversely, asking the same question from the other side, is 0:42:18.040 --> 0:42:20.719 there a reason that the US should be concerned about this? 0:42:20.880 --> 0:42:22.600 I mean, we are kind of talking about a shadow 0:42:22.680 --> 0:42:26.320 dollar system. There is this ongoing discussion about the pros 0:42:26.440 --> 0:42:29.719 and cons of the dollar being the reserve asset to 0:42:29.920 --> 0:42:33.759 the US economy. Is there a reason that people in 0:42:33.840 --> 0:42:38.080 America or policy makers in America should be concerned about. 0:42:37.880 --> 0:42:41.520 This, Well, I would say from a policy makers standpoint, 0:42:41.560 --> 0:42:44.560 my biggest concerns would be two, which is, one, we 0:42:44.600 --> 0:42:47.319 restrict these things so much that something other than the 0:42:47.400 --> 0:42:50.879 dollar becomes the dominant currency on a blockchain, because if 0:42:50.880 --> 0:42:54.960 this process essentially continues to run of people getting access 0:42:54.960 --> 0:42:57.760 to other financial systems but they prefer like the euro 0:42:57.960 --> 0:42:59.719 or the yen or something like that, that could have 0:42:59.719 --> 0:43:02.960 a major impact on dollar dominance. And whether you think 0:43:03.000 --> 0:43:05.000 the dollars should be the reserve currency or not, I 0:43:05.000 --> 0:43:08.000 would hope everybody is an agreement that a call it 0:43:08.239 --> 0:43:12.400 unpredictable sort of technology driven catastrophic onwind of that system 0:43:12.480 --> 0:43:15.919 is probably bad for everybody. Two, there are a lot 0:43:15.960 --> 0:43:20.040 of national security implications to dollar stable coins working properly. 0:43:20.160 --> 0:43:24.160 Back to what I just said about public blockchains. If 0:43:24.160 --> 0:43:27.040 you have all of the KYC information and you know 0:43:27.080 --> 0:43:30.040 where the reserves are, you are in very good shape 0:43:30.040 --> 0:43:33.160 to interdict bad actors and retain some degree of control 0:43:33.239 --> 0:43:36.680 over a system. If everything moves off shore in a 0:43:36.680 --> 0:43:39.040 way that you have no access to it, things are 0:43:39.120 --> 0:43:42.080 worse instead. So I think we have a real fork 0:43:42.120 --> 0:43:44.279 in the road here of being able to call it 0:43:44.440 --> 0:43:48.120 enforced dollar norms in a more effective, targeted and quite 0:43:48.160 --> 0:43:52.480 frankly transparent way, or having that breakdown even further, and 0:43:52.520 --> 0:43:55.840 that is based on getting US dollar coins on shore, 0:43:56.200 --> 0:43:58.600 structured properly and in a way where we can interact 0:43:58.600 --> 0:43:59.240 with them easily. 0:44:00.120 --> 0:44:02.600 Norms is a really good phrase. I might use that 0:44:02.640 --> 0:44:04.120 at some point in the future. All Right, I just 0:44:04.160 --> 0:44:06.759 have one last question. You know, you mentioned that sort 0:44:06.800 --> 0:44:11.160 of like circle due to its own I don't know, 0:44:11.200 --> 0:44:15.120 maybe misunderstanding aspects of the traditional financial system did not 0:44:15.280 --> 0:44:19.720 have particularly good risk management, and they had some money 0:44:19.719 --> 0:44:22.640 in SVB, and for a while they had a pretty 0:44:22.680 --> 0:44:25.840 significant DEPEG, but then SVB got built out and it 0:44:26.040 --> 0:44:29.880 was fine. What are the when you talk to crypto people, 0:44:30.360 --> 0:44:35.520 what are their sort of frequent misunderstandings? And I again, 0:44:35.560 --> 0:44:38.720 I imagine we could go hours and hours with a series 0:44:38.760 --> 0:44:41.640 of things crypto people don't get about the financial system. 0:44:41.920 --> 0:44:45.560 But what are the consistent patterns that you see failure 0:44:45.600 --> 0:44:49.799 patterns in people in crypto not getting some aspect of 0:44:49.840 --> 0:44:50.359 trad five. 0:44:51.000 --> 0:44:53.320 Yeah, so I would say there's a couple of big themes. 0:44:53.400 --> 0:44:57.120 One of the biggest is sort of extrapolating from personal finance, 0:44:57.200 --> 0:44:59.560 which is a big problem in finance in general. Like 0:44:59.600 --> 0:45:02.000 the way you or local bank account works for five 0:45:02.040 --> 0:45:06.320 thousand dollars is not the way that like Ford's balance 0:45:06.360 --> 0:45:08.759 sheet works, and that is a big problem because when 0:45:08.760 --> 0:45:11.640 you have people being like, well, I own USDC, won't 0:45:11.640 --> 0:45:14.799 the FDIC protect the deposits at SVB. It's like they 0:45:14.840 --> 0:45:17.040 have three point three billion of deposits and two hundred 0:45:17.040 --> 0:45:20.040 and fifty thousand dollars of FDIC coverage. I don't like 0:45:20.120 --> 0:45:24.920 your odds, and very basic misunderstandings like that happen frequently. 0:45:25.520 --> 0:45:28.360 Number two is this thing that happens a lot with 0:45:28.480 --> 0:45:31.080 tech where when you look at Silicon Valley companies, right, 0:45:31.160 --> 0:45:33.200 the tech people drive it, the product people drive it. 0:45:33.239 --> 0:45:35.160 They are the rock stars, and the finance people are 0:45:35.200 --> 0:45:36.959 kind of in a broom closet in the back room 0:45:37.440 --> 0:45:39.719 and not even in the decision loops. So a lot 0:45:39.760 --> 0:45:42.839 of its information accessibility, like there may have been people 0:45:42.840 --> 0:45:44.880 who knew this, but nobody was talking to them or 0:45:44.920 --> 0:45:47.480 taking them seriously. It's kind of the reverse of what 0:45:47.560 --> 0:45:49.319 a lot of banks do, where they don't spend enough 0:45:49.320 --> 0:45:51.600 time on the tech and let the investment bankers drive 0:45:51.640 --> 0:45:54.920 everything right. So there's a cultural problem there in crypto. 0:45:55.400 --> 0:45:57.080 And then the third part is you have a lot 0:45:57.080 --> 0:46:00.479 of people who have these ideological stances on I want 0:46:00.520 --> 0:46:03.000 hard money, I want to reinvent the system, we shouldn't 0:46:03.000 --> 0:46:06.640 have leverage or credit at all, without understanding the implications 0:46:06.680 --> 0:46:08.359 of what they're saying. And I often, like I've had 0:46:08.360 --> 0:46:10.520 this discussion with students in my class, if you guys 0:46:10.520 --> 0:46:13.600 want to go back to a system where there's no lending, 0:46:14.080 --> 0:46:16.799 everything is hard money and it's just do you have 0:46:16.880 --> 0:46:19.040 it or not. We've had that before. It's basically like 0:46:19.080 --> 0:46:22.120 European feudalism, Like why would you want to go back there? 0:46:22.239 --> 0:46:25.760 So there's very core misunderstandings of how the monetary system 0:46:25.800 --> 0:46:29.480 works that I would say are a subset, but unfortunately 0:46:29.520 --> 0:46:31.800 still a significant subset of people in crypto. 0:46:32.719 --> 0:46:35.600 Austin Campbell, thank you so much for coming on outlast. 0:46:35.640 --> 0:46:51.799 That was great, Tracy. I really enjoyed that conversation. It 0:46:51.960 --> 0:46:55.800 was just, you know, zoom a someone, So it was 0:46:55.920 --> 0:46:59.640 nxe to talk to someone who genuinely seems grounded in 0:46:59.719 --> 0:47:05.600 multi yeah, which is extremely rare. Frankly, honestly, in any perspective, 0:47:05.640 --> 0:47:09.000 most people have a worldview that's extremely skewed to one. 0:47:10.040 --> 0:47:12.480 Well, it was very impressive when I asked about PayPal 0:47:12.520 --> 0:47:15.759 and he's like, I got the back end. Okay, you 0:47:15.800 --> 0:47:18.120 know what I remembered while we were you asked that 0:47:18.239 --> 0:47:21.799 question about JP Morgan and eth and I remembered in 0:47:21.920 --> 0:47:27.960 twenty thirteen finding a patent application for JP Morgan to do. 0:47:28.640 --> 0:47:30.960 At the time, it was described by me as a 0:47:30.960 --> 0:47:35.120 bitcoin like online payment system, but it was basically like 0:47:35.239 --> 0:47:38.880 on chain payments. And it's so funny reading this. I 0:47:38.960 --> 0:47:40.600 just dug it up and I was reading it, and 0:47:40.600 --> 0:47:44.080 there's a line like traditional finance companies have had to 0:47:44.080 --> 0:47:46.959 contend with new types of virtual currencies, which some people 0:47:47.080 --> 0:47:50.040 view as viable alternative payment systems that could one day 0:47:50.160 --> 0:47:53.600 challenge the biggest banks and credit cards. That was twenty thirteen, 0:47:53.960 --> 0:47:57.840 and it's funny how much has changed, but also how 0:47:57.920 --> 0:48:00.000 the conversation is still very similar totally. 0:48:00.120 --> 0:48:00.319 You know. 0:48:00.480 --> 0:48:03.560 It's so like I think Austin made a very good 0:48:03.680 --> 0:48:09.920 case that there are some very deep institutional headwinds so 0:48:10.040 --> 0:48:13.920 to speak, with banks going fully crypto, either launching their 0:48:13.960 --> 0:48:17.760 own stable coins, or launching their own their own EVM 0:48:17.840 --> 0:48:21.759 compatible chains, et cetera. That being said, you know, it's 0:48:21.760 --> 0:48:24.680 hard for me to imagine the banks just sort of 0:48:25.160 --> 0:48:29.680 sitting idly by, particularly in the scenario in which and 0:48:29.760 --> 0:48:31.920 Austin is sort of seemed to be sort of agnostic 0:48:31.960 --> 0:48:34.279 on this question. If it turns out that a lot 0:48:34.320 --> 0:48:38.400 of value is accruing to the holders of eth tokens 0:48:38.520 --> 0:48:41.120 or the holders of Solana tokens, or the holders of 0:48:41.160 --> 0:48:45.960 tron tokens or whatever chain people are exchanging stable coins on, 0:48:46.400 --> 0:48:48.719 I doubt they're gonna like sort of sit idly by 0:48:48.920 --> 0:48:51.680 and just sort of let those let them, and we're 0:48:51.680 --> 0:48:53.680 it's like, oh, we're just we're just the custodian that 0:48:53.719 --> 0:48:55.840 holds the dollars while everyone else makes the money on 0:48:55.880 --> 0:48:56.360 the payments. 0:48:56.800 --> 0:48:59.640 Well, on the other hand, I mean, if the price 0:48:59.800 --> 0:49:03.080 of developing or if the cost of developing your own 0:49:03.160 --> 0:49:06.080 stable coin is that you have to, as Austin said, 0:49:06.160 --> 0:49:10.319 radically reimagine your balance sheet and also cooperate in some 0:49:10.440 --> 0:49:13.640 ways with other banks, which banks don't tend to be 0:49:13.760 --> 0:49:16.560 very good at cooperating with each other. Like maybe the 0:49:16.600 --> 0:49:20.360 business play is just become the custodian for those assets 0:49:20.360 --> 0:49:21.399 and make money that way. 0:49:21.719 --> 0:49:23.640 Yeah, it could be. It's also we didn't really bring 0:49:23.680 --> 0:49:27.520 it up in this conversation, like especially in the last 0:49:27.520 --> 0:49:29.719 couple of years. I mean, the stable coin business like 0:49:29.760 --> 0:49:32.920 the best business coin, the best, the best business in 0:49:32.960 --> 0:49:36.680 the entire world, because you you're getting all this yield 0:49:36.760 --> 0:49:38.920 on your t bill, holdings, et cetera. And for the 0:49:38.920 --> 0:49:41.279 most part, none of them. I think there are some 0:49:41.360 --> 0:49:44.120 like theoretically yielding stable coins, but for the most part 0:49:44.600 --> 0:49:46.920 they're just keeping all that yield and the end owner, 0:49:47.000 --> 0:49:49.200 you know. So it's like, do not use these as 0:49:49.239 --> 0:49:51.960 a money market mutual fund because those who are giving 0:49:52.040 --> 0:49:53.600 up they're giving up the yield. 0:49:53.840 --> 0:49:54.080 Yeah. 0:49:54.080 --> 0:49:58.480 But still a fascinating conversation. And we'll have to keep 0:49:58.520 --> 0:50:01.400 track of coins again. Yeah, yeah, because it's been a while, 0:50:01.440 --> 0:50:02.880 hasn't it all right? Shall we leave it there? 0:50:02.960 --> 0:50:03.640 Let's leave it there. 0:50:03.760 --> 0:50:06.759 This has been another episode of the Authoughts podcast. I'm 0:50:06.800 --> 0:50:09.800 Tracy Alloway. You can follow me at Tracy Alloway. 0:50:09.560 --> 0:50:12.280 And I'm Joe Wisenthal. You can follow me at The Stalwart. 0:50:12.560 --> 0:50:16.400 Follow Austin Campbell. He's at Campbell j Austin. Follow our 0:50:16.440 --> 0:50:20.480 producers Carmen Rodriguez at Carmen Erman, Dashel Bennett at Dashbot, 0:50:20.480 --> 0:50:24.040 and Kilbrooks at Kilbrooks. 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