Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Halloway. So, Tracy, here's
Speaker 1: the thing that I've been thinking about a lot with
Speaker 1: respect to crypto. You know, in the early days, when
Speaker 1: it was just Bitcoin maybe a few other coins, seem
Speaker 1: like there was this sort of pirate mentality. Cipher Punk
Speaker 1: the Silk Road was one of the first apps where
Speaker 1: people actually used crypto. But it feels like as the
Speaker 1: industry has grown up, the effort to avoid or evade
Speaker 1: the existing regulatory system has really fallen into the background. Yeah,
Speaker 1: I think that's right. I mean, I guess stable coins
Speaker 1: would be the prime example of this, right, And one
Speaker 1: thing about stable coins that makes them really interesting to
Speaker 1: me is that they're basically the way in which crypto,
Speaker 1: or a big chunk of crypto actually interacts with the
Speaker 1: traditional financial system. So a lot of them have financial
Speaker 1: assets that are backing them, so they kind of interact
Speaker 1: with banks through their reserve funds. And then the other
Speaker 1: question I have is if you're going to create a
Speaker 1: stable coin that has a bank charter and that invests
Speaker 1: a lot in you know, traditional financial assets like t
Speaker 1: bills or commercial paper, Then what is the benefit versus
Speaker 1: going into something like a money market fund or just
Speaker 1: a bank deposit. Right, if you're going to interact with
Speaker 1: regulated institutions, which you implicitly are if you buy a
Speaker 1: stable coin and the stable coin issue or hold money
Speaker 1: in a regulated bank, then they're gonna be all kinds
Speaker 1: of rules. If you're going to interface therefore with a
Speaker 1: regulated finance, My question is what is the point of crypto? Yeah, exactly,
Speaker 1: that's exactly it. And the other thing I would say
Speaker 1: is there's been a lot of talk about stable coins
Speaker 1: this year because we had the big crypto crash, and
Speaker 1: whenever that happens, we tend to see some disruptions I
Speaker 1: guess the pegs of a lot of stable coins, And
Speaker 1: of course the famous example this year was while there
Speaker 1: were two but we had the algorithmic stable coin um
Speaker 1: Tera slash Luna, which basically crashed and died. But we
Speaker 1: also had Tether, and there are lots of questions swirling
Speaker 1: around Tether whether or not it can hold its peg.
Speaker 1: But of course those are only two stable coins within
Speaker 1: a very vast ecosystem of stable coins. And today we're
Speaker 1: going to be talking about another one. Yep, we are.
Speaker 1: And so you know, Tether is the biggest stable coin
Speaker 1: that out there, but close on its heels and maybe
Speaker 1: even more important in the world of defy is the
Speaker 1: usd coin us d C, which is issued by the
Speaker 1: company Circle, and it's extremely powerful, it's really big, it's
Speaker 1: growing and influence. It may surpass Tether very soon or
Speaker 1: very plausibly at some point. So I'm very excited to
Speaker 1: say that we have the founder, the co founder and
Speaker 1: CEO of Circle on the on the podcast as our guest,
Speaker 1: Jeremy Hilaria. Thank you so much for joining us. Thank
Speaker 1: you guys. Super excited to be here. I'm really excited
Speaker 1: about this conversation because I just have like there's so
Speaker 1: many questions, so much interested, so much interest in stable coins.
Speaker 1: But to start off, what is Circle and how to
Speaker 1: Circle make money? Yeah, So first of all, just very
Speaker 1: quick backdrop. We started Circle. I co found a Circle
Speaker 1: nine years ago and the basic idea was, and my
Speaker 1: background before Circle was starting internet software platform companies, software
Speaker 1: infrastructure companies working in areas like delivering software on the Internet,
Speaker 1: delivering media on the Internet, delivering communications on the Internet.
Speaker 1: Always interested in how public Internet infrastructure could change the
Speaker 1: way certain things happened, Like now you guys do this
Speaker 1: podcast instead of just writing so UM. I was really
Speaker 1: drawn into crypto technology and and what this was ten
Speaker 1: years ago and then crystallized the ideas behind Circle nine
Speaker 1: years ago. And it's actually interesting hearing your your introductory
Speaker 1: remarks because when we started, it was actually, you know,
Speaker 1: right when the federal government said, hey, if you want
Speaker 1: to interact between the banking system and these virtual assets,
Speaker 1: like you've got to be regulated as a money transmission company.
Speaker 1: And that was the first regulation actually was was then,
Speaker 1: and like that's when Silk Road was taken down. And
Speaker 1: but you know, we we were coming into this with
Speaker 1: this idea, which at the time we called a hybrid
Speaker 1: model of digital currency UM. And the idea was, how
Speaker 1: could we take what we think of as traditional money
Speaker 1: i e. Government debt money and and and sort of
Speaker 1: represent that as a digital currency but operated on these
Speaker 1: new public protocols, on these new public Internet infrastructures. Because
Speaker 1: I had sort of seen these public infrastructures enable free
Speaker 1: global communications and and seamless distribution of software to any
Speaker 1: Internet connected device, and you know, all these transformations have
Speaker 1: happened in data, software, media communications, and I thought, wow,
Speaker 1: if you had public infrastructure that's all built on open
Speaker 1: source and anyone can run the nodes and you could
Speaker 1: have a way to provably represent something and transact it
Speaker 1: directly between nodes on the Internet, that would be really powerful.
Speaker 1: So we got this idea of hybrid model that connected
Speaker 1: the traditional banking system to these new public blockchain rails
Speaker 1: an infrastructure, and so we were always pursuing that um
Speaker 1: first with the consumer app, which tried to do it
Speaker 1: by building on top of the bitcoin network, which was
Speaker 1: not a great idea just because bitcoin Bitcoin didn't evolve
Speaker 1: so back in you know, the idea was, oh, bitcoin's
Speaker 1: first mover, there's a lot of open source developers, there's
Speaker 1: going to add a lot of capabilities. Back then, there
Speaker 1: was this idea of hey, you could issue other assets
Speaker 1: on top of it, and you could extend its programming
Speaker 1: model to support more sophisticated programming, and this idea of
Speaker 1: programm mobile money, which was really a motivation behind Circle,
Speaker 1: but it sort of struggled and and it went a
Speaker 1: different direction based the technology was really you know, there
Speaker 1: was sort of an ideological um uh kind of framing
Speaker 1: of that and then the sort of second generation of
Speaker 1: blockchain technology emerged in the form of ethereum, and that
Speaker 1: actually created the building box where we could actually create
Speaker 1: a protocol for dollars on the Internet, and that gave
Speaker 1: birth to USDC, which you reference but fundamentally circled. Just
Speaker 1: to come back to your core question. You know, we
Speaker 1: are a financial platform company. Were regulated in the United States,
Speaker 1: were regulated in other parts of the world as well,
Speaker 1: and we operate this stable coin market infrastructure known as USDC.
Speaker 1: We also just recently introduced a euro stable coin called
Speaker 1: euro coin or euroc and the stable coin market infrastructure.
Speaker 1: We we sort of face the market on what I'll
Speaker 1: call a wholesale or institutional level, and so lots of
Speaker 1: other companies can connect and build on top of it,
Speaker 1: and we issue and operate this and um. We also
Speaker 1: alongside that run a set of services that are really
Speaker 1: for for businesses, developers, startups, fin techs, others that want
Speaker 1: to really integrate this kind of technology into their own
Speaker 1: operations in different ways. But fundamentally, you know, the billion
Speaker 1: USDC and circulation are close to that today. You know,
Speaker 1: we we generate interesting come from those and so in
Speaker 1: the current rate environment, that's that's significant UM. And and
Speaker 1: then and then we have these other these other kind
Speaker 1: of what we call transaction and treasury services and crypto
Speaker 1: services that are kind of financial infrastructure as a service
Speaker 1: that we also monetize. So you mentioned the idea of
Speaker 1: being able to UM send and verify transactions through the
Speaker 1: through Internet nodes as being very very powerful. Can you
Speaker 1: explain that a little bit more? Because you know, when
Speaker 1: when I look at financial services today, if I want
Speaker 1: to deposit my money, I can do it in a bank,
Speaker 1: I can put it in a money market fund. If
Speaker 1: I want to send money, I can send it through
Speaker 1: a bank, and you know, I think we'd all agree
Speaker 1: that might not be the most efficient way of doing it.
Speaker 1: But I can also send money through something like PayPal.
Speaker 1: So what exactly is the value add here from sending
Speaker 1: money via the blockchain via ethereum in the case of circle, Like,
Speaker 1: what are we adding and how does it differentiate itself
Speaker 1: from traditional financial services? Yeah, so I think kind of
Speaker 1: come back to a few things just that are kind
Speaker 1: of first principles that we've been going after. UM. I
Speaker 1: think the first is the Internet itself is essentially this
Speaker 1: collection of open protocols that anyone can connect to. And
Speaker 1: as long as your computer can speak those protocols, you
Speaker 1: can do a lot of things. You can have direct
Speaker 1: peer to peer communications. You can put a piece of
Speaker 1: software on a on a server and then anyone with
Speaker 1: a browser can connect to that software. So it provides
Speaker 1: software distribution, um, it provides protocols for sending messages, mails,
Speaker 1: text messages, other things. So all these protocols exist and
Speaker 1: and alongside those there's what what is often referred to
Speaker 1: as the payload of those protocols. So there's sort of
Speaker 1: different types of data. So the Internet has basic you know,
Speaker 1: data zeros and ones, and it has more structured standard
Speaker 1: forms of data like uh an MP four audio file
Speaker 1: or a a piece of content on the web or
Speaker 1: all these different types of formats. But the Internet up
Speaker 1: until roughly ten years ago, lacked any protocols that allowed
Speaker 1: you to directly represent value too directly in an open protocol,
Speaker 1: and this is the key concept in using an open
Speaker 1: protocol to exchange that value. There was no built in
Speaker 1: data type on the Internet for money, and so there's
Speaker 1: obviously with the with the advent of cryptographic record keeping
Speaker 1: and and effectively these kind of ledger these kind of
Speaker 1: provable uh distributed ledger systems. You now actually have a
Speaker 1: building block that is on the public Internet that allows
Speaker 1: people to represent incorruptible, in controvertible data. And that's what
Speaker 1: money is. It's a record keeping system and it's a
Speaker 1: way to sort of adjust the entries of that. You've
Speaker 1: never had that on the public Internet. So along time
Speaker 1: something like bitcoin, which is a native form of money
Speaker 1: on the Internet, and so naturally the next kind of
Speaker 1: logical step was, well, what about if we could take
Speaker 1: the fundamental powers of that cryptographic money, which is accessible
Speaker 1: to any Internet connected device that can transact at the
Speaker 1: speed of the Internet, with very high security assurances and
Speaker 1: privacy assurances, with theoretically the ability to over time drive
Speaker 1: the cost of confirming and settling with finality those transactions
Speaker 1: to something approaching zero euro. Well, then that becomes incredibly powerful.
Speaker 1: That becomes as powerful as when you know, software made
Speaker 1: voice communications free on the Internet. So what if you
Speaker 1: could actually have protocols that could represent what we think
Speaker 1: of as a dollar. And we'll come back to that
Speaker 1: because that gets into a lot of like what makes
Speaker 1: us stable? Coin stable? What is money? What are dollars?
Speaker 1: All that fun stuff. But if you could, if you
Speaker 1: could actually have that and have a public protocol like
Speaker 1: we have HTTP for the Web, anyone can connect to it,
Speaker 1: can exchange data. It's given us all the world's knowledge
Speaker 1: instantly at effectively no cost. What if we could have
Speaker 1: a protocol for dollars and euros and pounds and other
Speaker 1: and other currencies. But let's just start with dollars and
Speaker 1: and make that accessible so that any person, any entity,
Speaker 1: and any software developer can directly transact those over the
Speaker 1: over the public Internet, and and doing it with with
Speaker 1: all those kind of built in features. So the way
Speaker 1: I put it is, the existing financial system doesn't have
Speaker 1: Internet superpowers, and now we have, through public blockchain infrastructure
Speaker 1: and and and mechanisms like stable quence, we now actually
Speaker 1: have dollars with Internet superpowers, and and that's really exciting
Speaker 1: for a whole host of reasons. So I want to
Speaker 1: dive into a bunch of those questions and some of
Speaker 1: the opportunities. Before I do, I want to take care
Speaker 1: of like one sort of maybe it's a housekeeping question
Speaker 1: or a sort of nuts and bolt question, but what
Speaker 1: is the status? Are you still going public via cn D?
Speaker 1: Is that still on yes, very much so, so we're
Speaker 1: in registration with the sec UM. We initially announced that
Speaker 1: about a year ago and in February. Because the the
Speaker 1: sort of initially announced deal had a sort of time
Speaker 1: and had to be completed in we were not going
Speaker 1: to hit that exact time, we kind of renegotiated the
Speaker 1: deal and did what I like to call a respect
Speaker 1: so we respect um instead of despact. So we respect
Speaker 1: and I think I'm on a noteworthy basis. The value
Speaker 1: of the company went up by a d percent, which
Speaker 1: is not what you've typically seen in SPAC deals. They've typically,
Speaker 1: in fact, almost universally gone the opposite direction. But that
Speaker 1: was we moved from a four point five billion dollar
Speaker 1: valuation to a nine billion dollar valuation, and our our
Speaker 1: financial outlook, you know, sort of had materially improved, and
Speaker 1: so that that was sort of happening. But we did
Speaker 1: a couple of other things. One was, you know, most
Speaker 1: spacts are also have a fund raise attached to them,
Speaker 1: called a pipe, and we had originally done about a
Speaker 1: four million dollar pipe, and that's a conditional financing. Once
Speaker 1: the transaction completes, then you get the money. We we
Speaker 1: eliminated that. We said there's no cash condition, we're going
Speaker 1: to eliminate the pipe. But instead we wanted the ability
Speaker 1: to raise capital privately because we had a lot of
Speaker 1: interest in the company and so why wait another six
Speaker 1: nine months or whatever it was. And so about a
Speaker 1: month or so after the respect, we announced a four
Speaker 1: million dollar financing with black Rock and Fidelity in Martial Waste,
Speaker 1: and so that was that was a private financing. So
Speaker 1: they purchased equity in the company privately. But we are,
Speaker 1: you know, in our sec comment review cycle and and
Speaker 1: and we anticipate the spacking in Q four. That's the
Speaker 1: current the current thinking right now, given the criticism around
Speaker 1: a lot of SPACs at the moment, do you do
Speaker 1: you kind of wish that maybe you you'd considered another
Speaker 1: venue for raising money or like, how do you feel
Speaker 1: about the process in retrospect? Well, it's interesting is that,
Speaker 1: you know, we we made a decision that we wanted
Speaker 1: to be a publicly listed company. We also, prior to
Speaker 1: doing our our spect transaction, had raised four fifty million
Speaker 1: dollars in a in a private fundrai is and then
Speaker 1: we've now just you know, recently raised this four million
Speaker 1: and we have a kind of robust financial outlook as well,
Speaker 1: So the capital raise wasn't really the essence of it.
Speaker 1: We wanted to become a public company, and at the time,
Speaker 1: the factis fact model seemed like an efficient way to
Speaker 1: become a public company. In retrospect, a crypto company in
Speaker 1: a novel new industry plus a renewed amount of scrutiny
Speaker 1: its facts. Hindsight, you could say, well, maybe that wasn't
Speaker 1: the right thing, but I think no matter what, because
Speaker 1: of the novelty of our business and and the nature
Speaker 1: of our business right it's it's just a longer review
Speaker 1: cycle to kind of become a listed company, which I
Speaker 1: think is totally appropriate because it's a whole bunch of
Speaker 1: different types of accounting issues and risk issues and disclosures
Speaker 1: and the like. And so the bottom line for us
Speaker 1: is we wanted to become a public company. We think
Speaker 1: as a kind of financial infrastructure company that lots of
Speaker 1: other people are building on top top of. It's actually
Speaker 1: really important to have that level of transparency, visibility, assurance, accountability,
Speaker 1: and that's what's really important for us at the end
Speaker 1: of the day. And so we're totally committed to that.
Speaker 1: And and so you know, in a sense because we
Speaker 1: were able to restructure even the deal that we had
Speaker 1: in ways that were I think very favorable for the company.
Speaker 1: We're like, let's just continue down that path and and
Speaker 1: just see it through. There's a lot of flavors of
Speaker 1: stable coins, so I want to get into some of
Speaker 1: the like what even is a stable coin? But does
Speaker 1: Tracy mentioned in the intro this year we've seen the
Speaker 1: collapse of the Terra stable coin. There's always scrutiny about
Speaker 1: tether and but you know, when thinking about how this
Speaker 1: is going to evolve, I have it's sort of a
Speaker 1: two part question on regulation, but a like what is
Speaker 1: a stable coin? Like what is the closest thing some
Speaker 1: people compare them to money market funds? What is a
Speaker 1: stable coin? And then because there are so many flavors,
Speaker 1: and because you know, I could be an anonymous person
Speaker 1: on the Internet based anywhere in the world and create
Speaker 1: some sort of algorithmic based stable coin or D five
Speaker 1: based stable coin where I hold other crypto assets and
Speaker 1: maker and die as an example of that, is there
Speaker 1: any prospect of a unified stable coin regulation that actually
Speaker 1: captures all these definitions? And who should be responsible if
Speaker 1: someone in the US buy goes onto an exchange and
Speaker 1: buy something that's called a stable coin. Who should be
Speaker 1: responsible for ensuring that, well it stays stable? Yeah, there's
Speaker 1: there's a lot of a lot of topics in there.
Speaker 1: So I think, um, and and and I think we'll
Speaker 1: get to the regulatory piece and sort of you know,
Speaker 1: how how you know, the average joe, no pun intended
Speaker 1: can differentiate all these things? Um uh, you know as well?
Speaker 1: And and and how to and how to regulators different
Speaker 1: differentiate these I think the first thing I would say
Speaker 1: is we didn't pick the name stable coin. You know,
Speaker 1: there's that was sort of like the market came up
Speaker 1: with that, that concept. And and what's interesting is if
Speaker 1: you kind of go through circles own you know, marketing
Speaker 1: and how we look at this, we keep talking about
Speaker 1: dollar digital currencies or fiat digital currency as opposed to
Speaker 1: the words stable coin. And I'm not sure if the
Speaker 1: words stable coin will be here forever. Although I didn't
Speaker 1: think the phrase worldwide Web was the best thing to
Speaker 1: describe this great internet thing that we were building, but
Speaker 1: it persisted. So whatever the name, it does then come
Speaker 1: into a well, well what is this and how do
Speaker 1: you differentiate these things? I think The really important thing
Speaker 1: to understand about the approach that we took, which was
Speaker 1: prior to launching USDC, we became broadly regulated in the
Speaker 1: United States as an electronic money transmitter, and that is
Speaker 1: a tried and true framework for payment system innovation in
Speaker 1: the United States. Virtually every contemporary electronic payment system innovation,
Speaker 1: whether that be um you know, things that maybe don't
Speaker 1: feel that innovative now, like you know, prepaid debit cards,
Speaker 1: but then PayPal, cash at Venmo, Apple, pay Stripe itself
Speaker 1: and many of the services it provides all kind of
Speaker 1: fit under this kind of framework. And under that is
Speaker 1: the framework that USDC is regulated. And so you know,
Speaker 1: despite the I think that the representation that these are
Speaker 1: on regulated, it's just not true. We've been regulated since
Speaker 1: day one on this and and money transmission regulation is
Speaker 1: designed to protect individuals. So that and it's the same
Speaker 1: kind of framework, and it's called the money in Europe
Speaker 1: and similar you know kind of regulations in Asia and
Speaker 1: pan and others. But basically, we are required by law
Speaker 1: two hold a one for one reserve against that electronic
Speaker 1: money instrument. We have to do it in segregated accounts
Speaker 1: that are not accessible to the company for its own operations,
Speaker 1: which are segregated in the event of something like an insolvency.
Speaker 1: So there's a framework that's there for for this kind
Speaker 1: of money, and it's used every day. We all use
Speaker 1: it every day, and so that does exist, and that
Speaker 1: is a reasonable framework for these But I think it
Speaker 1: is a new arena and there's a different level of
Speaker 1: transparency that's required. Like, no one's asking PayPal right now, Hey,
Speaker 1: that thirty five billion dollars of balances that hang out
Speaker 1: and PayPal like, what are you invested in? Are you
Speaker 1: taking risks? Are you doing? No one asked that because
Speaker 1: they understand that it's a regulated company that is not
Speaker 1: allowed to do much beyond just like cash and cash
Speaker 1: equivalence and that sort of short term stuff. But because
Speaker 1: this is crypto, and because these are these digital tokens
Speaker 1: that people are holding, and because of the history of
Speaker 1: hacks and thefts and fraud and all the other stuff,
Speaker 1: people are paranoid, justifiably, and so there's just a lot
Speaker 1: more scrutiny on these things, and I think that's appropriate.
Speaker 1: We actually just recently started publishing, and we're doing it monthly,
Speaker 1: and we intend to do it daily. Literally the acquisites
Speaker 1: for the serial numbers of every single three month or
Speaker 1: less Treasury bill that hold. So people literally could see
Speaker 1: what is the risk of this, and so you know,
Speaker 1: that's that's sort of a framework that's there now when
Speaker 1: you zoom out and you say, wow, there's all these
Speaker 1: different things. From a regulatory perspective, there has been an
Speaker 1: attempt and it started a couple of years ago when
Speaker 1: the G seven and then the G twenty and the
Speaker 1: Financial Stability Board, these sort of supernational groups of regulators,
Speaker 1: said hey, we need a framework to regulate what they
Speaker 1: called global stable coins, and and then they kind of
Speaker 1: came up, here's our policy recommendations, and then that kind
Speaker 1: of dropped down to the major G twenty countries, and
Speaker 1: then each country has kind of been working on this,
Speaker 1: and the recommendations in the US came out last fall,
Speaker 1: which was the p w G Report on Stable points,
Speaker 1: and they said, we need to regulate these. You need
Speaker 1: to regulate them within the kind of payment and credential
Speaker 1: supervision standards of the financial system, and we need to
Speaker 1: do that, they said, quote unquote urgently because there's something
Speaker 1: like a run risk that could happen, or theseings could
Speaker 1: get much bigger and get what happened there was a
Speaker 1: collapse of one of these so called stable coins, and
Speaker 1: that you know, emphasize it. Now Congress is really working
Speaker 1: on this very intently, and they were before the Terrort collapse,
Speaker 1: like bipartisan effort in the House and the Senate and
Speaker 1: others working on this. And now there's a definition and
Speaker 1: you know there's a uh, you know, a rumored bill,
Speaker 1: although I think it's pretty confirmed at this point, of
Speaker 1: a Payment Stable Point Act. So it's clearly defining these
Speaker 1: are for payments. They exist under the Payment System Banking
Speaker 1: Credential Supervision framework and you know, issuers of these have
Speaker 1: to sit under we'll have to presumably if these laws
Speaker 1: come into effect, have to sit under that kind of
Speaker 1: registration and supervision um framework. And you're seeing similar things
Speaker 1: emerged in the UK in Singapore have just gone into law.
Speaker 1: In the EU there's a whole framework for stable coins
Speaker 1: which will go into effect, and so kind of the
Speaker 1: the international regulatory community came up with the framework. It's
Speaker 1: kind of finding its way down into parliaments and congresses
Speaker 1: and others, and it's starting to define these things. Now.
Speaker 1: I think what you'll end up with is you're going
Speaker 1: to have you know, very clearly defined you know, payment
Speaker 1: infrastructure type stable coins like USDC I think clearly falls
Speaker 1: in that. And then you're gonna have other things that
Speaker 1: are probably classified in other ways. They might be synthetic derivatives,
Speaker 1: they might be classified as securities depending on what the
Speaker 1: activity is and there and there may be some categories
Speaker 1: which regulators are just still scratching their heads on and
Speaker 1: are not really comfortable regulating, but may put a perimeter
Speaker 1: around their use in markets. And so I would not
Speaker 1: be surprised if, you know, markets regulators in different markets said,
Speaker 1: you know, you can't put an algorithmic stable point on
Speaker 1: your exchange and co mingle that with these other things.
Speaker 1: And the analogy that I like to use is, you know,
Speaker 1: if you go into a supermarket and you go down
Speaker 1: one of the one of the aisles and you've got
Speaker 1: rat poison and baby food next to each other, and
Speaker 1: they're they're kind of positioned similarly. That's a real problem.
Speaker 1: And so market conduct is a real issue, and now
Speaker 1: regulators are focused a lot more on that, and so
Speaker 1: I think you'll see some things emerge which make it
Speaker 1: clear for people. So I think one of the confusing
Speaker 1: things about stable coins um to lots of people is
Speaker 1: it's kind of hard to disaggregate technological innovation from regulatory arbitrage.
Speaker 1: And you talked about, you know, the power of Internet
Speaker 1: powered dollars, So I guess my question is, like, a,
Speaker 1: what changes in the world once we have internet powered
Speaker 1: dollars or feat digital currency, whatever you want to call it,
Speaker 1: and be can you talk little bit more about that
Speaker 1: regulatory arbitrage idea, because I think there is a sense
Speaker 1: that you know, if I send money through a bank, sure,
Speaker 1: the bank probably has creaky infrastructure and is using like
Speaker 1: some old coding language that no one else does anymore,
Speaker 1: and it takes ages to send any money. But on
Speaker 1: the other hand, part of the reason it takes ages
Speaker 1: to send money might also be that they're doing k
Speaker 1: y C on their remittances and they're checking to make
Speaker 1: sure that you're not sending money to a terrorist or
Speaker 1: something like that. So how do you sort of disaggregate
Speaker 1: those two things, that the innovation versus the arbitrage criticism? Yeah, so,
Speaker 1: I mean there are a bunch of pieces to that.
Speaker 1: I think the first is, well, let's just talk about
Speaker 1: the innovation side first, which is the ability to have
Speaker 1: a representation of a dollar that you can directly transact
Speaker 1: with any counterparty in the world at a fraction of
Speaker 1: a second, with settlement finality, with very high security and
Speaker 1: privacy assurances, with significant throughput with a cost that is,
Speaker 1: you know, a nickel down to a tenth of a
Speaker 1: penny is really powerful that does not exist in the
Speaker 1: legacy financial system. And so everything from what we think
Speaker 1: of as remittances, which is you know, beaming value amongst
Speaker 1: businesses or individuals around the world, to the entire industry
Speaker 1: of payments in the world, which is effectively interchange or
Speaker 1: interchange plus, where businesses are paying effectively in many cases
Speaker 1: two or three percent of their gross sales for the
Speaker 1: right to receive a digital payment, to even the behavior
Speaker 1: of markets themselves, so capital markets, the ability for collateral
Speaker 1: to settle, the ability for people to take positions in markets,
Speaker 1: and the ability to kind of move between activities and markets.
Speaker 1: You know, we saw this with various things that happened
Speaker 1: in the plumbing of settlement that we're creating all kinds
Speaker 1: of issues for Robin Hood and other players. One of
Speaker 1: the things that's really interesting about stable coins is that
Speaker 1: the customers who I consider to be the most demanding
Speaker 1: customers in the world for dollar market infrastructure are avid
Speaker 1: users of stable coins, and those are electronic markets firms.
Speaker 1: Electronic markets firms want capital efficiency, speed, settlement assurance, and
Speaker 1: these are like critical to them and how they operate,
Speaker 1: and they love this infrastructure because it's so much superior
Speaker 1: to the existing correspondent banking system. So even in the back,
Speaker 1: in the depths and the bowels of capital markets and
Speaker 1: the functioning of capital markets, I believe stable coins can
Speaker 1: play a really big role. So it touches everything from
Speaker 1: retail payments to business payments, to how cash is managed
Speaker 1: for corporations, to the functioning of markets and capital markets.
Speaker 1: I think it played. It can play a very significant
Speaker 1: role in reducing cost, increasing speed, increasing transparency, auditability because
Speaker 1: of the nature of blockchains. And that's not to even
Speaker 1: begin to talk about what we got me really excited
Speaker 1: about this in the first place, which is this idea
Speaker 1: of having programmable dollars on the Internet or having programmable money.
Speaker 1: There's never been a mechanism where you can write tamper
Speaker 1: resistance software that codifies economic contracts that can execute between
Speaker 1: counterparties on the end directly on the Internet, whether it's
Speaker 1: a business or a labor relationship or other. And we're
Speaker 1: starting to see that as a as a really meaningful
Speaker 1: thing and defies. An example of that we could come
Speaker 1: back to that, which is the power of programmable money
Speaker 1: is when you start to see protocols developed that are
Speaker 1: building blocks and they're kind of like lego bricks that
Speaker 1: people are putting together for the use of money. So
Speaker 1: there's a lot that's there now. The regulatory arbitrage question,
Speaker 1: I think is a great one, and there's always been
Speaker 1: this issue, and I think it's a it's a really
Speaker 1: vexing issue, and I don't think this is just a hey,
Speaker 1: we're just like waving our hands over here so that
Speaker 1: everyone can have, you know, some new ultra libertarian system
Speaker 1: of money. That's I mean, there's certainly are people who
Speaker 1: are doing that, but I think at the core we've
Speaker 1: not dealt with how the implications of money on the
Speaker 1: public Internet and the you know, the the issue from
Speaker 1: a regulatory perspective is, well, governments actually care a lot
Speaker 1: about you know, the safety and soundness of those instruments,
Speaker 1: which we kind of touched on a little bit. They
Speaker 1: also care about Essentially, the social contract that financial intermediaries have,
Speaker 1: and the social contract that they have is that they
Speaker 1: are agents of law enforcement and they have a responsibility
Speaker 1: to police transactions and report them to the government in
Speaker 1: most parts of the world. And so can you do that?
Speaker 1: And the answer is yes, you can. But the answer isn't, well,
Speaker 1: let's just use all the gum and bailing wire of
Speaker 1: the existing financial system. It's actually, how do we actually
Speaker 1: use the building blocks of cryptography to enable identity proofs,
Speaker 1: of identity proofs about individuals and entities on these networks
Speaker 1: and actually improve privacy, improve security, which are important and
Speaker 1: important values that we should uphold, but also ensure that
Speaker 1: these kinds of compliance obligations can be met. And you're
Speaker 1: seeing that already happening today. You're seeing companies that can
Speaker 1: operate with you know, a hundred million plus consumers that
Speaker 1: are on their platforms with very very detailed compliance infrastructure,
Speaker 1: and we certainly do that in an institutional level. So
Speaker 1: I I think it's a kind of false dichotomy in
Speaker 1: a sense. So I want to ask you a question, sorry,
Speaker 1: specifically about that and the idea that it's like, okay,
Speaker 1: you know, and again I sort of mentioned it in
Speaker 1: the intro, some of these getting away from some of
Speaker 1: the sort of pure libertarians, cipher punk roots of crypto.
Speaker 1: But you know, if the government comes to you circle
Speaker 1: and says, you know what it looks like, this person
Speaker 1: who holds a bunch of U S d C is
Speaker 1: a terrorist or a suspected terrorist or a drug deal
Speaker 1: or something like that, I presume, okay, you could freeze
Speaker 1: those coins easily. How do you deal with that internationally?
Speaker 1: You know what if say just and just throwing out,
Speaker 1: you know, the UK government wants you to freeze the
Speaker 1: accounts of someone living in the US, or the Turkish government,
Speaker 1: someone an activist in the US. How do you deal
Speaker 1: with requests to freeze wallets and comply with governments and
Speaker 1: regulatory regimes all over the world. It's a great question,
Speaker 1: and I think many of these scenarios have not been
Speaker 1: pressure tested. So USDC as an industry act and circles obligations. Specifically,
Speaker 1: we have obligations as a regulated financial institution here in
Speaker 1: the United States. We are subject to the laws of
Speaker 1: the United States. Any transactions that we are directly involved
Speaker 1: in where we are in fact intermediating that transaction, we
Speaker 1: have very clear statutory obligations to block, to stop, to report,
Speaker 1: to do all these things. And we have a long
Speaker 1: track record of working constructively with with law enforcement, including
Speaker 1: law enforcement requests from around the world. Now when it
Speaker 1: comes to USDC and circulation, there's a very different bar there,
Speaker 1: and you know, we are not responsible for all the
Speaker 1: activity of someone who is using a digital currency every
Speaker 1: in every corner of the world. There are regulations, however,
Speaker 1: in markets all around the world, and these have been
Speaker 1: established through international anti money laundering and countering term and
Speaker 1: finance standards organizations like fat IF, the Financial Action Task Force.
Speaker 1: There are standards now where if you are in the
Speaker 1: business of intermediating digital asset transactions, you have to register
Speaker 1: in your country, you have to have demonstrated anti money
Speaker 1: laundering and CTF programs, you are under supervision and inspection.
Speaker 1: And that's happening all over the world, and there's sort
Speaker 1: of under fat IF, there's kind of like no place
Speaker 1: to hide, and that is now uniform that's being rolled
Speaker 1: out everywhere. And so as a as an individual, you know,
Speaker 1: if you want to operate in then in this new
Speaker 1: world with digital assets, you're increasingly operating in a world
Speaker 1: where the intermediaries are are having to meet the statutory requirements.
Speaker 1: We do have a certain obligation though, which is we
Speaker 1: have the ability to under a what we would deem
Speaker 1: to be a binding court order from a competent jurisdiction
Speaker 1: in the US, we have the ability to block an
Speaker 1: address and transacting and that has happened I believe, eighteen
Speaker 1: times in the history of U SDC, and the vast
Speaker 1: majority of those, in fact, I think nearly all of
Speaker 1: those are specific addresses that the Office of Foreign Asset
Speaker 1: Control oh FHAK has deemed to be sanctioned addresses on
Speaker 1: the blockchain. And so when the when, when what's called
Speaker 1: the s d N list, the Sanctions Named Entity List
Speaker 1: is updated, we are we get a real time do
Speaker 1: that and if that happens, then there's this we have
Speaker 1: a sort of statutory obligation to prevent transactions from happening
Speaker 1: on that. Now I can imagine, as you just did,
Speaker 1: scenarios in the future which are going to pressure test
Speaker 1: some of this, and I think is it raises very
Speaker 1: complex questions. I think these are questions that are not
Speaker 1: dissimilar from questions raised over should Apple provide governments with
Speaker 1: a backdoor to iPhones. They're they're kind of fundamental kind
Speaker 1: of financial integrity issues and and this is an opportunity
Speaker 1: for policymakers everywhere in the world as regulations come into
Speaker 1: this space to really figure out what are the inherent
Speaker 1: values of internet financial system and what obligations do different
Speaker 1: entities have. And the preservation of security and privacy are
Speaker 1: very important in information and data and communications, but there
Speaker 1: are boundaries to that and what are those boundaries and
Speaker 1: how are there's going to be tested? So it's still
Speaker 1: the early innings on this, to be clear, um, and
Speaker 1: I don't pretend to have all the answers either, So
Speaker 1: setting aside regulation for a second, and I realize that's
Speaker 1: kind of a big thing to set aside. But there
Speaker 1: is the sort of other existential threat hovering over stable coins,
Speaker 1: which is competition from central banks. So central banks considering
Speaker 1: issuing their own digital currencies in one way or another.
Speaker 1: How would the successful launch of a CBDC, How would
Speaker 1: that affect your business? Yeah, I would kind of maybe
Speaker 1: reframe it a bit. And this is certainly a topic
Speaker 1: that falls into the frequently asked questions topics in our world.
Speaker 1: I think today central banks and and the regulators that
Speaker 1: are embedded in central banks. Their highest priority right now
Speaker 1: is putting in place supervisory frameworks for private sector digital
Speaker 1: currency activity and innovation in the form of stable points.
Speaker 1: And I think you've seen this in the testimony of
Speaker 1: Chairman Powell and Secretary Yellen, who said private sector stable
Speaker 1: cooin bring a lot, there's a lot of value. We
Speaker 1: need to have a clear regulatory framework. And I think
Speaker 1: increasingly the view is that private sector innovation is happening now.
Speaker 1: The sort of open internet infrastructure in the form of
Speaker 1: blockchains and digital assets is a very significant, dynamic economic
Speaker 1: sector that is growing and is a source of competitiveness
Speaker 1: increasingly around the world. And the focus is on let's
Speaker 1: let's work with this private sector and public infrastructure model
Speaker 1: and developed that. Now there continues to be what all
Speaker 1: kind of characterizes as as research in the realm of CBDC.
Speaker 1: It's not clear to me that many central banks ultimately
Speaker 1: want to be in the business of providing retail payment systems.
Speaker 1: There It is not a fundamental core competency. And in fact,
Speaker 1: I think one could argue that the vast majority of
Speaker 1: individuals and entities and business is would rather that there
Speaker 1: be an air gap between their wallet or their pocketbook
Speaker 1: and their money and the government. And that is actually
Speaker 1: how money in circulation works today. It's intermediated. And so
Speaker 1: I think that would continue. Now, could there be wholesale
Speaker 1: upgrades to central bank clearing systems that use cryptographic money
Speaker 1: and distributed ledger technology? Yes, you know, as I like
Speaker 1: to say, the dollar is actually a cluster of Oracle
Speaker 1: databases running on on on micro computers. That as actually
Speaker 1: what the architecture of the dollars you could you could
Speaker 1: you could really benefit from upgrading that, Like there's a
Speaker 1: there's a better, maybe wholesale architecture, And in fact, a
Speaker 1: lot of the buzz now is like wholesale CBC, like
Speaker 1: maybe there's a way to do something that could work
Speaker 1: between central banks and so and and and actually, like
Speaker 1: you could make a pretty good argument for like modernizing infrastructure.
Speaker 1: But I think our view, and I'm granted I am
Speaker 1: certainly biased in this, our view is that the velocity
Speaker 1: of technical innovation that's happening right now in blockchain infrastructure
Speaker 1: and in the delivery of this technology out to kind
Speaker 1: of global scale users on the internet and businesses on
Speaker 1: the Internet, that's that's like a here now thing it's happening,
Speaker 1: it's going to scale out in the next few years.
Speaker 1: That's why regulators are so focused in on it, because
Speaker 1: this could become Internet scale in the next few years.
Speaker 1: And that is how the digital currency is going to
Speaker 1: become something that people are using in everyday life. And
Speaker 1: it's interesting, you know, if you look even you know, recently,
Speaker 1: I think there was a report from Japan where the
Speaker 1: Central Bank in Japan basically determined that there's just no
Speaker 1: interest in a CDC from the government. But at the
Speaker 1: same time, many there are startups in the digital assets
Speaker 1: space and certainly other banks that are launching end stable
Speaker 1: point projects. And so I think that this is something
Speaker 1: you're going to see play out more, especially over the
Speaker 1: next year or two, which is private sector activity in
Speaker 1: this space is going to grow. This is you know, um,
Speaker 1: what would you would you like to go back to
Speaker 1: mob bell or do you want you know, Skype and
Speaker 1: signal and and you know kind of software on the
Speaker 1: internet for for how you're doing communications. And I think
Speaker 1: it's similar kind of dynamic that will play out here. Yeah,
Speaker 1: I'm kind of convinced that the whole CBDC conversation is
Speaker 1: just an excuse for regulators and central bankers to sound
Speaker 1: interesting on panels. But anyway, I'm sorry to be so cynical.
Speaker 1: I want to move on. You know, you mentioned that
Speaker 1: in the primary public blockchain over which USDC has traded
Speaker 1: as ethereum, but not just on ethereum, you're actually I
Speaker 1: think I'm looking at website nine chains right now, Algorand
Speaker 1: and Salana and Toronto and some of these other avalanche
Speaker 1: and presumably more. I want to ask, it's been a
Speaker 1: while since there's been a really big contentious chain split
Speaker 1: in the crypto world. And the biggest one that really
Speaker 1: was a big fight was a big win in bitcoin cash.
Speaker 1: There was also Ethereum and a theorem classic that was
Speaker 1: before you came on the scene. What did you What
Speaker 1: would you do if there's another one? And it's possible
Speaker 1: that with the Theeum we could see it, because with
Speaker 1: the merge happening, there could theoretically be new chains where
Speaker 1: the new proof of work of the new proof of
Speaker 1: state chain. You know, if when past forks, maybe not
Speaker 1: a big deal because everyone had the same asset represented
Speaker 1: on both chains, and it doesn't really matter, you know,
Speaker 1: you just see which one wins out. I would assume
Speaker 1: you have to choose, and people have written about this.
Speaker 1: You could be in a position where you circle or
Speaker 1: the kingmaker of a fork, deciding which chain someone's U
Speaker 1: S d C holdings actually have claimed to the dollars
Speaker 1: in your bank account. And so with this ethereum merge
Speaker 1: happening in some of the ambiguity about that and the
Speaker 1: possibility for a contentious split maybe on some of these
Speaker 1: other chains, how do you think of your role as
Speaker 1: a kingmaker and who gets the dollars? It's a very
Speaker 1: nuanced issue in question. Obviously, we look very clearly at
Speaker 1: the broad community and the activity of that community. Where
Speaker 1: is the leadership from a technical perspective in that community,
Speaker 1: Where are the major projects and protocols and applications and
Speaker 1: infrastructure providers and tooling companies and everyone. What are they
Speaker 1: focused on? And we want to be aligned with the
Speaker 1: overwhelming kind of consensus in the community. UM Now, we
Speaker 1: have to make decisions that are rooted in safety, soundness, security,
Speaker 1: So those are like paramount. We can't do anything that
Speaker 1: would jeopardize the safety or or security of the USDC
Speaker 1: as a protocol. And so, for example, if the merge
Speaker 1: went forward and then it failed and it needed to
Speaker 1: be rolled back. Like these are things we have to
Speaker 1: have very very very detailed operational playbooks that are deeply
Speaker 1: aligned and where we're working in concert with all of
Speaker 1: the other actors in the ecosystem during that process. And
Speaker 1: that's exactly what we're doing without getting into all the details.
Speaker 1: So there's a kind of operational risk management piece of this,
Speaker 1: and fundamental safety sound a security piece of this. So
Speaker 1: so those are the most important things, but over overall,
Speaker 1: the focuses on, you know, where where is that community going,
Speaker 1: And in the case of Ethereum, it's it's pretty clear
Speaker 1: where that is um and uh, and it's not possible
Speaker 1: for us to kind of like you said, it's not
Speaker 1: possible for us to have you know, USDC on these
Speaker 1: kind of forked itself. Right, you can't do that. But
Speaker 1: but but if if, for example, there's a large community
Speaker 1: of miners and developers and others that are very committed
Speaker 1: to a proof of work Ethereum and sort of Ethereum
Speaker 1: Classic continues to actually grows and flourishes and so on,
Speaker 1: we would analyze that as a new chain. Is that
Speaker 1: a aim that has a robust developer ecosystem. Is that
Speaker 1: a chain that UM where there's going to be more
Speaker 1: and more people building applications, and we would evaluate that
Speaker 1: against a whole set of criteria that we'd used to
Speaker 1: evaluate any new chain that would be treated completely as
Speaker 1: a new as a new chain UM. So you know,
Speaker 1: we're committed to the merge. We think it's a very
Speaker 1: very important infrastructure UM improvement for ETHERORYUM, but obviously we
Speaker 1: have to look at it first informist from the perspective
Speaker 1: of fundamental safety, sound and security. So since Joe asked
Speaker 1: you a technical question about forks, I'm going to ask
Speaker 1: you a technical question about treasuries. So you know, you
Speaker 1: said earlier in the conversation that Circle is now publishing
Speaker 1: its reserves on a regular basis, and you're doing it
Speaker 1: with a lot of granular detail, including publishing with us UPS,
Speaker 1: and a big portion of your holdings is treasury bonds
Speaker 1: and T bills in particular, And I'm just wondering the
Speaker 1: recent volatility that we've seen in the market for US
Speaker 1: government bonds, the jump and yields, how does that impact
Speaker 1: the backing for USDC and how do you sort of
Speaker 1: manage that type of volatility. So at the at the
Speaker 1: short end, which is basically you know, three months or less.
Speaker 1: It's very very different than you know, two years, five years,
Speaker 1: ten years, etcetera. So obviously we focus on the most liquid,
Speaker 1: the most stable components of that. At the end of
Speaker 1: the day, however, because we are buying short term government
Speaker 1: obligations from the government effectively that are due at face value.
Speaker 1: Unless you believe that the US government itself is not
Speaker 1: going to pay those bonds in the next month or
Speaker 1: two months or three months at the outer limit, you know,
Speaker 1: that's really your fundamental risk, right, that's what you're you're
Speaker 1: testing for. How how something might trade in the market
Speaker 1: is different than when the actual obligation comes due and
Speaker 1: you get paid. You get paid the face value plus interest.
Speaker 1: I mean, that's the way those work. And so we
Speaker 1: are effectively consuming that government obligation risk, that short term
Speaker 1: government obligation risk. We you know, if if the price
Speaker 1: of a three month T bill trades in the market differently,
Speaker 1: I think the question would be, if we were forced
Speaker 1: to redeem a hundred percent of the reserves in a day,
Speaker 1: could we do that? And the answer is yes. With
Speaker 1: the exception of the bank settlement system, itself, which can't
Speaker 1: do that. And so we we do daily stress testing
Speaker 1: to obviously understand what that you know, those anomalies would
Speaker 1: be UM and UM and and we ensure that we
Speaker 1: are able to withstand something like that both with cash
Speaker 1: and with with that with those obligations. But I think
Speaker 1: the the important thing is, you know what the way
Speaker 1: that USDC is structured today as an elect tonic money
Speaker 1: instrument uh in under you know, money transmission statutes, with
Speaker 1: the particular reserve model that the you're you're talking about
Speaker 1: government default risk in a ninety day window. I mean,
Speaker 1: that's really what you're we have to hone in on.
Speaker 1: And if that's the case, we probably have bigger issues
Speaker 1: than whether USDC can can redeem a I have one
Speaker 1: very short question. Are you a customer or sorry, a
Speaker 1: client or trading partner of the primary dealers? Is that
Speaker 1: how you get your paper? So what we have publicly
Speaker 1: disclosed is that black Rock is the asset manager that
Speaker 1: administers the buying and selling of US government treasuries, and
Speaker 1: so black Rock might face the direct treasury auctions or
Speaker 1: the market as a whole um and so black Rock
Speaker 1: access or asset manager and bank of New York Mellon
Speaker 1: is the sole custodian for those securities. One final, like
Speaker 1: sort of broader question is I sort of get I
Speaker 1: get stable coins are attractive, particularly for DeFi type things
Speaker 1: in which the programmability of the economic relationship is distinct,
Speaker 1: and maybe that's hard to do in a sort of
Speaker 1: open permissionless way with a dollar that I might hold
Speaker 1: with PayPal or something like that. I'm curious whether there's
Speaker 1: any organic retail demand actually for stable coins as payments.
Speaker 1: Is this use case that's actually taken off and it
Speaker 1: seems like there's a number of drawbacks with a stable coin.
Speaker 1: You have to buy them. I don't get interest if
Speaker 1: I hold USDC, at least not natively, I might have
Speaker 1: to take some additional risk. And also with like dollar
Speaker 1: payments or traditional fiat payments, I often get rewards and
Speaker 1: people get frequent Flyer miles or cash back or things
Speaker 1: like that, which again I don't think is the case
Speaker 1: with stable coins. What is there a retail proposition or
Speaker 1: is it primarily institutional slash specific programmable things like defile
Speaker 1: in which the growth is going to come. In our experience,
Speaker 1: we're seeing rapidly evolving and expanding use cases. So we're
Speaker 1: seeing use cases in large corporate enterprises that are looking
Speaker 1: at this as a way to make payouts to contractors, suppliers,
Speaker 1: and others internationally because they could do it more efficiently
Speaker 1: and reach more places. We have lots and lots of
Speaker 1: companies in emerging markets that are building kind of neo
Speaker 1: banking like products where they want a fast, cheap dollar
Speaker 1: settlement mechanism that is ultimately liquid to the US dollar
Speaker 1: banking system. We are seeing some of the biggest payments
Speaker 1: companies in the world Visa, MasterCard, Stripe, World pay MoneyGram
Speaker 1: actually embedding and using USDC as a payment settlement mechanism itself.
Speaker 1: So that's more in the in the At a settlement
Speaker 1: infrastructure level, we are absolutely seeing interest from major retail
Speaker 1: type companies, but there's still a lot to pieces that
Speaker 1: are missing for that to really take hold. So my
Speaker 1: my sort of high level of view on this is,
Speaker 1: you know, there's sort of the infrastructure level, meaning we
Speaker 1: need these blockchains to reliably support very high throughput. We're
Speaker 1: actually right on the right on the cusp of that.
Speaker 1: We're seeing, you know, block chains that can do visa
Speaker 1: scale throughput, but we're seeing more and more of that
Speaker 1: infrastructure there. So we need to see that and that's
Speaker 1: sort of a happening now. It's kind of like going
Speaker 1: from dial up to broadband. We're sort of the broadband
Speaker 1: is getting rolled out as we speak, and then the
Speaker 1: applications follow. We also need to solve some of the
Speaker 1: user experience issues, and so the user experience of digital
Speaker 1: wallets that make payments with stable coins. A lot of
Speaker 1: the digital wallets, the orientation of those is still towards
Speaker 1: people who are buying or trading or using defy and
Speaker 1: what we really need are the the wallet apps that
Speaker 1: we all know and love to just allow this as
Speaker 1: a as a payment rail and that will unlock more
Speaker 1: of that consumer piece. But from a business perspective, it's
Speaker 1: really interesting because on the business side, you know big retailers,
Speaker 1: e commerce firms and lots of others. They have a
Speaker 1: very big pain point because you're talking about razor thin
Speaker 1: gross margins in those businesses and you're looking at their
Speaker 1: cost of digital payment acceptance is a huge piece when
Speaker 1: you when you when you look at it, so there's
Speaker 1: a lot of incentive to see something like stable coins
Speaker 1: work at scale, and so I think you'll see more
Speaker 1: of that, and and you have to solve problems like
Speaker 1: the effectively how does affinity and loyalty and rewards work
Speaker 1: with digital wallets, with with crypto native digital wallets. And
Speaker 1: you're starting to see really interesting experimentation with the technology
Speaker 1: known as n f t s, which are a mechanism
Speaker 1: of entitlement and affinity, and that technology combined with stable
Speaker 1: coins actually starts to give you some building blocks to
Speaker 1: really actually innovate in the delivery of very strong consumer
Speaker 1: value propositions. But it's still early, so I don't like
Speaker 1: to oversell on that because I still think we have
Speaker 1: another couple of years before we start to see that
Speaker 1: happening in a large scale way. All right, well, Jeremy Alaire,
Speaker 1: CEO of Circle. You know, I I there's so many
Speaker 1: interesting things that are raised by this conversation. We've gotta
Speaker 1: have you back sometime because it does, uh fascinating conversation
Speaker 1: about how money and finance and payments actually works. So
Speaker 1: I really appreciate you coming on the podcast. My pleasure,
Speaker 1: really enjoyed the conversation. Thanks so much, Jeremy. That was great.
Speaker 1: So I think that at the current trajectory, Tracy, Jeremy
Speaker 1: and circle is clearly on pace to be like one
Speaker 1: of the most important players in crypto. Look at the
Speaker 1: biggest coins right now, and I'm looking at coin get
Speaker 1: Go obviously, Bitcoin, Ethereum, tether, whole sort of separate conversation,
Speaker 1: and then there's usdc coin, and it's the only one
Speaker 1: of those big ones that's like heavily regulated, it's growing rapidly,
Speaker 1: it's at it. It's at the core of sort of
Speaker 1: defy stuff like this is gonna be one way or another.
Speaker 1: This is like a really important player. Well, I think
Speaker 1: it gets back to the technological innovation versus regulatory arbitrage question,
Speaker 1: which is, if the stable coins using blockchain technology are
Speaker 1: genuinely a technological innovation of some sort, then in some
Speaker 1: sense they should welcome regulation, right because it would give
Speaker 1: everyone a lot more comfort. People wouldn't be as worried
Speaker 1: about what's actually backing the stable coins and things like that.
Speaker 1: Although I know you made the point earlier about it
Speaker 1: is a far cry from the origins of cryptocurrency and
Speaker 1: the sort of anti government sentiment a bitcoin, I do
Speaker 1: think that. So it's like, Okay, what are the sort
Speaker 1: of characteristics of crypto that are maintained even in a
Speaker 1: more sort of regulated uh, in a more regulated situation.
Speaker 1: And I think one of the most compelling to me
Speaker 1: is this idea of sort of compose ability and programmability
Speaker 1: and so yes, if you have your money, if you
Speaker 1: enter the crypto space through a stable coin like USDC,
Speaker 1: then there's all sorts of you know, anti money laundering
Speaker 1: hoops that you have to go through, and they verify,
Speaker 1: verify who you are, and theoretically they can freeze your coins.
Speaker 1: So then what do you have? You know, I think
Speaker 1: in theory, it's the idea. You know, it gets back
Speaker 1: to this idea. It's like, well, could someone program a
Speaker 1: bank that exists on ethereum that then anyone can interact
Speaker 1: with once they're in the ecosystem. And of course we
Speaker 1: haven't seen that yet. I mean, as you know, it's
Speaker 1: all we have. We don't have banks yet, we just
Speaker 1: have a we have sam bankman freed boxes. But if
Speaker 1: something like that became an actual sort like useful economic
Speaker 1: enterprise beyond speculation, then the idea of like the stable
Speaker 1: coin issuer as the gateway to that such that the
Speaker 1: bank itself doesn't have to then conduct its own you
Speaker 1: know sort of regulatory um, you know, regulatory rails. Then
Speaker 1: maybe that is the case for crypto in some way,
Speaker 1: it does feel a little bit like circular. Uh again,
Speaker 1: no pun intended to me though, because you know, it
Speaker 1: starts with let's get away from the banks, and then
Speaker 1: it goes back to let's get a bank charter and
Speaker 1: go right back to the banks. Right, So then right exactly,
Speaker 1: it's like we're just back in the banks. It's it's
Speaker 1: US d it's dollar, it's fiat currency, it's held in
Speaker 1: the bank. So then what's left is like theoretically this
Speaker 1: programmability and this idea that maybe because it's on an
Speaker 1: open blockchain and anyone can write a piece of saltware
Speaker 1: that lives on ethereum, then maybe that opens up new
Speaker 1: economic types of relationships that couldn't more easily be done
Speaker 1: via fiat currency on oracle databases. Yeah. But then of
Speaker 1: course the question is why don't the banks just do it? Right?
Speaker 1: Like JP Morgan can start issuing its own stable coin
Speaker 1: on blockchain, yeah, and JP Morgan could theoretically create its
Speaker 1: own um ethereum clones so that someone so that entities
Speaker 1: could write programs because there's lots of you know the
Speaker 1: the Ethereum virtual machine. There are a lot of ethereum
Speaker 1: like chains out there. Why not JP Morgan chain that
Speaker 1: competes with ethereum, which upon which they can run jpm coin.
Speaker 1: It'll be really interesting if this keeps growing. You have
Speaker 1: to imagine the impulse on the banks, like they're going
Speaker 1: to want a piece of that, sort of the layer
Speaker 1: one action, so to speak. Well, anyway, I enjoyed that conversation.
Speaker 1: I think we should do more on stable coins because
Speaker 1: it does throw up a lot of interesting questions, not
Speaker 1: just about the design of the financial system, but basically
Speaker 1: about the way money functions. Right, Yeah, and you know,
Speaker 1: I do think the chain split question and maybe it
Speaker 1: won't be a big deal with the coming Ethereum merged.
Speaker 1: But you know, our friend who we had on after
Speaker 1: the terror Luna collapse, Gaila Capital, has been tweeting a
Speaker 1: lot about he thinks there's more ambiguity with the coming
Speaker 1: Ethereum merged and perhaps the market appreciates and the possibility
Speaker 1: for multiple change, maybe three chains to come out of that.
Speaker 1: And yes, you could say, okay, all the activity is
Speaker 1: here on what vitalit calls the main eight chain, but
Speaker 1: there could be some contention, and it could be interesting.
Speaker 1: You know, USDC would certainly be the kingmaker, so to speak.
Speaker 1: Where they put the money, you know, they're so big.
Speaker 1: Where they put the money is probably going to be
Speaker 1: the chain that unambiguously wins. I sends another episode coming
Speaker 1: up on interchain operability fairly soon as well, and we
Speaker 1: really we got to do something on the merge and
Speaker 1: ethereums uh and the switch to proof of work because
Speaker 1: there's like our sorry, the switch to proof of steak,
Speaker 1: because this is a pretty big, pretty big event that's
Speaker 1: coming up supposedly in September. All right, let's do it.
Speaker 1: Shall we leave it there for now? Let's leave it there. Okay,
Speaker 1: this has been another episode of All Thoughts podcast. I'm
Speaker 1: Tracy Alloway. You can follow me on Twitter at Tracy Alloway,
Speaker 1: and I'm Joe Wisn't Though. You can follow me on
Speaker 1: Twitter at the Stalwart. Follow our guest on Twitter, Jeremy Alaire.
Speaker 1: He's at j E. R. Alaire. Follow our producer Carmen
Speaker 1: Rodriguez at Carmen Arman, and check out all of the
Speaker 1: Bloomberg podcasts under the handle at podcasts. Thanks for listening,