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The New Rails of Money: Stablecoins, CBDCs & Tokenisation

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In the void of policy, people are policy.

policy.

>> There are more less informed people than

informed people on the topic.

>> If the technology is still a

protagonist, then you know the sector is

very early. Digital assets will be seen

as like cloud infrastructure for

payments and settlement and lending and

credit and all this activity, but it

will augment existing business models

rather than entirely disrupt them.

>> You should come here and then we'll talk

about cloud. We're still in generation one.

one.

I think you guys could do incredibly

well if you dropped the word crypto.

>> The thing we should all be afraid of is

up until today so much of the crypto

market has been defined by the worst

actors. If all we do with quote crypto

is create a digital twin of the

underlying economy with all of its

systemic inequities baked into it and

all of its cost structures and the hurry

up and wait properties of moving money.

Hello ladies and gentlemen and welcome

to today's episode of Couchomics with

Arjun. Um I have uh I guess I should

call him a very special guest because he

is the fourth person in the 150 odd um

uh I guess individuals I've had the

pleasure to speak to who's made their

second appearance. Um, last time I spoke

to Dante Desparte who is the global head

of strategy and policy at Circle was in

November. Uh, we were at the Singapore

Fintech Festival. Uh, this time we're

online and he's u tuning in from

Washington DC. Dante, welcome.

>> Well, as as always, it's great to be

back on with you and I'll take I'll take

the uh dubious distinction of being a

repeat offender on the program.

You should. You should. I'll tell you

the one big difference between the last

time and this time when we spoke, I now

know how to spell stable coins.

>> And I now have a head of gray hair.

>> I can see that, too. I was not going to

make the point. I'm like, you know, I

was as as we were getting ready, I said

in stable coin years, it feels like a

lifetime uh uh since we la since we last

met. So, uh well, no, in in all intents

and purposes, you know, congratulations

for all the stuff which is going on with

Circle. I think you know there's there's

a lot of stuff which we'll hopefully

unpack. Uh you know as I was preparing

for this I was like this is going to

become like a 2-hour discussion. So we

will not keep it for 2 hours. We'll try

and keep this to 40 45 minutes. I'm sure

you got better things to do than to

speak to me. Uh as always if I come

across as remotely stupid please correct

me but you know that's the part of the

learning curve and which is what I enjoy

most about the episode. So D I'll kick

it off. Um I guess um let me just start

with simple sort of stable coin nation

state of the nation check-in

>> right I think aggregate supply is over

$250 billion right and you'll correct me

if I'm wrong here um just paint a

picture of what's actually happened in

the last seven eight months since we

last spoke uh and and sort of what sort

of signals should we take away from you

know these massive numbers and all the

all the all the news and the noise

>> yeah for first it's it's It's a really

good question and in some ways that

sixmonth check-in since we last saw each

other in Singapore um has been in some

ways the most decisive in the sector's

history and frankly not because the

technology has magically come of age or

the original use cases or value

proposition of stable coins have come of

age but frankly because of regulatory

policy and you know country level

clarity in the United States that is the

biggest single change that we have seen.

And if you rewind the tape, you know, to

January of this year, um the incoming

then incoming administration, President

Trump's administration set a whole host

of whole of government um efforts in

motion. Um number one, as we say in the

policy world, in the void of policy,

people are policy. And so the president

named David Saxs um as an AI and cryptozar.

cryptozar.

Uh shortly thereafter, a gentleman by

the name of Bo Hines was also put in

place to sort of help drive a whole of

government digital assets agenda. A lot

of the legislative proposals that were

in both the House and the Senate got new

life, new life breathed into them and uh

and they started advancing. Um we saw

the passage of not one but two distinct

digital asset legislative proposals. uh

one of them, the Genius Act, which I

suspect we'll spend the most time

talking about, passed the Senate uh with

18 Democrats voting in favor of it. And

the other one is a digital asset market

structure proposal called Clarity, uh

which also came out of the House

Financial Services Committee. Uh and so

the sum of all of these activities

starts to do frankly what I think has

been the missing link in this industry

for years now which is to ensure that

the United States of America takes its

seat at the table and by virtue of

having the largest reserve currency in

the world and by virtue of being you

know such an integral part of the global

economy now more and more institutional

players can come into this market be it

for the trading side of it or the

payments innovation side of it with more

shity that what they're engaging in has

legal regulatory clarity in the US. I

think that's the biggest change since we

last saw each other.

>> You know, and I and I do agree in the

sense that, you know, I I've tried to

immerse myself as much as I could on the

topic of digital assets because I guess

that's pretty much what I do for a

living, which is sort of consult a lot

of institutions financial and otherwise.

And and I think you know digital assets

in the in in the general term has been

very interesting. It's been evolving and

I think from a regulatory perspective as

well as I will do come I will come to

the G gen Genius Act later. I haven't

been able to completely understand it,

but I will uh I'll I'll I'll phrase a

very provocative question. I'll wait for

your answer on that. But you mentioned

>> I'll get to prove if I'm a genius, in

fact, on crypto policy when you ask

those questions.

>> Well, you know, it's it's on your title.

It says it says what it says on the tin.

So, I I expect it delivers. You

mentioned use cases, right? I I think

you know uh there's a lot of the

audience which still is if I may say I

think there are more less informed

people than informed people on the

topic. Let's just be honest, right?

We're still a very small percentage of

people, you know, who who kind of

understand what's sort of go going on.

And even for people like me who think

they're going on, I think we get it

wrong more often than right. Talk a

little bit about use cases, right? In

the sense that if if I was to just ask

you very simple case, simple questions,

what are the use cases which are sort

of, you know, catching fire right now?

There's a lot of momentum behind. Is

there something incredibly boring which

is sort of crept up and become quite a

big thing that we should be aware of?

And then just just to ask to paint you a

picture paint a picture not so far ahead

in the future but in the next couple of

years do you expect certain other use

cases because of either the regulatory

clarity or more institutions coming on

board partnerships being struck are you

expecting some sort of interesting use

cases to emerge?

>> Yeah well first um many years ago uh you

know not not to date myself but I've

been at this thing for a little while.

the um I wrote an article in Forbes

titled when we stopped talking about

blockchain we could change the world

with it. Um that one may have aged

probably the best of many of them but um

but the premise there was that if the

technology is still a protagonist then

you know the sector is very early. uh

and and and in some ways it analogizes

to what has transpired with AI that for

the better part of the last decade AI

was a horizon technology and the second

OpenAI releases chat GPT into the wild

it became the most the fastest growing

technology with no marketing to speak of

in part and then the other thing that

happened is that people could experience

the magic and we we could finally stop

talking about the opportunities and the

risks of AI but people could see it

firsthand and So part of what I think is

transpiring as well and it's bigger than

any one corner of crypto, it's perhaps

all of it is the more the technology

layer fades into the background and gets

abstracted away as background technology

then the more you will see both people,

institutions, companies, entrepreneurs

and developers are effectively unlocking

the technological magic of what becomes

possible when number one you could

render money on an internet connected

device for everyone everywhere aka a

stable coins. Number two, you could

render the entire ladder of financial

activities from basic payments being the

bottom rung to the more advanced lending

and credit and other activities being

the upper levels of that ladder can now

all be rendered in a in an effective

internet-based bank in a box. Um, so I

think only those unlocks are possible

again when the tech works at scale and

delivers its promisory statements on on

the label. And when there's sufficient

regulatory and legal clarity such that

people do not get exposed to what has

been in that same decade that I'm

talking about a wild ride of internet

funny money and complexity and fraud and

all kinds of risks. I think I think the

good news is a lot of that is becoming

literally the the crypto in hindsight.

And so crypto with foresight is everyday

connectivity. And then the last one I

would mention because I know your

audience is is uh also tends to be very

sophisticated visav strategy and

technology opportunity. Cloud adoption

was terrifying for many companies in the beginning.

beginning.

>> Um and IT teams didn't want to give up

their server farms and moving the

physical infrastructure was considered a

line too far visav risk. But today you

think of cloud infrastructure number one

as ubiquitous and number two essential

and number three deep background

technology on which the whole global

economy rides. And I think digital

assets will be seen as like cloud

infrastructure for payments and

settlement and lending and credit and

all this activity but it will augment

existing business models rather than

entirely disrupt them.

>> Interesting. Well, you should come here

and then we'll talk about cloud. We're

still in generation one.

But here here's an idea, right? Here's

an idea for, you know, to add to that

incredibly intelligent response that you

gave me. I think you guys could do well,

I say the you guys in the wider sense

could do incredibly well if you dropped

the word crypto,

>> right? And start us digital assets,

right? Because

>> well, but but so so the key is not to

sanitize it, right? the key, you know,

so part of my actual job, hence hence uh

my default setting when you invite me to

come on your program is yes, because

part of the actual job to be done is is

explainer and chief. I've had to tell I

mean I've been in virtually every

congressional and senate hearing

domestically and all the international

ones uh for seven years now. And the

biggest obstacle is indeed the

explaining what this stuff is and what

it does. And you had asked the question,

so what's a use case? the simplest and

best use case is to superimpose over

stable coins the core features of money

and then presumably it becomes very

easy. So our CEO likes to say, you know,

what's the use case for a stable coin?

What's the use case for a dollar? And at

at its based based base level, it's

store of value, unit of measure, medium

of exchange.

>> However, what are the limitations of

physical dollars in the 21st century?

Well, you could only extend it as far as

your arm could reach. There's a lot of

complex logistics if you want to move a

lot of it physically. And as we saw in

the co 19 pandemic uh unevolved money

could be a vector for spreading disease

and so much so that some countries

resorted to actually laundering their

money aka washing it

>> washing it.

>> There was there was a fear that the

money itself would would spread uh

diseases. Mhm.

>> And so when you consider that and then

you consider the other big unmet need in

the world, which is that your and my

financial needs don't take bank holidays

>> and this new internet-b born economy and

people born with an iPhone in their

hands um want instant gratification in

technology they trust, not in God we

trust, which is the words we have on the

US dollar. And so in that sense, I think

of this as completing unfinished work in

the financial system as opposed to

disrupting it. and the the businesses

that have respected those boundaries,

including the the conversation we had

the last time about central bankers,

have built robust businesses that could

withstand a lot of the turbulence of the

global economy of crypto and beyond. But

I could not agree with you more. If we

abandon the term crypto and blockchains

and all of this arcane jargon that that

has riddled this industry, I think we

would be better off number one in

explaining ourselves to the world and

number two in getting policy actions

that are sensible and not too fear-based.

fear-based.

>> No, I and I for the little I do in the

sense in the world of consulting, I I've

banned my team from using the word

crypto entirely. Um and you know

blockchain sometimes you can't get away

from because I guess blockchain's

applica applicabilities beyond just

financial services. So sometimes the

technology does come into play but in

terms of crypto I've got a couple of

questions which have come out of you but

I'm going to park that for a second. I

do want to talk a little bit about what

I'm calling sort of isn't the FOMO

getting too much here, right? Um, you

know, we who is not launching some

version of a stable coin or getting into

a partnership. There was a very

interesting conversation I was actually

having u yesterday with someone actually

on the show who said, you know, people

are now talking about if they haven't

announced a stable coin initiative or

program, their stock prices might be

taking a beating, right?

Do you welcome this, you know, everyone

get a token frenzy? Um um or or or do

you think this is just going to lead to,

in my humble opinion, a patchwork of a

number of one-off deals and some of them

will not pan out. And if it's a big name

behind it, it just unnecessarily creates

a certain degree of I guess systemic I

won't use the word systemic risk, but

you know, bad brand. What where do you

sit on that?

>> Yeah, I mean, well, for one, I I thought

I had taken care of the era of uh big

tech vanity coins, >> okay,

>> okay,

>> with the Libra project. And I actually

still believe I did and we did because

the the world's reaction was visceral.

It was instant. and and it made one

thing clear which is that you know

policy makers and central banks are not

interested in large systemic

institutions with a trust deficit armed

with their own money.

>> So I I think I think that that era in in

some ways is largely behind us. Um, what

we can say though, and I think frankly

it's probably a good thing, although we

all should watch out for the.com bubble,

you know, reality of an a lot of

proliferation of a lot of ideas.

Memecoins speak to that. The ICO bubble

beforehand speaks to it. The non-f

fungeible tokens, the NFT bubble uh

beforehand speaks to it as well. is that

we should of course keep an eye out on

any dotcom like behaviors in the

marketplace. the benefit of regulation.

Mika and in Europe uh the markets and

crypto assets framework catch me if I

use jargon or acronyms um and and

proposals here in the United States and

in other countries are starting to

create a level playing field so that in

the end the retail end user who

participates in these markets um has

certain asurances that any product in

the market has a level playing field and

in that environment let a thousand

flowers bloom right um so we were the

first company to be compliant in under

Mika of the large operators

>> out of France not a jurisdiction for

regulatory arbitrage the morning after a

very big bank societal announced a

product of their own that would be MEA compliant

compliant

>> and I think today there's probably 20 or

so companies that have euro denominated

stable coins under Mika and presumably

those products become more funible in

the economy I think that's a net

positive I think that would produce uh

progress towards public policy

objectives like financial inclusion and

lower cost payments and a competitive

payments environment net positive. The

thing we should all be afraid of is up

until today so much of the crypto market

has been defined by the worst actors and

I think this is a super important point.

If by today's standard a so-called

stable coin issuer is unregulated and

unstructured and and beyond uh it's

because they chose to be because so many

countries so many jurisdictions and so

many financial financial centers have

clear rules on the books for uh what

this activity is. So you you brought the

next question. This is going to be next. Banks,

Banks,

you know, minting their own money. You

know, JP JPM MD came out. Um um you

know, you mentioned Sockgen. There are

others on the way including in this

region. Um I know you're saying that's

net positive, right? Uh let me just ask

a bit of a flavor from my perspective,

which is are we getting to the world of

sort of world gardens, right?

um where there are certain use cases

within I guess the the remit of a

particular bank or banking institutions

and the second question is are we seeing

some sort of sort of two classes

emerging here which is one is this sort

of institutional world which sort of the

banks run through either their stable

coins and tokenized deposits and we'll

come to that and then you know the USDC

world which is more I don't want to use

the word retail but I don't have a

better word to use so I'll retail.

Where do you see this going? Because it

does get my brains hurt.

>> Yeah. Yeah. Well, you remember in in uh

Singapore in November, I gave you a

spicy answer on the central bank digital currency.

currency. >> Yes.

>> Yes.

>> And it's so far seven years later, I'm

going to continue to maintain that that

you know, my model is on the right side

of history.

>> Right. I would argue the same also holds

true in the bank versus non-bank stable

coin debate which would now be deposit

tokens quote versus stable coins. Number

one, I don't think the qu the question

should be versus because I actually

think of this as

>> they can both coexist

>> a convergence technology and there ought

to be um real appreciation of the role

the banks play in providing liquidity

and on and off ramps to this to this

entire market segment. However, here's

the interesting thing. Let me ask you a

question. Would you want a deposit token

from credit Swiss,

a failed global bank? Probably not,

because in that case, the product would

be the digital rendition of the asset

liability mismatch on the bank's balance

sheet. And a stable coin under frankly

global regulatory standards is designed

to be a fully reserved tokenized form of

money that entitles the holder to

redemption at par at all times including

in the issuer's bankruptcy. And there is

no bank in the entire world, big bank,

small bank, or otherwise, that could

withstand an entire draw down of all of

its assets because of the fractional

reserve lending system. And so most

banks would fail that which is why banks

need a public guarantee, federal

depository insurance and these types of

models to shore up the credit creation

function that the banks have. Stable

coins are radically different

innovations. Fully reserved, narrow,

liquid, redeemable at all times. Um and

so so the interesting thing there is

that in the Genius Act, a a bank that

wants to issue a stable coin would need

to do so from a totally different entity

subject to a totally different set of

credential standards that look more like

Circle and less like a bank. And so it

begs the question, is that in the core

competency of a bank, even one as well

endowed as JP Morgan and Umar Farooq is

a dear friend, is it in their interest

to park capital that has to sit there in

a very conservative construct separate

from the core banking balance sheet to

offer a payment solution that might

ostensibly only ride on a closed

network. what I call those monetary

airline miles

>> and I call regulated generations of

stable coins uh actual digital cash or

tokenized money because effectively it

becomes the property of the wallet and

the holder as opposed to a product that

is constructed around the the moat or

the financial walled garden of a big

institution. So I think the two products

are radically distinct and I think of

them as potentially additive because

stable coins are a bottoms up

innovation. CBDC's could be a top- down

innovation and bank-based initiatives on

blockchains could be the middle the the

so it would be the intranet the extranet

and the internet of value would be one

way to describe it academically.

>> Okay. So let me let me replay this so

that I understand. Right. So so I I

totally get the genius. Well, I don't

get the genus act totally, but I I

understand what you're trying to say on

on the

>> I'm not leading until you do because

>> No, no. I I will and and and and and I I

we will get to that and and we're

keeping good pace. So, uh so so what

we're suggesting is that banks won't do

stable coins because it's it's it's

harder and it's problematic and so on so

forth, but you know, they can switch to

tokenized deposits and and use token

tokenized deposits for arguably the

similar use cases for which you guys at

USDC are offering. I totally hear you

from a from a perspective of would you

want to sort of rely on the bank. The

fact is CFOs world over still continue

to use their banks and for them there's

a level of comfort which goes with you

know here's a regulated entity I do 101

things with them and this is yet another

offering that I do right so you don't

fear or at least it's nothing to fear

here but you don't you're not concerned

with this sort of splintering of the

market that I'm sort of seeing happen where

where

>> where you know large institutional money

will move on the back of token deposits

>> and then I forget CBDC's for the time

being. We'll come to that.

>> So, so to quote John F. Kennedy, there's

nothing to fear but fear itself.

>> Um, the short answer is uh no, there

there really is. The reason why is

because our business and the way we

execute our strategy, number one, it's a

long-term strategy. And number two,

we're oriented towards a corner of the

market that is unserved or poorly served

by the entirety of the existing

financial system. And so, in that sense,

that's why we've built such deep

partnerships with the banks. I mean our

our the whole premise of course of this

of this world we're talking about is to render

render

regulated financial services on a basic

internet connected device. This is a

very very powerful proposition.

>> Yep. um maybe rivaled only in its

transformational opportunity by AI

because if you conceive of this at the

scale of how many people in the world

are totally off the margins of being

banked for whom it would be impossible

to bank them using analog brickandmortar

banking and business models like this uh

digital assets, blockchains, stable

coins, open source mobile wallets are

laying down this kind of like foundation

and foundational fabric for what our CEO

O likes to call an internet financial system

system

>> and that doesn't mean it has to come at

the expense of banks or monetary policy

or central banking norms but it's a part

of that value chain and it is the tip of

the spear that allows us to conceive of

a world where everyone everywhere as a

basic right has access to um dollars and

euros and pound sterling and payment

activity that is open. uh that's the aim

and and and in order to do that well you

cannot cut corners with regulation or

financial integrity norms but but I see

I see this a radically different

business model >> okay

>> okay

>> then because and and the other way to

say it is um if all we do with quote

crypto is create a digital twin of the

underlying economy with all of its

systemic inequities baked into it and

all of its cost structures and the hurry

up and wait properties of moving money.

We failed and I I at least will be

restless on the notion of I think we

could do better than that. And if I

wanted to send money to you from the

United States to the UAE, I don't know

of a better, faster, cheaper, more

secure way of doing it than using this

value chain that we're describing now.

>> No, no, I totally agree with you. I'm

I'm actually working on an initiative

right now. Uh we've spoken to you guys

too about it. can't name it, but uh

which is about uh uh moving money on a

wholesale level using stable coins and

and that that just immersion into that

project itself has taught me. We're

going to quickly skip through CBDC's

because I I don't think there's much

unless well, you know, you might have

last time we met

>> the crazies were on on on on CBDC's. You

know, 98% of the world's GDP economy was

was testing on on CBDC's. I think we

violently agreed that retail CBDC's was

like a bad bad idea right wholesale

there was a there was an argument

especially in terms of a few use cases

or at least I had that view since then

it seems to have gone deadly deathly

silent there are a few countries which

are testing India seems to have done

fairly well on the retail side uh I I

think I'm I'm I'm quite confident that

China is doing something on on on CBDC's

too obviously it's a different sort of

uh underlying technology they're using.

Are you seeing a slowdown on CBDC's?

Have people lost enthusiasm?

>> Yeah, I mean I think what what what um

so the short answer is yes. Some

regions, the European Union particularly

have redoubled

uh which which is fair enough because a

CBDC fundamentally when deployed will be

a domestic payments innovation. I almost

wish back to your commentary in the

beginning of like, you know, if if only

the crypto industry would use use other

words other than crypto. My message to

the central banking community is if only

they had used other words other than

central bank digital currency, it

wouldn't have been so evocative of fears

of privacy concerns or of fears from the

public sector that the public central

banking authorities are running a

science experiment with money. I think

it's perfectly within the remit of

central banks everywhere to upgrade

wholesale intraank settlement systems.

We used to call those real time gross

settlement systems or fast payment systems.

systems.

>> RTGS is no big deal. It's not even

emotional. In fact, it's so boring that

they could go do it without asking their

parliaments or Congress for permission.

But the second it became a we're

launching a CBDC because we're afraid of

a small project armed with a white paper

called Libra,

the central banks lost the plot as much

as I think big tech lost the plot. And I

was there. I I had a role to play. I

tried to be an emissary and a digital

diplomat. And I think over time the

models that have prevailed are entirely

responsive to central bank and monetary

policy objectives. They promote intraank

payment system competition

and they're the best and fastest way to

ensure your national currency doesn't

become technologically obsolete. Um, if

you've heard our Treasury Secretary

Scott Besson describe why it's important

for the United States to regulate

payment stable coins, which is what we

would call them under the Genius Act, it

it is a clarity of purpose around

protecting the US dollar and ensuring

the reach of the US dollar extends far

beyond its current use cases as a

reserve currency and well into a domain

of internet native worlds scale money.

And I don't know of a better way to win

the digital currency space race than

that operating model. Free market rules

based competition than saying it for

seven years now. Uh and now the Treasury

Secretary and other key leaders in the

US uh are joining that call.

>> No. And and and and I I I violently

agree. Here's the evocative bit. Genius act.

act.

>> Oh no. Right.

>> Oh no.

>> I Well, I I I I started reading up on

it. Um I read a few pages and my first

reaction was genius act. not so genius.

Um and and I'll tell you the one bit

which sort of stuck with me and and I I

do want to explain I want to explore

this with you. So in my in my sort of um um

>> I guess simplistic perspective aren't

they creating a risk uh for this sort of

new price in insensitive buyers of

short-term treasuries i.e. stable coin issuers

issuers

>> who are regardless of the of the I guess

the market conditions

>> um going to go in and and buy lots and

lots of T bills and run the risk of

actually distorting right arguably the

most important market um you know the

volumes aren't that big right now

they're considerable but you know let's

multiply them 10x 20x I don't know where

it kind of lands up I just kind of found

that a bit strange so I what part of

that have I not wrong.

>> Yeah. Well, I I think a couple parts.

So, so the good news is, you know, I've

been in an industry where the obituary

has been written once a month in the

pages of the Financial Times or Wall

Street Journal or other publications

about unchecked risk in crypto. >> Right?

>> Right?

>> For the better part of the last 12, 13

years, that's been the narrative is that

crypto would produce systemic risk and

beyond. Thus far, none of the wildest

nightmarish scenarios have ever borne

out. Uh, including the argument that uh,

if digital assets grew, they would

destabilize fragile economies or that if

digital assets grew, they would disrupt

the banking system and the payment

systems. Literally across the spectrum,

it has proven time and time and time

again to be a convergence technology.

And yes, just like the early internet,

there have been boom and bus cycles in

digital assets. And that's that's not

because of the technology or the market

structure. It's because of people.

>> Um, we'll have to remind everyone that

when FTX faltered, it wasn't the crypto

part of FTX that faltered. In fact, the

crypto part of it allowed the world to

see in real time where there was indeed

a a house of cards being propped up.

>> It was the human element and the greed

and the unchecked lack of governance,

the unregulated nature of the platform

that killed it. Mhm.

>> Um and so here too I think the Genius

Act does the best job of any legislative

proposal anywhere in the world on number

one allowing bank, non-bank and credit

union competition on the level playing

field uh to issue dollar denominated

stable coins. It superconservatively

reserves uh the the the the reserve

structure of a stable coin to cash and

short dated US treasuries. It puts an

obligation of passing the Jerry

Magcguire test that we joked about, show

me the money, including criminal

penalties and liabilities and beyond.

Um, and it doesn't stigmatize the

circulation of these products on open

networks, which would promote more

payment system competition and

optionality. So the question of well

would unchecked stable coin growth

destabilize treasury markets uh ignores

I think a really important feature of

stable coins which is that as a

fundamental payments innovation even a

comparatively small total circulation of

regulated stable coins supports

trillions of dollars of of settlement

activity because we're accelerating the

velocity of money.

>> Agreed. And so I've never bought the

argument that stable coins will, for

example, one of the fears we've had to

explain to the world was, well, if they

get big, they're going to erode the bank

deposits and there'll be a flight of deposits.

deposits.

>> Mika has proven that the opposite is

true because under the markets and

crypto assets framework in Europe,

stable coin issuers have to hold

reserves, either 30 or 60% of their

reserves in the European banking system.

So rather than destabilizing the banks,

the growth of regulated stable coins in

Europe is propping up and building up

the bank's balance sheets. The same

would hold true in the United States. Um

and so frankly the other piece of the

puzzle is is uh its feature. Many stable

coins are being used with low balances

as a store of value and as a hedge of

international and global currency

devaluation or or hypervolatility. And

in that use case, it's a steady state

pool of of circulation of stable coins

for a lot of open wallets around the

world. Um, I think the Treasury

Department and others acknowledge that

as one of the core features of this

product, which is the extensibility of

the US dollar, uh, down to this

universal retail base. Um, very powerful

model there too. How do you guard

against systemic risk? You have to put

guard rails around redemption. You have

to put guardrails around um who can

issue a stable coin. There have been a

lot of quote dollar crypto

counterfeiting going on around the world

from many jurisdictions. Terra Luna is

just one example.

>> And I think pulling this into the

perimeter will ensure that all the

systemic risk guard rails that would be

true of a GI a global systemically

important bank would also be true of a

large regulated stable coin issuer.

>> Okay. So, so if I hear you simple terms,

you're saying right genius 1.0 solves a

lot of problems. I totally agree with

you and I think I should have said that.

I think there's a lot of good stuff in

it. Right. the the problem that I've

actually tried to highlight, you're

saying a a a it isn't as big a problem

as you know you fear Arjun and B is like

any other act there will be iterations

there'll be more guardrails there'll be

a little bit more sensibility which will

come in

>> and and and one quick comment here

though because perhaps there's another

category of product that we need to be

we need to not speak of interchangeably

with stable coins which is tokenized

treasuries and tokenized money market funds.

funds.

>> These are radically different products.

The Genius Act would actually capture

payment stable coins which in addition

to all the features we've discussed so

far are also not allowed to pay yield

directly to the holder. So they're not

an investment product. They're a

payments product which solve crypto's

original problem buyers and spenders remorse.

remorse.

>> So the Genius Act would capture that

that as a payments innovation. The

European structure already does it under

Mika. What the Europeans call an e-oney

token cannot pay yield either. And so

it's not going to produce a competition,

a source of competitiveness against

banks and savings accounts nor

investment accounts.

>> But there is this new category of

product which is a distinct product than

a stable coin which is a tokenized money

market fund or a tokenized treasury

bill. You need a new body of regulation

to address that new market. But that's

an investment product increasingly being

offered by institutional players that

will give people access to treasuries

and other capital markets innovations.

Hence the second proposal we're looking

at legislative legislatively in the US

which is market structure rules.

>> Um that's a new beast. It's distinct

from the stable coin conversation we've

had thus far. That's why with stable

coins I'm not worried about systemic

risk at all. I actually think I think

most stable coin constructs and we have

a economic paper on this topic would put

many globally systemic financial

institutions to shame visav how

conservative a well-run stable coin

company has to be uh and redeem 100% of

circulation on demand if need be. The

biggest risk there is counterparty

banks. It's not necessarily the

structured issuer.

>> Okay. No, thanks for clarifying. I will

I'll try and get my hands on that paper

too. Here's here's one on systemic risk

and and please choose not to respond.

It's about our friends at Tether,

>> right? Um I don't know I I call it the

$150 billion elephant in the room,

right? Um um concentration risk, you

know, tremendous there there I don't

know 65 70% of somewhere in the region

of of all stable coins. That itself I

think creates a certain fear on systemic

risk. there is a certain lack of

transparency and oversight. Um right you

know what if things go wrong there I

think the impact on the wider sector

actually not just stable coin but the

whole digital assets uh uh sector could

be quite damning where do you as as an

important industry player now who's

actually now also publicly listed right

uh sit on this?

Well, I mean, number one, it is not my

place, nor is it my job to to account

for it in part because it it is the the

void in some respects, the void of legal

regulatory clarity. Uh, the Genius Act

lays out creates a pathway in which

companies everywhere that purport to

offer dollars have a regime that they

could live under. Um that's the most I

could say because like I I do think fundamentally

fundamentally

um without speaking of them but speaking

of for example Teral Luna or speaking of

other uh stable coins that in this

market even if you observed uh

pre-existing electronic money rules

pre-existing money transmission rules

here in the United States which is a

state-based regulatory framework you

could still put really good guard rails

around preserving princip principle in

the event of a risk or a draw down risk,

you could still put really good

guardrails obviously around national

security issues and financial crime

compliance and so on. And so uh to say

that we need entirely new rules

everywhere for the sector would be

disingenuous because there are in many

countries around the world e-oney rules,

payments and banking rules and at a

minimum financial crime compliance

obligations that you could live under.

We've lived under those from the

beginning. This was a Bostonborn company

that happens to be coming of age in New

York City. Um, and that's a feature.

What we also need and why I think the

Genius Act is is an important piece of

legislative innovation is we need to

promote a framework in the United States

that has extr territoriality that

becomes a domain of promoting regulatory

harmonization around the world. Because

up until a point in time uh for example

in Europe, dollar stable coins might

have more legal clarity at the whole of

economy level than the US did because

the US regulatory framework for payments

and banking is the sum of the parts.

It's the states. So the you know I

called it a fintech constitutional

crisis for a while. We're about to

resolve that uh in getting the Genius

Act passed. And it also has some

important uh new powers that it would

give the Treasury Department. Uh for example,

example,

in in historical concerns around big

tech encroaching on movements of money,

I call it the Libra clause. The Genius

Act would guard against uh big tech or a

future big tech re-entry in this market.

Um and it would even create a special

committee in the treasury department

that have would have powers to review

big tech proposals to offer stable coins

including large commercial companies not

just big tech which promotes an open

model a competitive model payments

choice in in its design. The other

important feature of the Genius Act is

that it would have certain provisions

that are extr territorial or global in

nature. Um the United States financial

crime frameworks are that if a single US

dollar or a US person anywhere in the

world is implicated in financial crime,

illicit activity, sanctions, evasion,

the authority of the United States is

like the eye of Sauron

who see you everywhere and and and

create an obligation on you everywhere.

And that's quote our soft power. A lot

of uh the geopolitics and geostrategic

developments in the movement of money

especially public public sector payment

systems innovations has been in part to

blunt the efficacy of that soft power

sanctions evasion and the war uh in

Europe, Ukraine, Russia for example the

the efficacy of of Western sanctions is

the degree to which the payment systems

uh execute the sanctions obligation. And

so I think it's really important that

that global nature and national security

level nature of digital money payment

systems that are novel also follow those

value systems and those standards. And

so the the Genius Act also encourages

reciprocity puts the United States back

at the seat h having a seat at the

global table to kind of level up uh on a

worldwide basis. I think that too is encouraging.

encouraging.

>> No. Interesting. So let let me kind of

switch to the topic, but I I think it

kind of lends to what you've just spoken

about and I'll try and kind of make so

why is Walmart excited about doing a

stable coin in their own like you know

so you know I get all of this and and

then all of a sudden you know Uber wants

one and Walmart wants one and Shopify

wants one and

>> why don't they just come and ride on

your stable coin? It's a it's a it's a

very good question and this is where I

would rewind the tape back to um up

until now vanity coins whether they were

meme coins or stable coins haven't

really worked. The market adoption is

not there in part because the the the

end users the final end users of these

products want an unequivocal reality in

which the product is theirs.

Right? If stable coins were a genuine

digital cash instrument on the internet,

it has to unequivocally belong to you.

And I think the second you brand the

product with your corporate name, you

effectively are telling the world or

your end user that this is a monetary

airline mile. It's usable and it's

preferred as a medium of exchange on a

closed network. Stable coins are solving

the payment world's most insidious

problem, which is the walled garden

problem. And the walled garden problem

is the thing that precludes a PayPal

user from paying a Venmo user despite

the fact that both are owned by the same

company. It's the technology layer for

how money moves is is antiquated and

closed. Whereas payment stable coins

like USDC are designed on open networks

so that they could be universally

transmissible and owned at the

devicecentric level. I just think that

the product proposition, the corporate

motives are just radically distinct. And

so our encouragement and my

encouragement to wouldbe future stable

coin issuers is build on the networks

that pre-exist that enjoy millions of

global connected endpoints that enjoy

regulatory clarity and market adoption

and end user adoption and then come up

with ways of embedding that as a part of

your commercial stream, right?

um versus let me just build a digital

twin of the pre-existing walled garden.

That's why I don't think it's either

commercially viable, nor do I think it

makes a lot of strategic sense to see

this giant proliferation of branded

stable coin like products from all of

these entities. Um and there's enough

proof behind us that that model isn't

quite taking off. Not to mention, I

think there's some pretty severe

regulatory guardrails, including

competition law and the risks of

vertically integrated players that might

be too big to fail in their own category

now entering into banking and payments

and finance. So, I just I don't see it.

Uh one of our former uh board governors

and former national economic adviser to

the Biden White House uh La Brainard

said that if stable coins become

regulated, you know, it's likely a 70%

sort of quote winner market in part

because you know people want

fungeability of the money and if this is

a new category of money at some stage

you're not going to distinguish between

a JP Morgan dollar settlement from a

Goldman Sachs dollar settlement. What

you care about is the dollar settlement

and regulating stable coins in whatever

national currency they may be

denominated will merely start

accelerating the settlement of financial

activity uh better, cheaper, faster and

eventually it'll it'll it'll get rid of

the notion that everybody needs to have

their own branded version of it. What

you want is widely interoperable

internet scale economic activity for

which stable coins are the perfect

medium of exchange. Human beings don't

learn, right? So, we're going to make

the same mistakes.

>> Well, they will after this after this

interview. Totally. Right. We

>> hope we've moved the needle a little bit.

bit.

>> Well, I'm I'm hoping, right? And it's a

very very informative discussion and and

to be honest with you, I I'm I'm

thoroughly enjoying it. So, Dante, thank

for that. Are we ready for I guess the

HTTP sort of money movement moment

because they're not going to listen to you.

you.

>> Well, here's the thing. Here's the

thing. You remember in the Matrix movie,

>> which one?

>> Which one?

>> It was the first Matrix movie in which

Agent Smith had Neo on the train tracks

and he says, "You hear that Neo? That is

the sound of inevitability."

>> Because here is where I could reflect

back on a little bit of history. Uh the

way the world received the emergence of

crypto uh with the psudonmously

published Bitcoin white paper was that I

like blockchain. I don't like Bitcoin.

Then it became, I like blockchains, but

I'd rather have closed permission

blockchains as opposed to open

blockchains. Then the debate moved on

to, well, I don't like stable coins. I

like central bank digital currencies.

Then it was, I don't like stable coins.

I like deposit tokens.

>> Then it was we need a finteret. We the

global central banking and banking

institutions need to create our own

global connected network. And what has

happened time and time and time and time

again is that at every turn you have to

effect effectively start acknowledging

where the market actually is. And the

market is open source is a hill to die on.

on.

Technology and device centric internet

rendered money on internet connected

points is an unstoppable network-based

force. Mhm.

>> And the last point I would make from a

public policy vantage point, I wrote a I

wrote an article for Milkin in a very

big piece recently titled in code we trust

trust

>> um which is my final treaties on this

topic uh published in the Starling

compendium is technology gradualism is

not a strategy.

If you want to win the digital currency

space race, the AI space race, the

quantum computing space race, you cannot

un unwittingly keep your economy out of

the race. You have to unlock uh

technological dynamism and competition.

And the more it is rules-based and

principled, the more you will prevail.

Dollar denominated stable coins have

been the runaway success and the killer

app, so to speak, in this market over

over the last seven years. And the

United States has said we're going to

enshrine that activity as a part of the

extensibility of the dollar and

unlocking technological and market

competitiveness in the US. And you look

around the world from the ECNY project

from the People's Bank of China to all

of the wouldbe central bank digital

currency projects all over the world,

not a single one of them, including the

deposit token debates, not a single one

of them has come close. Uh in part

because they're still asking for

permission versus forgiveness. and

they're still trying to figure out what

is the right technological architecture

that would be future proof.

>> And so to bet against this is to bet

against Moors law and I think it's a

very very bad bet.

>> No, fair enough. Fair enough. I you know

it's going to be interesting. As a

matter of fact, the the I I had a Finet

uh session um actually a week ago. So So

that that that episode will be I'll make

sure that yours and theirs comes out

close together so that people can sort

of compare contrast. Although to be

honest with you, I think I think from

where the white paper was of the fintet

and I think where they are in their

current thinking, I think they've

evolved and moved along, I think they're

closer to, I guess,

>> if I may say the general direction that

you're suggesting, which is,

>> you know, not not creating another wall

garden, not rearchitecting everything

from scratch, you know, uh, use reusing

as much as possible.

>> Let me switch, I'm cognizant of time.

Let me switch back to circle. Couple of

questions. Um again, uh I know you've

just IPOed, so you know, please take the

fifth on this. Um very very successful

IPO. Um obviously, uh uh I looked at the

capitalization yesterday. It looked very

impressive. But here's something that I

took away and that's just largely

because, you know, I I do a lot of IPOs

for a living and and I' I've done, you

know, as a consultant, we do that for a living.

living.

You guys left a lot of value on the

table, right? the bankers really didn't

price that. Was that intentional?

>> Well, I mean, first I, as you know, I'm

still in a post IPO quiet period, so

can't say much except to say that um

>> we have been and will always be a

long-term company

>> and for the better part of our business

and founding over the last decade, an

objective has been achieved, which was

to become a publicly listed company. uh

for us that was a corporate objective.

We think for the category it creates a

standard where again so much of the

crypto market over over time has been

defined by race to the bottom regulatory

arbitrage being on the fringe of

finance. Um the choice for example of

our corporate headquarters at the top of

one world trade center in New York in

the capital of the capital markets is to

not only put this activity in the light

of day but to create the type of

accountability, transparency and uh

trust fundamentally and accountability

that comes with being a public firm. So

that's the milestone that that we've

achieved. But beyond that, you know, our

objectives in the long range remain

unchanged and it's anchored in our

corporate mission statement, which is to

raise global economic prosperity through

the frictionless exchange of value. Long

range, complex, but we're we're doing

that in a accountable, regulated, deeply

partnered way with all stakeholders in

that value chain. Um, and that starts

from the very top of this business to

every single person who works in the

company. That's the way we're trying to

execute. No, great. And and and for

whatever it's worth, I I think uh the

way you guys got the entire narrative,

you know, the whole building blocks all

put together in terms of how you led to

an IPO was was a bit of a masterclass. I

don't know if you guys programmed it. I

I actually did a a very flattering uh uh

write up on that uh for for I guess the

world here where I you know a lot of

people were sort of questioning luck and

this and I said you know you put five or

six things together and you know a story

starts to emerge you know the dots start

to connect. So if you guys did that

intentionally well done to all of you

and you know kudos my internal my

internal comment Arjun is um IPOs come

and go but laws are forever. Yeah.

>> And so so you know my own

work is really defined in some parts by

trying to promote this sun never sets

model on the company itself. Hence the

the international expansion strategy

over the last few years has been to

ensure that wherever there was a

jurisdiction that created legal clarity,

regulatory clarity and very very high

standards. We were there

>> operating in Singapore as a major

payments institution. Um, we're the

first company to be permissioned into

the JFSA in Japan's new rules for stable

coins. We've recently announced um in

principal approval in Abu Dhabi and in

the UAE. >> Yes,

>> Yes,

>> obviously the markets and crypto assets

framework. We're the only stable coin

available in Canada and permissioned

into Canada. And then fundamentally the

passage of the Genius Act um would

represent a win of course for the

country. We've always put national

interest above corporate interest. But

in many respects, it would also

acknowledge this US-based

fintech level innovation beginning at

state oversight and then fundamentally

landing with a new US law. Um would be a

would be a milestone. But like all

things in life, nothing worth doing is

easy. Nothing worth doing is worth doing

alone. And you could argue that, you

know, Circle is a 13-year overnight success.

success.

>> No, you could say that. And and this is

going to be my last question. I'm going

to save it for you. CPN, right? So,

Circle Payment Network. So, read the

white paper a long time ago. You guys

are live now. I think you you know, you

know, the mainet is out. Talk to me like

how does that how does CPN fit into um

you know, you're looking for ubiquity?

You know, is this the next Swift? You

know, we've talked about the death of

Swift for as long as I've been in my

career, too. You know, this So, talk

talk us through a little bit around how

CPN fits into the wider circle. Uh

>> yeah, no pun intended, right? How CPN

fits in the wire circle. So the first of

all, Circle Payments Network is is a

project we're extraordinarily excited

about. Um, in part because what it what

it is designed to do is to corral stable

coin activity in an open manner for what

the central banks and the payment

systems and the banks and many others

have been writing white papers about for

years that stable coins could be very

interesting in the context of crossber

payments. Most of the world's crossber

money flows and remittance corridors and

payments corridors are encumbered by a

very deep lack of competition. Mhm.

>> In most corridors, duopoly would be one

way to describe the best way to move

money between the United States and

Mexico or the US and Philippines. And

then you think about the the exacting

cost commercial friction and and contra

counterparty bank friction introduces to

world trade and it literally is like

trying to grow a global economy while

putting two weights on its feet and and

slowing it down because of banking

friction and payment friction. So CPN is

a is an open technology standard

designed for the orchestration and

coordination of tokenized money movement

payments between trusted counterparties.

Remember most of the stable coin

activity around the world by virtue of

living on open blockchains and open

ledgers and on open wallets is already a

worldscale innovation but it's a bottoms

up innovation.

What what we're trying to do with CPN is

to connect the institutional dots so

that counterparty institutions now have

a coordination and routing layer in

which settlement information, travel

rule information and other information

can be exchanged so that stable coins

can be completely unlocked as a medium

of exchange for crossber trade and

commerce. Super powerful uh vision

statement inspires it. It's again

anchored in our corporate mission and

vision of economic prosperity. uh but we

think in we think CPN is a big piece of

that puzzle of of reducing friction in

uh in commercial uh global transactions

and trade. The last quick point I would

make it's super important to anchor all

of this discussion not as a technology discussion

discussion

>> frankly as a human rights and as an

equity discussion.

You know we may or may not like the

United Nations and the sustainable

development goals but the first of the

sustainable development goals is to

eradicate extreme poverty.

>> Yep. Uh goal number nine is to promote

financial infrastructure and try to get

remittance costs by 2030. That's five

years away uh to a 3%

>> y we're sitting at we're sitting at two

times that if minimum

>> totally technology agnostic. I have no

better idea and no one anywhere in the

world has come up with a better model

than to ensure that anyone south of the

equator for a internet connected device

can get access to lowcost instant global

payments like and number one. Number

two, I don't know how you promote

universal financial access and eradicate

extreme poverty if several billion

people are unbanked or underbanked.

>> No, I agree. So for me, so here in lies

the the the way in five years if we're

smart and if geographies are smart and

if regulators are coordinated and we

stop looking at digital assets from the

lens of fear but from the lens of

opportunity, we could actually start

making material progress towards these

objectives as opposed to writing another

annual report at every UN General

Assembly meeting about how we're

woefully behind on these global

objectives. We're not waiting. We're

impatient. And now we have windows in

which more institutions could come along

for the ride and we think CPN is a big

piece of that uh puzzle.

>> You know, I I I I'm I'm I'm completely

sold. You know, I I I've got a very

simple simple statement, not very

intelligent, but here's what I'll say.

Financial inclusion without

affordability is So, and and

and and you know, we we we we live with

that you know, I' I've I've

been fortunate enough to sit on the

board of a number of sort of crossber

player payment players over my over my

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The New Rails of Money: Stablecoins, CBDCs & Tokenisation