The Quiet Giant: Stablecoins in the Institutional Spotlight | EBC11

Ladies and gentlemen, are we excited for our first panel of the day? We've got some real heavyweights on the stage representing Y Case. We've got Rachel Rodman. We've got Emma Londren from JP Morgan. We've got Dr.

Anika Patz from Yong. We've got Lauren Marokini from Standard Charter. And we've got Leo Lamesh from GK8. Ladies and gentlemen, give the panel, our first panel of the day of the EBC convention, a big round of applause. And Rachel,

yes, [applause]

the stage is yours.

Good morning everyone. We are so happy to be here and to kick off the conference with you today. My name is Rachel Rodman. I am a litigator and partner with Whiten case, which is a global law firm. My firm has been involved in a number of crypto crypto projects over the years including for Meta and El Salvador and we're currently working on a variety of stablecoin and other projects globally.

We are here today to talk about the quiet giant stable coins in the institutional spotlight and we have a fantastic panel for you. I'm going to start by allowing the panelists to introduce themselves beginning with Emma. Hi everybody. Uh, Emma Landreo from JP Morgan. I sit in the payments business.

So, we focus on moving money and doing pretty much everything a retail bank would do for all of you for large institutional clients. Um, I sit in the Kexus team which is a subunit in the payments business and we're focused on everything that the bank is doing with blockchain as an underlying infrastructure. Um, so this includes blockchain based payment rails as well as creating tokenization infrastructure uh for the introduction of tokenized securities that our clients can trade with and most recently bringing some of our deposit products into public blockchain. Thanks for having me.

Wonderful Anukica.

Yeah, thanks. Uh, hi, I'm Anika Pads. I'm working for the European law firm Work. Um, we're mostly based in uh Berlin, Hamburg and also London. Um my team and I were working with banks and fintex to get their licenses under frameworks such as mika the dealt pilot regime.

So we uh our clients are like uh fintex like bullish 21x and um I'm also share of um bitcom which is the Germany's biggest association for the digital industry and there we advise and do some heavy lobby work for the stable coin industry. Hola Barcelona. Good morning to all of you. Laura Marakni from Stood. I'm the chief executive officer.

Uh I'm based in Luxembourg where we are focusing on the digital asset custody for some cryptocurrency. We we are registered by CSSF. We are in the process to get uh my car and of course we are part of standard charter group and we are a subsidiary of the UK and nice to see a lot of faces here. Hi guys. Um my name is Simon.

I'm CFO and CPO for Unity. We are the first German stable coin issuer um under Micah and uh previously been in different roles uh in the blockchain and banking space commerce bank mainly about uh issuing tokenized securities and a bit of payment stuff and very much looking forward to this great discussion around here.

Hi everyone. Uh my name is Leo Lamesh. I'm co-founder and co at GK8. My background is a cyber security at the level of national security. Uh GK8 is a Galaxy company.

Uh we've been acquired by Galaxy two and a half years ago. Uh Galaxy is a NASDAQ listed company. Uh market leaders in digital assets and AI. Uh GK8 since 2018. Uh we're in the mission of increasing the level of trust in the market.

uh by providing the most secure self-custody technology uh utilizing two core solutions uh impenetable wallet which is the next generation of uh cold wallet by being truly offline alongside with the MPC technology. We're working with both traditional financial institutions and large cryptonative companies uh enabling them to offer services such as uh custody uh tokenization staking and defy. Um we're working with companies such as uh DTCC in the US uh our colleagues here in Proour uh with all unity as well um in the Euro Stable project and uh yeah very excited to be here today.

Thank you everyone. I'd like to start by setting the table. Sorry for that. Uh so let's talk about where we are right now. And I'd like for Laurent and Simon to weigh in.

What is the current state of institutional adoption of stable coins? And when you talk about this, I want you to be specific. Where are we? What projects are you working on? And what's your take on where the market is for stable coin adoption by institutions?

I start my friend. Okay. So, uh where we are. So if you just remember the the slide of uh Victoria just before. So in term of uh market capitalization for stable coin we are now at 300 billion of assets.

So it's not a small amount anymore. Uh if you remember the first bank in the world the capitalization is at 800 billion. So the crypto the stable coin market is uh is not small anymore. It's growing. And uh if you are going to the press uh each day you will see a notification that uh a bank is launching a stable coin that you have a consortium of bank that are launching stable coins.

So we are very uh now we are in the not in the adoption phase from me uh we are more in the IP phase for the moment. So a lot of things uh needs to be done uh in the stable coin market to get uh to get the full adoption from regulatory perspective. uh with the genius act with MAR we know where we need to go in term of stable coin we we see the interest from the institutional investors from the different banks we understand the potential of uh stable coin but uh yeah we we are still in the earlier journey and uh I I I have seen a report from city bank stable coin in 2030 that uh they gave a note of 0.5 out of this out of 10 for for the maturity I I would say it's not 0.5 let's say we are at two or three it's still we are still at the ear of J so in term of uh in term of use cases we see a lot of uh interest from uh still the trading and defy uh it's uh I think it's a use case number one and that's why you can see that 99% of stable coin are USD uh denomin denominated in term of use cases we we will see more atomic settlement and I think uh my dear friend from all unity can elaborate on on that because he's working on that and uh also treasury man treasury management is definitely a very interesting topic so trading and defy atomic settlement and treasury management are the main three use cases uh we can see uh today and from my perspective we are working in uh in Hong Kong to set up joint venture to have a HKD uh stable coin denominated with HKA telecom and um animab brands so uh it's still in progress we we are working with the regulator so we build uh this use cases for retail and I I give the mic to my dear friend

many thanks Lauron very kind and uh Couldn't agree more. I think uh Loro um has mentioned the numbers perfectly well already and as you can see in the market, stable coins are right now to be honest by far the most feasible use case for applications of what we call in the crypto space. Yeah. Of kind of products that are actually being used. Still the volume is only a insignificant fraction of what is possible if there is really institutional adoption.

We we we talk about institutional adoption of stable coins but it's mainly crypto institutionals that are using it right now for settling trades. Yeah, Laura, my friend has mentioned it. Yeah, settling trades is right now the most feasible and almost only use case besides some remittance of retail business in South America. So that is already driving a 300 billion value in this market. If you think about institutions in the existing trefy economy or also in the existing let's say producing economy entering the market and using stable coins for selling machines to South America to Africa having an instant settlement without the counterparty risks of the uh different banks that are involved in this process the time it takes the cost it covers that's only a fraction yet and now let's take a look at the European market there As my dear friend Lawrence mentioned as well, European market is also an insignificant fraction of the total stable coin market right now.

So what is the growth potential? It's very easy. Look at the relation of US dollars to euro in the existing currency markets. The relation is roughly that the euro makes up 20 to 25% of the global US dollar volume. That is the long-term distribution of currencies in the existing market.

What is the relation for the crypto market? You have roughly 600 million in euro stable coins and 300 billion total.

I feel a little embarrassed as the only American up here this

Oh, good. No worries. It's not your fault. It's ours. And the the thing is, however, if you look at the potential, what does this mean?

It's 0.5% that could grow to 20%. Yeah. How's that going to happen specifically? I mean, I'm interested in your take, Simon, on how Eurobbacked stable coins.

We we also want to talk about what the opportunities are for the next 5 years. Sounds like increasing in volume of Eurobbacked stable coins is one of them. I mean, what's your vision or take on how to increase those adoption levels over the next five years? So the the crypto space is already settled in terms of trading with uh with stable coins and there the euro stable coin volume will grow a bit. Yeah.

But maybe not as much as we expect because the trades are already being settled in US dollar. Some eurobased traders will rather prefer to settle in euro. This will increase but not significant to the extent that I just mentioned moving from 0.5 to 20%. But now let's look at corporates who actually pay wages in euro, who actually receive bills in euro, who actually make money in euro.

They have no intent to use a US dollar stable coin. But those that are already so far in terms of infrastructure and innovation that they want to do it, they still use US dollar stable coins right now simply because of the market being there. and they clearly say, "Hey, I would prefer to not have DFX risk in my natural business. I would rather settle it in Euro." And we have very specific because you asked for it, very specific cases where there are large corporations, for example, that have a daughter company in Turkey.

What can they do in the future? They can pay their employees in Turkey in Euro instantly without any additional effort without them having the need to have accounts or take internal reconciliation of large companies with let's say 100 daughter companies they have a lot of intercomp payment right now really expensive really slow you can do that for a fraction of a transaction price like I don't know 20 cents a transaction because of gas fees only instantly within one large corporate and reduce all these internal reconciliation.

Thank you. So Leor, let's let I'd like to let you jump in here. We're talking about where institutional adoption of stable coins will be in the next 5 years and how do you think about that? How does GK8 believe it can support that growth? Yeah.

So, um I think uh we are involved in few of the most high-profile tokenization projects currently and there are some uh patterns that we recognize that uh we think that going to be um the main things that uh going to make project successful. Uh there are three core uh pillars that we see. Uh first is in order to make a project successful is having uh a trusted uh traditional financial institution partner uh with the needed the brand name uh in place because eventually it's all about trust and once you have a trusted names taking the responsibility of building such a project such as our friends at all unity which is a joint venture that including also DWS which is formerly the treasury arm of Deutsche Bank uh or of course the guys from standard charter as an example, right? So that's really uh one of the things that can increase the level of trust. Uh secondly, um there is a need for involved uh digital asset partner, someone who is already deeply rooted uh in the space and have the needed connection to make things happen.

Uh that's for example where Galaxy comes into play. Uh at Galaxy uh we're supporting such projects with uh uh distribution, with liquidity, with market making. uh we have the knowhow uh in as to how to do things properly from regulation perspective. Uh we are deeply involved in uh a lot of the crypto foundation. So we literally can bring in investments uh that can make the project successful even before it starts.

Uh and the third pillar is from the technology perspective. uh there is uh a very important need for uh custody and tokenization engines uh in order to um uh make enterprisegrade technology that make such projects happen. Uh and what Galaxy and GKE bringing uh to the table is really bridging the gap between the traditional assets uh to the digital assets where such a project come into play.

Thank you Laurent. Do you want to jump in here on you talked a little bit about what you see as the future but any any closing thoughts on the where we will be in 5 years. So where we will be in five years uh I think I'm not the best in term of uh prediction but uh for me from a regulatory perspective a lot of things has been done and I expect in five years time that we will have a ma 2 m three I don't know if we'll have a genius act two or three but uh of course there will be some evolvement from a regulatory perspective but a lot of things has been done and we have definitely uh the clarity on that I I expect of course to have more volume uh especially in the atomic settlement because uh we can see a lot of opportunity in the tokenization and uh if you want to grab all the opportunities we need to have the cash on chain so if you have an electric car and you have no electricity it's the same with tokenization if you have a tokenization engine and you have no cash on chain so uh I uh I uh strongly believe that we will have a lot of operation cash on chain uh for when it comes to atomic settlement and thanks to all unity but also we will probably see a CBDC cell also especially in Europe uh moving forward in the in the coming uh in the coming years but we can't wait to have a CBDC to move forward so definitely treasury management also and we were speaking yeah just before with Simon and I expect to have a lot of uh operation on on that and uh we will still continue to have the crypto uh crypto trading because this is where uh stable coin was starting. So definitely uh I expect to have more volume. If you are just looking to the different studies, we expect to have between 1 and 4 trillion in stable coin by 2030.

So the market is going to grow, the volume is going to grow. Uh we will have more use cases. But if we are just working to the full adoption of the main three use cases, it will be already a good uh a good milestone.

Thank you. All right. So, it's not all roses and buttercups in the stable coin institutional adoption space. There are challenges and we want to make sure we talk about some of those challenges including challengers or friendly coexistence between stable coins and other DT technologies and I'd like to turn to Emma. So um Emma, what do you see as the stable coin opportunity versus tokenized deposits?

What differentiates deposit tokens from stable coins? And how in particular should institutions that are considering these new technologies think about the pros and cons of tokenized deposits and stable coins? That's a lot, but I know you'll get through it,

of course. So, I might not be the challenger that you're all expecting because I think our view is that tokenized deposits or as we call them deposit tokens, blockchain native deposits, right? Stable coins and other types of DTS will coexist. Today, we have a standard of M1 and M0 money. Central bank money and commercial bank money continue to coexist.

They cooperate throughout the day. And we believe that as the space will continue to grow for certain sets of use cases, stable coins will be adopted and they'll become your M2 money. You'll have M1 money being commercial bank money sitting in between that always finding finality and maintaining singleness of money into central bank money. So we do believe that these will coexist. We see stable coins as really useful for certain use cases around things like retail crossber flows, right?

an area that is still very ripe for innovation today. I'm Canadian. I live in London. It still takes me three days to send money across these two across these two countries, right? Uh also things like US dollar store for certain, you know, ways of getting US dollar for large institutions.

So there will be those use cases. Um but we have continued to see an ask from our institutional clients and from the parties who will bring significant liquidity into the public blockchain space to be able to engage in the space in a way that is aligned to their existing risk profiles, risk management and treasury operation. So we've recently introduced JPMD. It's in a proof of concept right now. um where we have brought in from a technology perspective a deposit that is in a token format that technically looks the same as a stable coin.

So it's built on common token standards like ERC20. it can engage with the DeFi infrastructure um albeit permissioned uh and created a payment instrument that allows that is really just a single fiat currency which represents funds that have been deposited by a client and can be transferred between our clients and clients clients. So building that round of transferability and this has allowed a couple key benefits. The first is bringing in balance sheet certainty which again is not critical depending on who you are in the chain but for these large institutions they need to have clear certainty around what they're holding on their balance sheet and how to do things like capital ratio stress management and capital policy reporting around that. So, we wanted to bring in a deposit tool that would allow clients to just synthesize their holdings on the public blockchain as part of their total deposit positions so that their treasuries know how to treat it.

And we see this as important for bringing high liquid high ticket and high liquidity trades into the space. Um and also to have things that traditional deposits could bring from a risk profile perspective like uh being able to manage that liquidity uh according to existing treasury operations, being able to bear yield, being able to have deposit insurance. So we are really looking at how to bring something that can allow institutional clients to continue BAU as a form of cash into this space. And we think it's uh quite compelling from a from a risk perspective, right? Because if you're looking at stable coins, from a treasurer's perspective, what are they really doing?

They're taking on and holding on to um you know, issuer risk of a ton of high-quality liquid assets that sit at different reserve banks. So managing that risk profile and ensuring that the net asset value of all of those reserve assets are always equal to or more than a deposit token is uh sorry than a is then the stable coins in circulation is a significantly more complex operation. So we're really looking to hopefully bring that efficiency for new players and I think for use cases be able to do a lot of the things that Simon and LA and Leo mentioned right be able to use this as a form of blockchain native cash for settlement of digital assets be able to make peer-to-peer payments crossber at any time um and to even have a format that can work in things like automated market making liquidity swaps right a term a type of just US dollar so that we can bring in those traditional players and Simone mentioned quite a bit around some of the different institutions actually being able to come in and I think what we're hoping to do is to say there are a number of institutions who want to invest in things like institutional grade RWAS right but there's not enough one liquidity so how can we bring in market makers who would market make those markets but won't hold significant stable coin holdings into this ecosystem to actually bring that liquidity right how can we allow the corporates who may not be or corporates or asset managers who again may not have the comfort from a compliance perspective to hold significant stable coin. How can we bring them into the market? And that's what what we're really trying to do with bringing in a form of just US dollar.

So we don't think it's one or another. We think it's going to bring different players into the ecosystem at different points with different grades of liquidity. And ultimately what will be key is how stable coins start to clear, how central bank money and commercial bank money in this new public blockchain environment start to coexist and we can create um a system without increasing kind of the systemic risk or having the risk of frankly too many stable coins. Right? Because I don't think we want to be in a world where you have to walk into a stable coin.

Correct. Right. And you're like walking into Starbucks and thinking okay what coin do I have to pay with? Right. So I think that's going to be the key as we continue.

So it's going to be different use cases, different players and different assets that appeal to those players based on their operational risks profiles.

All right, Simone, I have to let you get in here. Do you have any thoughts on what Emma said?

Yeah, at first I think um there are good cases for a deposit token and that's totally valid and I think also the question how do we bring liquidity in the market and how do we prevent what has happened in the banking space already because it's heavily overbanked. So that shouldn't be the case as well for the stable coins. We shouldn't re repeat that mistake. I'm totally with you. And um looking at how can stable coins be brought into the market with liquidity.

I think uh one exciting part especially is also education. And here the movement of the banks is actually pretty good for us. It has been mentioned that now many banks go into this topic. When we wanted to get a bank account one and a half years ago, the banks were still like and I'm I've worked for several banks before myself. of the banks were still like okay you're a stable coin so you do crypto what does this mean I'm not sure if we can give you a bank account this has for sure now changed which is which is very good part of the education as well is how is a deposit leveraged and backed by let's say 12% roughly on average core capital yeah so C1 capital that's a regular ratio that you would have for a European bank how is a stable coin backed 102% % uh and so in terms of like counterparty risk, I think it will be part of the education to see that actually due to the stable coin issuers not being able to do leverage and thereby including yield this will lead to even uh it's a basically an overcolateralization with cash right now what we have and I can literally tell you we have to hold cash 100% of the assets that we sell to the market so to say and where we receive the the money on accounts we have to put it on segregated accounts.

So it's not even on our balance sheet so to say. Yeah. And additionally we have to have 2% of own funds as regulatory capital. So because I have the discussion with many former banking colleagues I said like ah how is it backed? Yeah is it the same level and say no not at all.

Yeah the money on the account is backed by 12% high quality liquid assets. Our money is backed by 102% highquality liquid assets. Yeah. So, I think that's good. But there are very different reasons to use the different um assets for different use cases.

For sure. Yeah.

All right. Well, now we're going to take a little bit of a turn and talk about response.

Oh. Oh, go ahead. Oh, no. Oh my gosh. No.

We love vibrant debate on our panel as kicking things off. No. No. Do you want to go ahead? Go ahead.

I guess the question is why, right? Why does it have to be backed at 102%. I mean, we've seen so many crises in the stable coin space. So there's a risk profile with holding these reserve assets around these underlying institutions that has to be managed right and I think there are questions uh in and don't get me wrong right every like 10 years or so there is some group of banks that something goes wrong so there's risk management that has to happen in both but I think the point is we've seen so much value be wiped away from the stable coin market and that's ultimately what's driving 102 risk weight right

I also Just wanted to add quickly uh from the technology providing perspective it's clearly more your uh uh part but um uh since when you do uh deposit tokens you remain in uh the internal banking uh uh balance sheet uh it's easier that you don't need to take on new uh regulations and new uh licenses I would say. Um so in the project that we are involved uh it make more natural for banks to start tokenization with deposit tokens because they don't it's easier for them and it's efficient just to partner with technology providers like uh GK8 on tokenization uh and custody so they can do the whole issuance uh minting burning and everything internally without additional um I would say uh external challenges and parties that uh should be involved. Uh and I think also I I might jump over but uh also the ability to uh um to have a interest on uh deposit tokens right uh other than stable coins which cause some issues according to uh Mika uh and the Genius Act as well. Uh so I think that's also a reason why to start with that.

We are now going to talk a little bit about regulation. Um, and I want to turn it over to Anukica. So, I'm a US lawyer and I don't know very much about European regulation, but I do know that in the US with respect to the crypto space, we've had a different approach which has been not a lot of regulation other than regulation by enforcement by some of our uh capital markets regulators, but not sort of a clear statutory framework. And that has you know created the dynamics industry dynamics that you see in the United States. Whereas in Europe I think there was a different approach.

And so I want to understand from Anukica how Micah shaped adoption of stable coins in the EU. Was it ultimately helpful to have that regulatory clarity or do you think it was maybe not so helpful? And how do you think regulation fits in for the future of adoption? Great question. So I think Mika significantly reshaped the space for stable coins in the EU.

I mean imagine you would wanted to issue a stable coin. You would need to get like memos from law firms all over the EU 27 member states. You might wanted to issue a stable coin and each of them had a different regime. So I think um this was quite burdensome for the businesses and as we see today we have like big banks uh incumbents that are taking on stable coins like this consortium this was mentioned already. I think this wouldn't have been possible without Mika in place.

So um for us I would say we were the first um jurisdiction like a major jurisdiction that took on a regime an harmonized regime that made it now maybe easier to tackle the European market and to be able to to serve cross border. Um but on the other hand I would also say as Mika is quite a strict regime which doesn't give you much room to explore different business models of how to set up a stable coin. We also saw that some of the businesses vanished like tether we haven't heard of them anymore in in in the EU and also it's quite burdensome to set up your business you need you have compliance costs you need to apply for licenses so I guess it's it's a huge advantage then for banks and regulated businesses to go into the space but if you are a smaller player that has just the stable coin business I guess it's quite um maybe Simon can tell us more um not too easy to find a business case as you have this like reserve assets a huge backing and you're not allowed to pay yield to your holders um and also the exchanges in Europe are not allowed to pay out holders any interest on stable coins they have so I guess this is makes it quite strict um it's quite strict regime for European players to actually find in business cases and to be able to like um yeah put a feet on their feet on the ground here

thank Thank you. All right. I want to turn to a different topic which we've been touching on a little bit, but I want to open it up to the panel to speak about it more specifically, and that is token governance. So, when we speak about token governance, what we're really talking about here is trust. And Laurent, I'd like to start with you.

From your vantage point at standard chartered, what does institutional grade [clears throat] token governance look like? Good qu good good question. So uh I think that uh be behind the trust the non-negotiator non-negotiation is security. So uh we need to bring maximum of security in your coin framework. This is definitely a key element.

After interoperability is also a very very important feature because it will bring uh the full adoption of uh the stable coin and you touch the point about uh governance which allow uh to bring transparency and accountability also. Um a key element is uh for for us so a stable coin we we are a regulated bank. So uh if we issue a stable coin like you have issued uh no choice we will go to uh to the regulation whatever it's my car or in US or in Hong Kong. So when you issue a stable coin under the regulation uh at least in term of framework you are quite uh limited because the risk framework is already brought by uh by the regulator in term of reserve assets for the transparency the different audits uh the smart contract and so on. Uh it relies on the issuer but the risk framework is up to the the regulator.

So we we will uh we will have to define the risk appetite the risk framework and we will do it in line with uh with the regulator. So uh I have to say that it's not it's not a challenge. So we will uh definitely move forward in this direction and by the way security is a key element uh for for the trust and governance I have to say it's part of the security finally at the end. Well, speaking of security, thank you, Lorent. That's a great segue to Simone and Leor.

You all have been working on these projects. Um, and I'd like to talk about how you embed governance at the protocol level. If you could talk a little bit about what you've done together at all unity, that would be great.

Sure. Um so I think uh before we get into uh tokenization at the beginning where we were doing uh governance layers it was mainly policy engine that uh should enforce um more basic things right uh what users can do what uh on assets movement perspective uh but when it comes to tokenization things are become different and become more challenging as technology provider for us it's not longer just to provide custody technology but also also um the tokenization issuance. So GK we provide tokenization wizard uh that enabling our clients to create a smart contact within a few clicks and it requires also policy as to who can do it and what are the the the limits about doing that. Then there is the layer of making uh what we call the superpowers, right? The admin key that should be in charge of making uh minting and burning and updating the allow list uh or who can freeze assets and unfreeze assets and only then the custody uh layer.

Um so instead of just making policy on transactions, we now need to do policy on the smart contract level. So for example, we need to support the teams uh to decide which users uh can do minting and how much minting any user can do uh per certain time uh and so on. Uh so it's uh really different uh we are not um a regulated entity that uh need to hold assets of clients but our clients do right they need to follow uh mika dora uh buffing requirements. So we need to ensure that everything from uh uh AML capabilities and segregation of assets between the institution to its clients and the policy engine uh could be supported with our technology. Yeah, we've been working I think very closely together with the team also now seeing some faces here first time in Barcelona actually like face to face which is also kind of nice working together for more than a year on the operations side and I think what is really important as Leo has mentioned is um the actual management layer around the solution I mean having a very solid key management including key ceremonia and so on so on that's standard in crypto custody right now I've been following the space also very closely for for years and having the the key ceremony and the basic stuff that's like you need to have it.

That's that's no question at all. But what differentiates the players especially in then setting up business on top is the management layer. Yeah. In how far can I have processes where I define user groups where I know pretty sure that only specific user groups are allowed to trigger transactions in what order with what signatures from whom according to which policy and stuff like that because also that is the coming from security side I would say more critical part actually yeah if you look at classical banking as well what is not happening is that let's say the core database of the core banking system is not working properly but instead you have issues around the management layer where there's a policy not correctly defined uh or where somebody that shouldn't have access still has access or like if you have a lever for example or new joiner how's the onboarding process how do you provide these new users how do you do changes to user groups so that's much more important and here really a solution differentiates and I think here we perfectly work together very well and happy here also to have trusted parties which is very important that have also gained and developed along the way als also for the years now also seeing that development in the market uh and also here this this like congestion of players with Galaxy that have acquired GK8 then both of you together with the knowledge and also um the the reputation of Galaxy basically that really helps to set up a business that is then also trusted by our clients because also our clients rely on that despite the regulation of course every uh part of this chain is an significant outsourcing according into regulation especially to to Dora. So you have to have a high level right now.

If not you cannot enter the market anymore but that has surely developed in the last five years I would say. Yeah.

All right Emma I know you've been doing work on this space in particular Kexus with MIT. Can you talk a little bit about that?

Definitely and I mean I echo everything that the team has said over here. I think that that's table stakes right is having good governance offchain onchain integration patterns policy and management of that key management systems right none of that goes away but I do think that we now as we're starting to see regulated institutions or previously unregulated institutions now coming into the regulated space with some of the new uh stablecoin legislation um a new dynamic is also emerging right which is that at a protocol level you're not embedding necessarily permissioned or privacy because these protocols are public open source protocols which exist today. So there are some new dynamics around how are we actually implementing governance and permiss permissioning at token level. Right? Your token now becomes your new boundary that you want to control.

Um and so we did some work earlier this year with the MIT DCI team to map out uh token standards for regulated uh payment token issuers. So this could be FIS, NBFIs, central banks, any party who's really working in a in a regulated environment. And what we tried to do was one showcase that we should be taking an approach in this world to composable standards. So not necessarily rebuilding these long large standards that have taken 20 plus years to develop like ISO where by the way there's still tons of banks who would want to see different things in those standards, right? but to actually say well based on the requirements that we as these regulated issuers would have what existing EIPs from an Ethereum perspective can match to that right ERC20 works really really well for transfers ERC 4337 works really really well for gasless transactions so we wanted to take that approach and then see what's missing and we acknowledge two gaps the first is in admin controls which I'm sure the crypto people will roll their eyes at a little bit uh but you When these are regulated institutional assets, we have the requirement to be able to seize funds to be able to restrict access if for example a sanctioned entity gets access to your token, right?

Or a sanctioned wallet. So we wanted to look at how can we create admin controls and then the second being wallet to bank or wallet to root trust API integration to actually issue at testations. attestations for things like identity, for things like the ability to transact up to a certain amount uh in order to really get to a place where we don't we move away from kind of traditional correspondent banking of inline payment controls to having these controls which are executable at any point that your token is in circulation rather they're whether they're held by your client or a client that's been KYC by another institution an exchange or another party right and I think it matters broadly for kind of two reasons and and we took this on for two reasons. The first is that with institutions going into public blockchain, speed is critical and the ability to apply controls is critical because now your vector of risk, everything moves faster, right? Malicious transactions can be executed instantly.

So if we're not building in the right cyber security controls and the right controls on the token layer to be able to stop or pull back transactions, your risk is significantly higher. Right? The second is that we also need to maintain and we've actually, you know, published an open source GitHub. I can share it with anybody who's interested. We're working with the industry on the development of what these standards should actually look like.

We really propose this just as a starting point, but we want to work with the industry because we want to get to a place where there are certain standards used across regulated tokens, right? whether they're the existing ones or these new ones to maintain interoperability and to ensure technical fungeability because I think a place that we don't want to get to is that you have all of these institutions one issuing based on their own standards and two none of it is interoperable with DeFi infrastructure right you should be able to put this regulated token in a custodial smart contract you should be able to use whichever wallet provider of choice so I think we really see this as a starting point for the industry But it's something that we want to work on um to maintain that fungeability and interoperability cornerstones to ensure the the safety and soundness and increase adoption which is what we're talking about today. All right, we have a few minutes left and I and I want to focus on a quick lightning round on a very weighty topic which is the US Genius Act. As our hosts mentioned at the beginning of the presentation, the United States finally, our Congress finally passed the first federal legislation regulating DTS. And it's important for that reason because it takes a long time for the Congress of the United States to do things.

Uh so it's significant that they were able to pass legislation in this space. But it's also notable that that legislation is only covering one particular technology and that is stable coins. So I want to turn it over to Anukica. We now have the Genius Act. It has passed.

It is law. It's not effective yet, but many companies throughout the globe are thinking about how they can utilize the Genius Act for their business. And Anukica, I wanted to get your take from a European issuers perspectives. How are they thinking about Genius? What are you hearing from your clients?

Yeah, I mean when I talk to clients, they're mainly asking how can I enter the US market now? Because there's this kind of uh opening saying that also similar businesses, foreign businesses might issue stable coins in the US and I think we're now exploring how is this possible. So I guess it's not really 100% certain yet how we will achieve equivalence. I guess in the end it will be highly a political topic saying if you are equivalent to issue a stable coin in the US I also want to issue my US dollar stable coins in the EU and get the same like market entry without setting up a business. But when we talk to clients then we're kind of thinking about what what would be um the right way to go.

Should you set up an business in the US? I guess from uh the perspective of a liability, it made makes sense not to go with your European entity and enter the US markets because you never know who's going [laughter] to

you never know who's going to sue you in the United States. It's true.

Then they should call you, [laughter] I guess. Um no, I guess there so many open questions still remain. How to enter the US market? But I think it's worth exploring. Um questions are can I use the reserve assets I already have for my stable coins I issued in the EU?

Do I need to ring fence the business? Um and also compliance cost. Do I need to to really fully apply the US law and do I need to have then two sets of compliance like being under Mika being under the uh Genius Act and how can I handle it internally? Do I need to have people on the ground then in the US to actually manage my business there? I think there are many open questions still in the room but I guess it's worth exploring because we saw in the last months when Genius was announced I think it also gave a real bust to the European industry.

Um so yeah excited to see [laughter] how it's going to end up. All right Simon and Laurent quickly what does genius mean for Micah compliant meaning e well let's talk about EU backed stable coins uh eurobbacked stable coins. Good or bad?

Okay, I I can start. Um, so I think uh what is kind of interesting um we had actually like months ago two congressmen uh in Germany and had some background talks and one of them is actually the chair of the financial commission. So he was actually the one that I would say formed genius a bit and we had um a really really good exchange. I mean they were extremely knowledgeable to be honest. We had also exchanges with politicians from the EU but they were much more knowledgeable.

Yeah. And um what was really interesting is that we had a common ground especially on one topic and that's the multi-issuer topic. Yeah. And you mentioned it quickly with reserves. Yeah.

Right now you have issuers in the market that mix US and EU reserves and that's really a structural issue. If you want to look for some some fuckups, you mentioned it, Emma. There is potential for fuckups in uh stable coins. Yeah, I'm pretty sure the multi-issue is one. Yeah, because you mix up the reserves so they are not protected.

It's very easy. If it's mixed up, you cannot protect them locally or geographically. And the fun fact is neither EU nor US regulators want that. Actually, the US ones want to save the US reserves. The EU ones want to serve the EU reserves.

So there we had a very much common ground. And so I would expect that this will pretty soon change. Yeah. From both sides that the reserves will be protected per regulation.

All right. Lorent, what do you say?

Very quickly in US in US they innovate in Europe we regulate. What is clear is as we said 90% are US denominated in term of stable coin. There will be no CBDC in US and in Europe it's still uh question marked not question mark we are supposed to get CBDC cell and retail uh but for me the final answer uh will be the industry like all unity what you have done and the different consortium in place so we see more adoption and uh I think it is the the the answer will come from the industry itself and uh it will come in Europe But always we've uh we need to to be checked sometimes in Europe. So uh it's happening now in US so we it will come in Europe but later on. All right Emma as I mentioned Genius Act is about one kind of product and that is stable coins.

So I'm wondering how you think about it from the perspective of the uh tokenized deposits you're working on.

Yeah. So I mean tokenized deposits in the US are not subject to genius but I think like genius is certainly significant right and we've seen the market players react whether it's stablecoin summer I feel like every week I open like LinkedIn or X and there's a new stable coin

# stablecoin summer I love that

right there you go um so and the market players are reacting we're also seeing so many new like layer ones right being announced a lot of new infrastructure players so I think it's driving more attention to the market um a few things that I'm personally right just my personal view kind of looking at from Genius. So I think one thing that we're tracking will be and most of this will be found out as we get market structure frameworks and market structure legislation which should be around next year. The devil is always in the details. Uh but I think one thing is which the which Anakah mentioned like what will this look like bringing a Mika compliant stable coin into the US right? Will there be par across the regulation?

Will there be European stable coin issuers who need to do a ton of analysis to understand whether or not they're genius compliant? So I think that's one big thing that just based on this room being European blockchain convention that I'm personally uh keen to see how that plays out and one of the watch items from my side. Um and then I think the other one is really like what will what equivalents if any will be created for things like transaction monitoring requirements for things like monitoring for AML for KYC and I mean broadly sanctions I I presume will apply regardless of what that who the issuer is but I think right now in the US right and again just my personal view but as we look at the regulatory landscape if you're a bank issuer you're subject to things like the bank secrecy act which require a ton of AM ML transaction monitoring and really like at the core making sure that money stays out of the hands of bad people, right? And so I think it will be interesting to see as we get to the market structure regulation what will be if not exactly the same from BSA what will be pulled into the Genius Act and then how stable coins uh will start to implement that because I think it gets to again a lot of the heart of the work that we did with with our uh friends at MIT around how are we actually thinking through the same kind of legisl or regulatory requirements but in this new ecosystem right? And how are we programming in that governance to actually meet them?

And I think that we're going to see a ton of innovation from the stable coin in the DeFi space as we start to get this market structure regulation on how these types of controls can work on chain. So those are the some of the things that I'm watching around Genius Act.

All right, everyone. Well, thank you so much to our panelists and thank you to the audience for uh listening to us. And I think that's it from our side. Thank you.

Beautiful. Beautiful. Beautiful.