EBC22 | Stablecoins, Stability and CBDCs

[Music] perfect welcome everybody so wake up it's going to be exciting now we are addressing the most important topic of the industry right now stability getting growth back and talking about stable coins and cbdc's central bank digital currencies so with me on the panel the to my left is sean safar he is director of client experience engineering at digital asset and then to my right is thomas moza who is alternative member of the government board swiss national bank and then we have dorian vincy leone from kucoin and she's doing business development manager over there i think we have the most important experts on the stage right now my name is monty metzger i'm founder and ceo of lcx ltx is a regulated crypto platform from lichtenstein this small country which has introduced a legal framework probably the most exciting jurisdiction at the moment for blockchain companies we run a crypto exchange and a dex aggregator and the tokenized diamonds nft platform we've been engaging with central banks over a long period of time i've been hosting sessions with the world economic forum with 15 central banks also the swiss national bank had been part of that discussions and i can tell you the knowledge and experience they have is incredible it's not a matter of if but just a matter of when it's get started i also want to give you some outlines on what we are talking about currently all money supply physically is around 40 trillion dollars but this is not even counting all the investments the relatives if you would count this in it would be talking about quadrillions of money um and we will be structuring this panel today around what is um what are we talking about the stable coins cbdc's the why why does it matter and how like how can we improve the markets let's start with the what so what is the central bank digital currency over to you thomas so what's important about the central bank digital currency is that it is a liability of the central bank i think that's a very important for the definition that's i actually when when lex asked the previous pelin panel when he asked the audience who owns bitcoin that's a question i usually ask at the course i teach at the university of zurich i also say who own owns bitcoin then i have a lot of students put up their hands and then i say where did you buy your bitcoin and they tell me finance coinbase then i say you don't own own bitcoin you own a claim on bitcoin basically that's what commercial bank money is and that's the difference between commercial bank money which is a claim to central bank money and central bank money is the central bank money it's the claim of the central bank itself so that might be confusing but that's the difference and that's what central bank digital currency is okay so it's a cryptocurrency digital asset issued by the central bank exactly yes yeah okay my experience as an entrepreneur 25 years of technology i've seen things like social media starting or cloud computing but if we talk about money and digital currencies we talk about power a lot so i think it's a fight whether it's privately issued or central bank issued controlled by the government partly so there's a change shift in power as well so we'll come back to that later but over to um you durian how what is a stable coin how would you define it there's fractionalized stable coins asset-backed um stable coins and and collateral based stable coins how would you define a stable coin yes absolutely actually it's a question that has its importance these days with the events the recent events we've witnessed with ust and other d-packs that could or are happening as we speak um so stable coins there are different types of them there are cryptocurrencies which are created with the aim to peg to uh like central uh currency that's emitted by a central bank centralized currency that's used in the real world to pay for your groceries for whatever you want to buy these currencies well mostly these days most stable coins try to peg to the usd but that's not always the case we have other stable coins trying to peg to other currencies worldwide we have a circle actually launching a new digital euro that they are digital stable kind euro that they will soon be launching on exchanges as well so this is an example among others in about these stable coins you have three main types these days where that we can identify and you really need to pay attention to which type of stable coin you are using if you want to keep your money safe if you want to retain the value of your assets uh to start with we could um talk about the fiat backed stable coins like usdc probably the most well known of it that most of you are using they basically keep the fiat money in a bank in a bank account and they are audited people know that they can trust that circle has the amount of usd to back the tokens they emit in usdc so that would be the first type the most simple one the one that we can trust the most especially during these days and the usdc you may find on many platforms especially if for example on kucoin worldwide exchanges it's very accessible then you would have crypto backed stable coins those would be the ones like die which is managed by maker mkr and once again a cryptocurrency that's widely accessible that you can find on most worldwide exchanges on coin and others and our competitors and these types of backing is different because it's it's constrains you to have much more assets than needed to back your uh stablecoin for it to keep its peg because of the market volatility so you have these pros and cons at the same time when you're backing with fiat you know that your uh your peg is not gonna go away because you have the assets to back it you have the the cash to back it but uh on the same time you're relying on the centralized agent which in this case is circle and when you have a crypto backed you will have more decentralization meaning that it's a decentralized protocol that will manage your pegging process let's say and in this case that would be maker but in the same time the cons are that you need to really have much more collateral than you need to be sure that market crypto market especially volatility is not going to take your peg away and then we have the last type of stable coin which everyone wants to hear about right the algorithmic stable coin or non-collaterized one which some would discuss argue that it's not even a stable coin type anymore so how these stable coins this type of stable coins maintain their peg is actually the same way that the central bank does it they try to aggregate offer supply and demand and they try to modify the supply of the token depending on the its demand just like central bank does algorithmically on a larger scale the only problem is that you trust a central bank more than you trust uh protocol on blockchain these days and that's why you can easily lose your peg with algorithmic stable coins and as we've seen it already happened uh it might happen again so that the current stable coin market as a whole is a roughly 154 billion dollars as of today with usdc um to use dollar coin leading um and then tether as well as the kind of two leading stable coins at the moment so but eventually there are like all different kind of stable coins as dorian explained john how are stable coins issued and you're doing this infrastructure building and digital assets so what's the process there well i'm not too much involved in the stablecoin side of things but i can tell you about how digital assets so we build software that allows you to have scalable private dlt networks and networks of networks right which is key to building cbdc's and commercial deposits and so forth so we're more like around what thomas was describing where we can we for example work on a an effort with citigroup and settle on building a regular uh regulated liability network that can link the cbdc's to commercial deposit to e-money and eventually for those regulated stable coins and all the type of coins that are going to be issued we can link all that in a very scalable and private network that's what digital produces in terms of software stack but now let's turn about the stablecoin um topic and the kind of unstable uh situation which we had been facing thomas what are your initiatives i heard about horizon and these uh like different central bank digital currency projects can you describe what you're doing and where what where do you stand in the process yeah so interestingly when i think when the first european blockchain convention was held there were very few central banks who worked on cbdc's that's why they found me and invited me nowadays i think there are 90 percent of all central banks are working on cbtc so almost everyone so when i when i talk about switzerland uh the interesting thing is that we have a a fully regulated live digital exchange uh six digital exchange they're one of the sponsors of this uh conference they are alive since last year and they work currently with a stablecoin what's special about their stablecoin is that the stablecoin is packed with an account at the swiss national bank so most central banks do not allow stable coin providers to have an account with the central bank we do if they are regulated so that's how they work currently what we could do with them we could experiment with the digital exchange uh issuing a cbdc on there on their exchange and the nice thing about that was that it's not a research setup it's it's really a live setup so we had real banks involved we had international banks involved we had city we had goldman sachs we had of course credit swiss and ubs but we also had we also wanted to have a very small uh bank involved and see how they can handle cbdc so we had a very small hypothetical lensburg jupiter carbon glensberg and and that's how we did our experiments and i think that that and we are not the only one as you said most central banks are doing these experiments we have stayed in the wholesale cbdc area which means a wholesale cbd is a cbdc that is not available to the general public but only available to uh basically financial institutions and that's much easier because you have a much smaller network you do not have the same scalability issues that you have with a retail cbdc where you have uh potentially a lot of transactions a lot of low value transactions but there are also central banks that work in this area and actually there are three uh retail cbdc's life uh currently so that it's clearly evolving we are seeing more and more work on cbdc's and we see actually first adoptions of cbtc's so so why do you why did you start working on this topic why does it matter for you as a central bank so i mean there are very different motivations for different central banks in our case it was really the the emergence of that sixth digital exchange and if you have a digital exchange it's still relatively small at this stage but i think as a general rule if you have something that is very important especially if you have a financial market infrastructure that is systemically important then you want to have the settlement in central bank money because central bank money does not entail a counterparty risk like a stablecoin does or commercial bank money does so for us the question was if this digital exchange really is the future and will become systemically important at one stage how do we provide central bank money on a dlt so that was the motivation for us and then you also do projects together with other central banks in collaboration so there's something with france i think correct together with the monk de france we did a cross-border cbdc uh project which involved two cbdc spoke defrost issued a digital euro which legally they can't but they did for the project at least and we issued the swiss franc as a digital central bank currency and i guess in the in cross-border payments it is clear that the legacy system the traditional system is very ineffective uh so there are clearly uh huge gains to to get and um but as with a lot of these projects you know technically we showed in the project and other central banks too that it's that it's feasible it's doable the main issues are the different regulation different jurisdictions and some legal questions so in our case the interesting thing about our project was that we had a common platform but we had sub-networks so each sub-network basically for each country a sub-network so each sub-network could apply the laws that are relevant to the respective countries so that might be a way forward okay so let's sink that in you said the legacy systems are not efficient innovation might open up new worlds i often say blockchain is to the money what email was to the letter so it's a technology which is eventually uh being introduced into these different um sectors um and if we look at the financial markets as a whole the vision is this ocean of financial markets of monetary supply but if you look closer it's different liquids from like little oil to different uh kind of materials which do not mix well so it is like different layers of um infrastructure or cellos which are hard to break up and i think that's why the vision of blockchain and centralized digital currencies could be to actually have global access to these monetary systems yeah no exactly yeah so but let's go back to the stablecoin topic so we talked about central bank digital currencies which are issued by central banks and so why are stable coins important especially for exchange like kucoin um why did you list them well actually because there is a huge demand for that they corresponded to a need of the market the crypto market is especially a volatile market and there was a use case for them that was almost self-evident they were asked by the user base and that's what's good when you are the people's exchange let's say that we always take uh pay attention take care and pay close attention to what our community want what our user base actually is asking for and uh in the case of cbdc's and stable coins we know that there is a it's a new room basically like regulations are evolving by the day and as an exchange what it means for us is that we have to be the reliable partners of institutions and or for you as a base at the same time to take care about well what's being said from institutions what they want what the regulators want and uh in the same time to look at our user base how they want to use it what would they be interested in for for us it's a really exciting moment actually because nobody really knows what it's going to look like we know the directions that some central banks are taking for their cbdc's what their relations are with stable coins that are already there on the market and available but all this is changing by the day and the whole challenge in this environment is to be there as a reliable partner that people can count on and that's the mission kucoin set itself for and then everybody knows that there's the ust or was ust as terror stablecoin claimed to be a stablecoin i think for a lot of consumers they didn't really know the difference um what kind of stablecoin it is they thought it's completely safe um packed to the dollar and then it lost the pack what was the impact on on coolcoin with that and how is it evolved until today well our community was involved in ust and luna so as much major exchanges on the planet though so that's true there has been some loss uh the problem is once again in crypto we have this saying you need absolutely to do your own research before any investment takes place and the fact that people did not know that it was a non-collateralized stable coin so to speak beforehand for most of them is is also very compelling argument for doing your own research because if so many people had known that it was a non-collateralized stablecoin i bet that they would not have put what they considered safe value inside um this on this network like yeah and truly believe that at the beginning there has been an abuse of the world stablecoin everywhere without uh taking attention paying attention to what were the underlying elements of what constitutes a stablecoin why it is stable how the peg occurs what's the process behind it all these are elements that should be of utmost importance and that have been a bit forgotten throughout the bull market which is understandable and unfortunately bear markets reminds like some realities to us when they occur sean can you describe what our projects you're involved with stable coins the central bank currencies and what do you provide over there so so it's interesting because we digital asset pushes the notion of a global economic network right so we're going from the ground up going from an enterprise grade networks of dlts multiple thousand transactions per seconds privacy built in and that applies to cbdc retail or wholesale and to all the networks table coins or other coins that are going to link together so we have for you you must have seen announced recently a project in japan with sbi for example to create a programmable digital yen that's going to relate to people's regular account regular business with a lot of rule built in the yen as it's going to be distributed to retail customers so that's one big project that's starting now can you explain a little bit more so there it's it's smart money isn't it it's programmed so it's just starting but but think about the concept of building a lot of rules maintaining privacy and allowing you to direct what you can spend how you can spend spend it spend the money and making sure that everything is going through the right directions with all the trails for the regulators for you as a consumer and for the bank so it's all linkedin but the details of the project are known it's just starting right now okay and you can but this is interesting because you can apply the same concept to the other project we're doing with the bank of the central bank of brazil the lift project where here the farmers are involved and how do you facilitate credits to farmers by maintaining the link directly from the central bank passing through the intermediaries and making sure you create an ecosystem where other services can be offered on top of that through programmable money as well so it's all linked it's and it's it's really linking all those initiatives stable coin being just a small part of it cbdc's other liabilities regulated so so that you you know where you can trust who you can just okay but but imagine what opportunities are there with like smart money if you give out a loan which is to a certain use case for example and it's preventing to use it for other other things so basically you can only spend it for agricultural products and not for buying your fridge yeah that's correct you can think of stimulus money or money that you can spend to buy produce in the market and you don't go and buy electronics for example with it that would be not meant for so that's how you can do a lot of rules like this yeah what does the future hold just um a couple of thoughts and sentences from from each one of you where will we be in five years from now and what are the kind of growth factors dorian do you want to start what are your thoughts on stable coins cbdc's well as i mentioned regulations will be key and in five years we'll probably have a better idea about what central banks actually want to do with their cbdc's uh what place they will live for is private stable coins in this environment if they actually will still tolerate them or not we actually don't know this it's really changing by the day the thing is um that we see that the world is being more and more polarized let's say on certain types of issues on should there be political economic them so all these reasons for polarization also means that there needs to be bridge between these different sides there needs to be bridges medium of exchanges that none of these sites may control at any time because if these bridges do not exist no actual communication can take places between these two sites let's say different sites so in five years of time we'll probably have um these bridges really built and in place probably most users uh in um let's say europe usa will have a broader knowledge of cbdc's and what they mean they will be out most of the projects that we see right now developing in latin america in the world actually they will be out and we will be using them maybe there will be a phase also where we will still use our real cash our commercial bank accounts and cbdc's maybe at some point we will be having all of these tools together and they will compete i mean we will make them compete and try to build a use case and see which ones are the most useful to us right sean your thoughts on future trends right so first all i'm gonna say is gonna be wrong right because nobody can predict the future what i can say is that for example we're working a digital asset with the major exchanges on the planet deutsche borso the australian exchange the hong kong exchange and think about the domino effect once they go in production which is very very soon now all the equity markets the bond markets and all the markets are going to be digitally and on dlts and they're going to link to each other with cbdc money it's going to be huge so that's the future where everything is interlinked with all dlt trails on it so i think the best way to predict the future is to create it so then over to you thomas how will you create the future of digital currencies so i think we will see continuum adoption of cbdc but it's going to be first emerging markets developing countries not so much the advanced countries i also see a coexistence of cbdc and stablecoin kind like we see a coexistence of central bank money on commercial bank money uh currently in the in the legacy system but what i think is crucial right now is the legislation that will come on stable coins i think this is kind of a watershed moment right now and i think the terror collapse did not help in that respect so but i think it's little similar to what we had in the 90s when uh when regulation on the internet started and there was the big question is it just a telecommunication service do we regulate it like a telephone service or is it something else and i think back then the clinton administration wisely decided that the internet is something different and i i and i hope that we will see something similar now for d5 because there is a risk that that regulation will force d5 to become centralized and that only usdc and tether those kinds of stable coins will be allowed and basically banking regulation or money market fund regulation will be applied to them that's easy but if we really want to have the d fight to survive in a real sense then we need a new regulation for something where there is no uh central party accountable for and that really needs a new type of regulation will there be also with central bank digital currencies and stable coins will there be a new war of currencies or fight globally i've heard that in smaller countries there's a dollarization they're afraid that they lose track of their own local currency and then there's the digital r b there's a digital dollar digital euro coming which uh might trigger kind of a new competition to a new degree as you say to a new degree because we already have that right now you the problem of polarization you have already now and that's clearly a competition among different types of currencies and as an economist i have to say competition is something good in the end but it's also true as you said that central banks clearly woke up to cbdc after libra announced its plans so there is some competition i call it competition rather than war going on and when will you put a bitcoin on your balance sheet i i think that will not be not happen for a while okay so we had a discussion about um like global reserve currencies a while ago and um i do see that bitcoin has the opportunity to become kind of the united nations of currencies everybody who contribute can bring in something um nevertheless i do see that there's some skepticism um but a lot of movement going on with central bank digital currencies i think the projects you're doing outstanding it's needed on exchanges like kucoin and infrastructure providers like digital asset really driving um the adoption and education around it so with that we talked about this trillion dollar market opportunity we are now at 150 billion in stable coins with roughly a trillion dollars in cryptocurrency markets so the future is ahead of us and let's create it together thanks for joining the panel was a pleasure thank you all