The Path to Singleness of Money for Stablecoins - Sebastien Derivaux

Thanks. So yeah the the topic of the day will be on the past to singleness of money for stable con. We will analyze what it means why we are in the situation we are here what was done in the past to solve it and what we should start considering thinking of maybe doing soon. Uh just as a presentation for those that doesn't know me uh I'm Sebastian Duru working at SEO Financial. We have a new uh brand so the colors will be a bit off between each others because I only made half of the presentation with a new brand and half with other one.

But we have a rooted history in Meor where we started in 2020 dealing with old stuff related to Kil assets making a lot of deals but also bring balance sheets and you will see a lot of balance sheets and thanks to SH to explaining you what how balance sheets are working so I don't have to do it again. We are also the largest creator on moru with 700 million and we announced yesterday today I think yesterday that we will manage up to a bit more than $1 billion for grove which is a new subd of uh sky. So what is the problem that you are trying to solve and what does it mean single of money it's a funny word to say well it's a funny word to say something very simple is that all stable coin or all bank deposit or all bank notes should be funible and exactly the same so if you want a more formal definition it's given a unit of money should be universally accepted and interchangeable at par one to one so if I pay you let's say with USDC and you want to hold USD DP which is a PO stable coin or PayPal USD you can just change it one to one. So you don't care if I pay in USDC because you can change it to PI USD instantly. Back in the old days and old days I always mean I will always mean in Scotland during the free banking era 200 years ago each bank we're taking the deposit the bank notes of all the banks and would not have any issue.

Today if you try to take a pi USD and go at circle that will not work. So the good part is that in free banking Scotland so in 19th century uh 18th century it took 25 years for the two biggest bank the Scottish bank the uh bank of Scotland and the Royal Bank of Scotland to accept their deposit at par or that bank notes at par. Why was it the case? Because there was there was buying the stable coin. Let's go.

let's call everything a stable coin. They were buying the stable coin of the other one and one day showing up at the at the at circle and say well I have one billion USDC can you redeem today and that was a war that was a big mess. So they decide well let's stop competing and there was al obviously competition so that's why they stop oh wait uh competing so why does it matter to to have uh singiness of money it prevents fragmentation when you go to Amazon and you want to buy something that cost $24 you want to pay 24 USDC or 24 p USD you don't want to pay 24.01 01 or 23.95 because the stable coin is fluctuating.

So my view is that the stable coin based financial system must achieve signals of money to be efficient and widely accepted especially by institution. I mean for retail maybe a few beeps of difference between stable coin is not too bad. You can use curve which works nicely but I mean come on it's not super efficient. I mean I want one USDC equal one uh PayPal USD. Why?

Because in TWI it work like that. So if you cannot even be the same level of nonqualities and TWI what are we doing here? So we will see that the solution is to allow each stable coin to clear against each other and we will see detail what does it mean but first just a bit of segue to stable coin and pre primary markets. Premier markets are where you are redeeming as issuer for something that is worth $1 and secondary market is when you are going on curve to do the swapping and more often than not most people are used to to go on the secondary market and that's why people are saying well the price of USDC today is 0.995 because that's the price on the single price but if you go on circle or on Coinbase which is their partner the price is always a one even during the SVB incident if you did go to Coinbase or Circle William Price was one.

So what are we speaking about? Obviously they didn't really because it was on a weekend and they don't work on a weekend like every institution. But what is interesting and that's recognized by MA and Genius that you should be able to redeem your stable coin for $1. So why it is in reality you will see a lot of D5 stable coin now or even fiatback stable coin like tar. Why you cannot trade him?

I mean, who here has an an account at Twitter? I guess almost no one. No one who has an account at Circle. Okay. No, 1%.

Thanks. So, that's not working well. And same stuff happen now on D5 protocol. If you go on Ethina, you need to be KYC. On other stable coin as well, you need to be KYCed.

There is there is a good reason because they want to be able to do the KYC because they just are not sure if there could be some issues by dealing with bad bad people. But although they try to sometimes to charge fees on redemptions and the rational is well maybe if you charge fees on redemption redemption people will not redeem or we will at least make some money which is a nice thinking but if you want to make a good product maybe start by not making it a bad product. If you don't want to let people getting out, they will not get in. That's always the issue. So I think it's really important that we level up and make sure that at least on the premark market, even for stable coin that are not mika or genius regulated, that at least if you are promising to be worth $1, let people redeem for something that is worth $1.

Uh if you want to go on a more balance sheet perspective on the on the problem, you can see here that you have the payer that hold one stable coin or one the payee which is the guy that needs the money uh which is holding a promisory note on payer on the payer which means that the payer need to pay him $1 or whatever the amount is wants only to hold stable two but payer has stable one. And so the question is well how can we fix this problem? So payer pay in stable one never has stable two counterparty exposure. Payer receives stable two never has stable one exposure and the transaction is atomic. Transaction atomic on the blockchain is usually quite simple.

What was quite funny is that if you we if you lived in 2021, you could redeem 4 billion 4 billion with a B of D for USDC without any single beeps of slippage. That was 2021. Now if you do it right now, it doesn't work anymore. I don't think there is a 4 billion still in the PSM. What happened at the time is that there was a die was pegged soft pegged but still pegged to USDC USDP so back and Gemini which was they call PSM which is meaning that maker was holding some of the stable coin on their balance sheet.

You can see here uh maker holding some GD on their balance sheet. So that mean if someone wanted to pay from USDC to the pay the the pay which wanted to have a GUSD this person could have make a multi-step process which is obviously see atomic on the blockchain by minting D with the USDC. So next step the payer has die then the payer can redeem uh D for GUSD at make we just swap the asset of maker from GUSD to USDC which is fine for Mod because it's just a stable coin and then the payer has GSD and can send it to the P. So you can see in this U presentation that the the payer still has some exposure to JUSD. is just because I wanted to break it down.

But everything happened in the same transaction. So either it works or it doesn't. So actually pay never has any exposure. If you now go in 2025, we have two main types of stable coin and I made a broad generalization because otherwise it's uh it's quite complex. We have the fiatbacked stable coin which are compliant ma or genius.

They cannot provide yield by regulation because regulator want to protect you to earn money and they cannot hold a stable coin on the balance sheet can't or cannot. It's complicated. Uh and they are full of banking. They only hold uh short-term uh depth from the US government or the the European government. So the lack of yield makes them quite a bad product obviously which is obviously good for the second part which are the defi stable coin because obviously people will want to yield at some point so they will turn to an alternative.

Uh what is also bad with the back stable coin that you have the signal of at risk because the stable coin cannot really hold other stable coin or it's complicated. So then regulation in making sure that the signalless money is broken and then they can complain that signalless company is broken which is obviously a secular argument. Uh you have defy stable coin on the other side. I put everything that as a token more or less uh that provide yield which is fractional way of banking because they have some maybe some stable coins some bank deposits some ts like sky today but they can invest in really what they want. So they can provide a yield obviously a yield can come with a risk or not.

uh if we stay on the fact that D5 stable coin are mainly here value proposition is mainly to provide a yield we can think well maybe maybe we can just extend you don't need a stable coin maybe maybe what you need is a learning protocol or any saving product where you can generate a yield on the stable coin there is for instance one product on the sky so so maker now called sky where you can deposit USDC and it's invested directly in SUSDS which is a saving uh stable coin of sky where you are earning I don't know what is today but let's say 5%. But they remove the the swap to USDS which is actual stable cut of sky because they found out well people want to have a yield on USDC. So they they need to swap first to USDS then to SUSDS. So it's two step a lot of friction while people most people want just the yield. So they removed the swap to USDS.

Uh yes. So we can say well maybe lending protocol which you can deposit USDC and earn a yield on it which are actually kind of the same structure that what Madoro was doing for the last uh seven years just lending against some crypto collateral. Maybe that's enough. There is actually a tradeoff because lending protocol do only one thing lending while a stable coin or full-fledged stable coin can have many yields opportunities. You have Ethina that can accept that can go to the to the basis trade.

You have maker that is now invested quite a lot in in real world assets. So there is more opportunities on defy stable coin but obviously you are taking a bit more risk because it's more open to what those people can do. One thing that is interesting is that now we have tokenized TVs. uh token tits have started two two years and a half ago and now it's more than 7 billion and it's kind of a pristine collateral because it's mainly invested only in T bills so it's kind of kind of a very safe way reality is a bit more complicated obviously some issuers are less trustable than others but assume we go to the sound ones and it's quite pristine collateral so you might ask yourself well instead of keeping for instance as we saw with Kai holding USDC which wasn't yielding until recently or two years ago. Uh maybe you just hold those tokeniz you earn a yield and you have something that is kind of worse one.

If you look for instance for USB which is a super state product it's you can redeem at any point in time during the the day and you will you will have the exact price that you that the price of of the day and it's accuring interest every second. So it's kind of a very good product to create uh uh what I call the asset settlements. We saw the PSM way of sky pre uh previously holding USDC and GUSD. Here maybe the stable coin issuers can hold USDB for instance. And then with a smart contract we just make sure that when the sky for instance here wants to hold USDT someone pay wants to be old in M which is another stable coin.

You see the M0 balance sheet on the third column. they can just make a swap from the USDB. Sky is giving the USDT a USB to M0 and that settle the clearing and allows the payer to move from USDS to M and to give the M token to to the pay. So that's quite nice. What is very interesting here is that USB is a permissioned asset.

You can assume that neither the payer and neither the pay are on boarded but it still work very quickly. We have a GPMD which is a tokenized bong deposit by GP Morgan issued on the blockchain. So that will allow any regulated stable coin fiatback stable coin to be able to do the same stuff. they can settle between fiatback stable coin using this this token because most of those those stable coin have a bank account at GP market and as conclusion we are going to make it at some point all stable coin or most stable coin will be one to one and user will never have to lose sleepage or whatever by going just swapping between stable coin. We have the tools, but we just need to make sure that when we launch a new stable coin, we make sure to at least allow onetoone conversion with at least one other stable coin.

And if we all agree to include one or two stable coin, at some point we will mash the network and everyone will be redeemable one to one because you can find a way from one stable coin to the other to be redeemable one to one. Thank you.