Can Stablecoins, CBDCs and Tokenised Deposits Coexist | EBC12

So I just had to give the gentleman something sweet to give him some energy after our panel. Um, yes, thank you all so much for being here, and I hope you had a good lunch. My name is Johannes. I am the Managing Director of the Franken Coin Association. Um Franken Coin Association.

Um , Franken—this is the largest decentralized Swiss stablecoin, Franken, and I think that makes me a pretty unique person to be moderating this panel today. Um, and um, I'm looking for a really interesting discussion with all of you, because I think we all have slightly different experiences and different approaches to the same thing. Um, so first of all, you know, thank you all for being here, and, um, I'd like to start, you know, as you usually do, with a very brief introduction. Um, maybe, you know, let's start with Elias over there. Um, good day everyone.

My name is Elias Kokali. I manage business development at TRM Labs. TRM Labs is a blockchain analytics firm. We work with financial institutions around the world to help them understand the risks associated with blockchain associated with blockchain activity and enable them to better monitor and assess the risks associated with their interactions with blockchain. I look forward to our conversation today and thank you for inviting us.

I'm next. Okay, thank you. Thank you for inviting me today. My name is Artur Kayal. I am the head of digital assets at CaixaBank.

CaixaBank is CaixaBank. CaixaBank is the largest, er, largest bank in Spain. And I'm really, uh, excited to be here and discuss with you the future of different types of tokenized money. Hello everyone. Good afternoon.

I'm Stefano Hervatin from Intesa Sanpaolo. I think it's the largest bank in Italy. And, uh, I'm following the project and all the initiatives in the Ministry of Finance, as well as in the area of ​​financing. So glad to be here. Good day everyone.

Thank you very much for the opportunity to speak with you today. Miles, I'm at Finality. I have been working at Finality since 2022, where I have held various roles, but I have been doing this since 2016, when I worked at UBS, which was one of the founders of a consortium called Utility Settlement Coin. Finality is a blockchain-based version of central bank money . We are focused on the secure settlement layer that underlies all digital asset activity.

And I'm looking forward to this, uh, event and the discussion of stablecoins, CBDC, tokenized deposits, and Finality. That's right. I mean, I want to play devil's advocate today, and, um, just first of all, um, when you ask me, I'm going to use a very specific definition of stablecoins, and I think I'm essentially opening up the issue a little bit . So, today I will use the PREMIA stablecoin definition. For me, a stablecoin For me, a stablecoin is an asset that has a stable value.

This is a token with a stable value. And that actually broadens the definition a bit. And that brings me to my first question, right? You know, today we have a topic: can stablecoins, CBDCs, and tokenized deposits coexist? That's a big term, and maybe I want to, you know, touch on that , Miles.

Where does each of these things work best? Yes. And does everyone else agree with this ? Good. So, let me start by saying that I think they absolutely can coexist.

And there are many forms of digital money that are emerging, as we can see when we look at the market. So, this is reality. And in my opinion, they have different uses in the market. And of course, if you look at history, you know what really led to the push for tokenized deposits from banks looking from the outside in. I'm obviously not in the bank anymore, but I see a lot of what's going on, and we have, um, 24 shareholders that are global financial institutions, 18 of which are G-SIBs, and we're in constant conversation with them.

So, we hear what's happening. And a stablecoin appeared, which, frankly, caused a huge stir around DLT. And it also, uh, led many banks to see this as a competitive threat, a threat to their corporate cash management business that they offered to clients offered to clients . And, you see, most banks now offer a tokenized deposit solution, which I think is very similar to a stablecoin. Uh, I see these two options competing with each other, uh, at least in this particular use case.

There are other obvious uses uses , I would say, for both, but really it's about, uh, a settlement asset that still has credit risk built in, right? Uh, a tokenized deposit obviously has a credit risk to the bank, which most bank, which most , you know, corporate users and others, already take. Uh, and a stablecoin, depending on its structure, will also have credit risk. But ultimately, uh, I think that, uh, they will be used for this type of calculation. Uh, when it comes to base level calculations, you know, that's where we come into the role of Finality.

And I think the uniqueness of our model is that we can settle in major currencies for our clients, which are only banks. Uh which are only banks. Uh , and they'll be able to settle on their most important, uh, most valuable transactions, which are typically driven by wholesale transactions. And again, we see a world where we coexist with both all of those other liabilities that we were settlement assets that we just talked about, and all of these things that will happen on the asset side as well. So if you now move to the banking side, Arthur, and Stefano, I think you both work in different departments of banks.

And, you know, Stefano, you're on the treasury team, right? So, listening to Miles, what would motivate your treasury team to use such solutions? What is needed and what is not yet available? Okay, from a bank treasury perspective, we don't want to start choosing one form of money over another because they serve different needs at different levels of the monetary system. For example, CBDC as a provider of final settlements, tokenized deposits, on the other hand, provide probability inside the regular bank money of a commercial bank.

Stablecoins can reach counterparties in different countries that are not connected beyond the same level. So, from a bank and treasury perspective, the question is not which token will win. It is very important for us that different forms of money can be exchanged at face value face value when we need it when we need it , with legal certainty and without fragmented liquidity. We don't need an island of liquidity. The relationship between different forms of money is critically important.

So, Arthur, I think you're more into payments and enterprise innovation, right? Not from the Treasury, you clearly know what you want to combine, as you said very well, Stefano said very well, Stefano . And I mean, why do you even need stablecoins need stablecoins , Arthur? Why did n't you just make the existing payment systems more efficient? What's the big deal with stablecoins?

Well, I think stablecoins can somewhat improve the efficiency of those transactions that we currently use throughout the year, say, for cross-border payments. As you know, Cash Among is a member of Kivalis, a European consortium issuing stablecoins issuing stablecoins denominated in euros. And one of the key use cases for Kivalis is evaluating, or where Kivalis saw a lot of potential, is cross-border payments using stablecoins in what 's called a sandwich 's called a sandwich model, which is that our customers won't know that we're using stablecoins in the back- stablecoins in the back- end, the back-office, but banks can use stablecoins to improve efficiency in terms of speed and cost. Good, because ultimately, probably the customers, us as customers, don't need to know what technology is behind it. What we really need is for all our frictions, all our needs, to be met by banks or service providers.

So I think stablecoins could be used in these kinds of transactions that bring value. And ultimately, we solve a problem that our customers have. Now, I mean, this is really a question for all of you, but I, I, I for all of you, but I, I, I , I, because Elias hasn't been able to say much yet. Hmm, is it safe for a bank to issue its own stablecoin, or should they join something like Vivaldi, or even use an existing, uh, stablecoin like Euro C or USD C, you know, issued by a non-bank entity? Yes.

Great question. Hmm, I think the question is not so much about the product as it is about the choice, and it's more, at least on our part, what type of risk are you willing to take . Hmm, if you want to issue your own stablecoin, that means you have to manage your own reserves, redemptions, governance, and transactions transactions . Um, if you integrate another, um, stablecoin, that means you have to take on have to take on , um, someone else's risk, and ultimately, if something goes wrong, you bear that responsibility. Um, so there's always a risk, and it's a question of, um, you know it's a question of, um, you know , whether you want to take that risk or whether you want to take someone else's risks and responsibilities.

But these risks, they sound mostly operational. As you just said, these are operational operational issues that you need to address. Yes. Uh, there's an operational component, there's a management part, um, there's, um, there's a lot more, um, than just launching your own stablecoin. Um, and you know, um, I think that's just one view from a risk perspective.

And then there's the business aspect that comes into play, um, you know, what were you trying to do, what are you, what are you trying to achieve by launching a real stablecoin. Now back to Arthur, you know, you're part of Kivalis, right? You actually went the route, we want to work with a consortium, not issue our own stablecoin. Do you want to add anything to what Elias just said Elias just said ? What about the stablecoin issue?

That's right, you know, the consortium against your own. I think it is critical for stablecoins, and for some tokenized money in general, to have liquidity and distribution in the market. So if you're working on your own, it's probably going to take a long time to get approval from other users and other people joining your project or using your, say, your stablecoin. But when you work through a consortium, you still have the immediate impact of the network effect from all the members of that consortium, which is likely to attract customers to each of their banks. If you are, for example, for Kivalis, yes, we have 37 banks in Europe and over 400 million customers.

I'm not saying that all customers will use stablecoins, but at least you have a potential market, a potential customer base that will use these stablecoins. At the very least, this generates the well-known network effect that is necessary for any stablecoin or digital type of money to successfully enter the market. Okay, now, I mean, Miles, you're a competitor to Kivalis to some extent, right? Or where do you see yourself with Fnality? And where do you stand in all of this?

I don't think we are competitors. Hmm. So, I'm not really sure, but does Kivalis pay interest? I don't think so. I would...

I would... No, he doesn't pay interest. Does not pay interest. So, Fnality pays the bank rate, whatever it is. So, Fed funds or Bank of England rate or target rate.

Finality is, um, central bank risk. So, RWA is zero, etc., whereas Cavalas and whereas Cavalas and any other stablecoin ultimately has built-in credit risk. Um, Finality is not a source of potential redirection from bank liabilities to stablecoins like Cavalas. Um, I'm not sure how that would be managed, especially during a credit crunch.

But anyway, um, what I mean when I say that the credit crunch built into the stablecoin is the very banking liability on top of the assets. At least, that's the general scheme. I'm not sure exactly how this is done in Europe. So, logic dictates that there are two arguments here. two arguments here.

First, if I have a liability at the bank, and the bank has credit problems, I can transfer everything to a stablecoin because it can have, uh, a combination of bank credit bank credit . So, there is a pretty big difference here. So, we just want to clarify, Finality is secure payments in central bank money. It's that simple. And so if you try to, you know, take the market and say where does everyone fit in?

We are at the bottom level and support everything that happens. And these things happen far away from us. So we do n't see ourselves as competitors. So would you see yourself more as a competitor to wholesale CBDC in that sense? I think our advantage is that we are multi-currency.

Good. And so, uh, even in a CBDC, which by definition is not multi-currency, because some jurisdictions have declared that CBDCs are prohibited, uh, like the US, and the US dollar is still the dominant currency. So, until there is a CBDC in the dollar, obviously the euro will be very close, but the cross-border aspect of exchanging CBDC for CBDC does not exist today as a possibility in the mainstream currency flow that exists. So, uh, that's one of the big opportunities that Fnality will bring to our customer base and the market, honestly . This is a truly significant innovation.

Stefan, you, you, I think... Yeah, also, I want to add that Fnality is not a wholesale CBDC, because they're creating a new standard for, um, a compatible wholesale CBDC that's not a finger. Nobody is working on this . And, uh, I can create, for example, an FX model for exchanging between different kinds of different currencies that are acceptable inside Fnality, and without risk, because as I said, it's a form of central or central bank money. Uh, I would like to add something about Arthur, because we are also part of Kivalis in the second wave.

And, uh, again, I want to talk about the standard because if you issue an owner stablecoin, you have to fight the market. You are creating an island of liquidity. You are an island. And together with a consortium, that is, with other banks, with other colleagues in the same market, you can create a standard in the market for settling settling differently new types of assets or old or traditional assets. You know, I, I, I'm a DeFi fan, and I think we, we DeFi fan, and I think we, we , we, we, we're going to dig into this a little bit.

But, um, when I, when I think about stablecoins and, or, or tokenized assets, or, you know, whatever you want to call it in general, I always come back to this "Lego money this "Lego money " thing. No, Lego money. Hmm, and one of the key words here is compatibility or composability. And I, I know that often goes against how banks are built, right? They are isolated.

You want to keep the money for yourself. You want to keep yours, you know, it's, in a sense, a closed system. And stablecoins, as you know, from the way I see it, are open systems. Hmm, you know where we are with Kivalis? What are you doing or where are you in your, ...

Do you think this is normal? Do you have your own customers who have these stablecoins, or, hey, anyone who would like to have this and access this can and should, regardless of where they are in the world and what they want to do with their stablecoins? I think there is potential to reach out to different customers outside of my bank as well. So, I can connect Caixa Bank customers with Intesa San Paolo, UniCredit and other participants – this is a new line where you don't need to prove other types of digital money. Are there any other thoughts on this?

Or, you know, Elias, I think you know, Elias, I think you were the very first you were the very first , like most outside of banking, who could actually... Um, I think it's, you know, as opposed to... there's always going to be different types of payments, forms of assets that exist. Um, but if we focus on the coexistence of what we're talking about today in our topic , and for them, uh, in this ecosystem that we're talking about, I think ultimately, from my perspective, our perspective is about trust in the interoperability of different assets. You know, if institutions are really going to do any of this, they need to understand the risk, see it, and then also be able to take action.

Um, and that's kind of the first level to all of this, uh, before I even start talking about what type of asset you're going to launch going to launch , how many there are, whether there are, whether you're going to have cross- institutional exchange, and, um, yeah. You know, I came to this question because in Switzerland, at least with tokenized deposits, which, you know, Finma now, I think, defines think, defines any stablecoin as a tokenized deposit, that's their idea behind it, can only be issued and can only be traded between bank customers. So bank customers. So , to own this, uh , to own this, uh , asset, you need to be a customer of the bank, but that's essentially 180° antithetical to the idea of open finance. So, you know, it doesn't matter who you are.

If you have a wallet, you can hold this token. Um, and that's where, you know, I think there's a big shift happening, and maybe this conference is also leaning more in the other direction than the one where I come from. Um, but personally I think that's probably the most important part of all of this . Because if, again, you're building products that can only be owned by, you know, a set of customers from a certain set of jurisdictions who have to overcome a lot of hurdles, and, um, then we haven't won anything. We simply, essentially, created a new technology for an existing system.

Um, and that actually leads me to, you know, deciding, right? Where are you, and, you know, whatever you say, I mean, what is your position on DeFi on this whole topic? Because, again, you know, a stablecoin you know, a stablecoin is nothing more than stable value in digital form. And if you want to do something where you need products, you can build from that. And these products can be either in a centralized form, like a bank, or in DeFi, which is essentially a financial system built in a decentralized way on code.

Who would dare to comment on this? We are not at our best at the best of times for this reason. OK. Whatever you say. We are part of the traditional system, so in the meantime, we are also keeping an eye on this new industry, the DeFi space, because something else could be growing, could be getting bigger and bigger outside of our usual perimeter, not our traditional perimeter.

So, our approach is also to keep an eye on what is happening inside the DeFi space. I think this is a common position for the entire banking industry. I mean, of course, you need to keep an eye on market trends and especially customer needs. And if customers decide to move, or partially move, to DeFi, you need to follow that and just see, according to your jurisdiction and your own regulation own regulation that applies to you, how you as a bank or financial institution can play a key role in that, or at least facilitate your customers' engagement with DeFi. So, as you mentioned in the case of stablecoins, we are promoting stablecoins.

Stablecoins are used in DeFi. So we, as banks, can actually facilitate your customers' engagement with DeFi without you as a bank entering the DeFi world. Yes. I would add that banks are finally moving into the digital asset space. So digital asset space.

So , first let's look at this before we , you know, get ahead of ourselves, but in the role that we play as an organization, we see all the parties and how they're involved in the digital asset space. And, you know, on the DeFi side, you know, we work with a lot of asset managers, and different players are actually using DeFi using DeFi structures, trading and doing this. And in the end, it all comes down to risk, a risk-based approach, right? Uh, understanding what you're doing, understanding the risk, being able to see it, being able to actually manage it, and ultimately feeling comfortable enough to be able to interact with it. So, um, you know, anything is possible.

Ultimately, you know, you just need to be able to understand risk and be able to manage it and take action when necessary. And I mean, that's your job with your M, right? This is what you guys are essentially doing. Make those risks transparent, making them visible so people can learn and understand, hey, look, you might have, um, you know, no counterparty risk in DeFi, but you have different types of risks, right? You might have, you might have, you have smart smart contract risk, you have, uh contract risk, you have, uh , things that are probably not as quantified yet , which makes it difficult to assess the risk.

To the point. That's right. We serve risks so that institutional players, DeFi, and anyone players, DeFi, and anyone who touches digital assets can understand their counterparties and take a risk-based approach to their interactions with the blockchain. Masso, do you want to add anything? I just wanted to answer your question about DeFi, stablecoins, etc.

So for me it goes back to what we talked about at the beginning, which is that there are a lot of horses for the courses. And I think the concept of a stablecoin for an XLM trader and someone who was involved in, well, during the crisis, a long time ago, but, um, the financial crisis, to address some of the issues that happened there, a stablecoin is really intellectually very interesting. It's a bearer asset, which means it circulates without, um, you know, really any intermediary, as you mentioned, which is quite attractive for certain use cases. Um, I don't see why I would use this bearer instrument compared to a tokenized deposit in a developed market. Personally, I don't see a use case here.

I see him on disability. You know, if, if, can I access a tokenized deposit, or am I dependent on the bank again? You'll have to have it in the bank, but I mean it's probably cheaper to do it through your bank, and money like the cost makes people... But I have a risk. I mean, you know, Revolut is a very good example.

I run the risk, for example, of my data floating around somewhere and I can't control it. Yes, yes, fair enough. Hmm, there are a lot of risks in tokenized deposits and stablecoins... But the second point, more broadly, is that it seems to me that the stablecoin that you want to use should be used for a use case that earns at least the bank rate, whatever it is in that jurisdiction, because you're not getting paid for the bank rate. Someone else is taking her.

And so there are options for use. Why aren't you getting paid? Well, is that what has been confirmed here, that it does not pay interest to the user? Well, someone has to fund it, right ? So who earns this interest?

So in the US, interest is also prohibited, although there is a workaround to exchange it for money market funds and the like. But that's the point. The point I'm just trying to get across is that I think there's a real use case for this part of the market use case for this part of the market , but I think it's more about where the use case actually generates significant revenue. And so this actually solves a real problem in payment channels, because it costs 10% to make a payment costs 10% to make a payment compared to, you know, just take the euro system. The euro system is quite efficient today, and the credit risk you face is quite low.

So maybe I'm scratching my head a little bit why you're moving into something you're moving into something that carries credit risk and not doing it versus the banks that are already there . I mean, that's just my opinion. Uh, and yeah, I think tokenized deposits will be, you know, a place where there will be activity in the blockchain, uh, in the, let's call it, regulated space, and stablecoins will coexist, and there will definitely be applications for that . So, that's all I was trying to point out. Oh, interesting.

Are there any other thoughts on this other thoughts on this ? Otherwise, we'll, uh , move on to a completely different topic. Er completely different topic. Er , Arthur, one for you. Uh, what's stopping a successful pilot project from becoming an everyday banking service banking service ?

For example, where are the bottlenecks now? What is it? Where...Where are the bottlenecks? Why aren't things very widely used yet?

What used yet? What ...What is this? What prevents a successful pilot project from becoming a large-scale use case? Hmm.

Uh , okay. You have to, uh, choose use cases that are capable of working really better than today, in a different, in a conventional space, in a traditional one for conventional products. This is not just a problem with calculations. So, it's not just about the digital format, but also about what type of digital money you choose to pay for a product, product, or transaction. So I think when you can scale, you find the best use case to start with.

So scalability, as you say, is the essence. Arthur? Well, I would say where you should start, I mean, as Stefano just pointed out, is that you also need demand from the market. So it's not really just a point of purchase (POC) for a limited number of customers, but you have to prove internally that there is actually demand or potential demand. So you need to make a business case behind it.

So, internally, you 're essentially saying that this is something like scalability, you're saying that this is an internal thing where you essentially need to make a business case from the market side first. No, I think there has to be demand from the market. So when you feel that you have a need from the market, then of course you need, because we are a highly regulated industry, to be supported by regulations, either those that are currently in place or those that may be in place in the near future, because, you know, regulations are changing. So, regulation should support your business or actually help you, because sometimes changes in regulations can open up new business open up new business opportunities. Then you need the technology behind it .

That is, technology that, I would say, not just supports POC, but technology that, going back to Stefano's point, is scalable. So you need very reliable technology that can really help you grow at that level. And then of course you need internal consistency for all the different departments that will support your use case. So, of course, risk, risk management, financial risk management, ILM, AML, compliance, I mean all the departments that you have in your bank. A long list.

You need to prove that there is a use case and a business case that is interesting for the bank, for customers. And then, I'm sure, most of them will contact you for support or at least ask what adjustments need to be made to make the product reliable and for the bank to feel comfortable launching this new product. So I think these are the key success factors for a project to successfully enter the market. But going back to my previous answer, I think distribution and liquidity are very important, very, very important, and you also need to make sure that there are other places in the market that will help you with your specific use case. Yes.

For this reason, I think we need to change our approach. We need to stop at the Proof of Work concept and move to the real market, choose the few use cases we need to start with, and scale up to test the list of internal analogs we have. Nice comment. We have 1 minute left. I think the last words from everyone.

Maybe let's start with you again, Elias. What do you want the audience to hear after this panel? Hmm, from my perspective, again, given the role that Tezos plays, I think trusted interoperability, I think having visibility into risk, being able to understand it and take action is probably one of the most important things to be able to touch anything when it comes to stablecoins or any digital asset products. So, risk transparency, compatibility. One sentence from you?

From me, I would add to this, as I completely agree with what completely agree with what Elias said. I would also say convertibility, as well as some standards in the market that ensure that all transactions flow very easily between different types of tokenized money tokenized money . I also call it compatibility. Interoperability and standards. Standards, good.

Miles? So, I think we have a new paradigm of compatible different forms of money that will actually be beneficial for both the real economy and the financial market that supports it. So I'm pretty optimistic about all these new forms. I like it. Actually, you know, we do the same thing.

We want to have a standardized interoperable infrastructure to build the Indian financial infrastructure on. Thank you very much to everyone who came, and, you know, I wish you a good conference. I think we'll be here if you have any questions.