Digital Euros & Dollars: Stablecoins, Cross Border Payments & Global Adoption | EBC11

very much.

Okay, good evening everybody. Fantastic to be here with you all. So, thank you very much for coming along. Um, we are talking about really I guess the hottest topic at the moment which is stable coins. Stable coins, stable coins, stable coins absolutely everywhere.

Um, I guess if we just take a step back for a moment. So, the size of the stable coin market according to DeFi Lama today 307 billion. We [snorts] had Patrick Collison, the co-founder of Stripe, is called stable coins. They're the they're at room temperature semiconductors for financial services. We're seeing a bunch of consortiums be set up.

Uh we have representation from that here. So, ING, RBI, many others here in Europe setting up their own stable coin initiatives. We're also seeing another consortium set up um focused I guess maybe more on the US side. We see Goldman, Santandere, City, Deutsche Bank in that space as well. So we certainly have a lot to talk about and most importantly we have the right people to talk about it which is excluding me most definitely um by these wonderful people beside me.

So let's let's just jump straight into this um and we'll do a quick round of intros and we'll come back we'll jump into the first question. So Koti starting with you please.

Nice to see all of you here today. I'm Kot de Monte Verde. I'm leading crypto at Santandere globally. I've been in the bank already 17 years, but 10 of them focusing on on crypto and digital assets.

Thank you.

Uber. I'm part of the cases bank which is part of group. Um, and

I think you might just need to talk louder.

Okay. Yeah. Louder. Then Uber I'm part of the uh cases bank which is part of the creditical group and I'm in the digital asset business line that was created a year and a half ago.

Thank you.

Hi everybody. Uh my name is Vib. I'm part of group strategy of bank international. We're a midsize European bank focusing mostly on C markets. Um RBI just recently joined the consortium of European banks that are um planning to issue a Euro stable coins.

So today I'll talk partially on behalf of RBI, partially on behalf of the consortium. Happy to be here.

Thank you Vid Ben.

Yeah, Ben Duvet. I'm the global head of partnerships from GK8 by Galaxy, which is Galaxy Digital's crypto custody uh solution. Uh former central banker, former banking executive. So, a little in crypto now, but a long time in the the tread fire space.

Fantastic. Thank you everybody. Okay, so most importantly, let's get into the let's get into the meat of all this so everybody's on the same page. All these terms are spoken about stable coins, tokenized deposit, CBDC's. Maybe Cody, if you could just explain to us a little bit about what they are.

Okay, so in terms of technology, they all share the same foundation. Central bank digital currencies, tokenized deposits, stable coins, they are tokenized money on on blockchain. So that means they are digital programmable objects that are represented on distributed ledger um technology. And this comes with transformative features that you may already know. Obviously, h these new forms of money can be controlled directly by a person, by an app, by a device.

They are composable. That means they can interact seamlessly with other digital assets and with a smart contracts. They operate 247 instantaneously and and all those features make this not just electronic money on a new platform. It's a new paradigm and it's going to bring many efficiencies to the financial ecosystem. What they defer it's the who is issuing these forms of money and what do they represent.

So you know that CBDC's are issued by central banks. They represent funds that are held in central bank accounts. So it's a a liability of central bank money. Um tokenized deposits it's just the bank deposits that you already know um that it's represented gilally on a blockchain and stable coins are issued by private sector companies uh and they are backed by reserves uh mainly to have this stable value. Okay, got it.

Anyone any other thoughts or explanations they want to share on those assets?

No. Okay, let's let's go back into Santandere for a second. Okay, you've got a very big job in Santandere leading this incredibly exciting new area. How how are you seeing the evolution of tokenized deposits of CBDC's of stable coins?

So, I think that they will all coexist and complement each other. they will find its own h use case. I don't think that they are going to compete one with the others. What it's obvious is that stable coins are already here and CBDC's are on their way. tokenized deposits far away to be massively used and the evolution of them it's going to depend mainly on regulatory clarity interoperability and there's also um well I would say politics so um we could end up in a fragmented ecosystem with different regional um platforms so we already see that Mika uh is trying to protect uh the euro.

So they are pushing for the digital euro rather than non euro stable coins. In the US we see that they are promoting uh private USD denominated stable coins but there doesn't look like there's going to be much interest in a central bank digital currency. So it might end up in different regional um ecosystems but we'll see.

Okay. Maybe a small challenge to that. I I to one degree extent I do not agree because there's a limited amount you use money. So there's a limited amount of transactions everybody does. There's a limited amount of trade.

There's a little bit a limited amount of settlement. That's the finite number. So the wallet you have available and there is a competition for who gets what percentage of the wallet share. That said with regard to stable coins, deposit, central bank money. So the direct competition for that wallet share as well as if you look at how global trade how global settlement can happen also from the different regions they directly compete how can my currency or my stable coin or whatever be used outside of my my uh my territory.

So I think I agree on the on they will coexist but I think there's a very tough competition out there on what will be used inside outside blocks and then the competition between the blocks. What's the actual currency most useful currency most useful way of currency in the future? I I would if I may uh I would be a bit more nuance on that because I would say you you have categorization. Um I mean clearly wall cell payment is not the same as retail payment. Uh and certainly uh you you you will have interbank wall sale payment that will continue to exist in including onchain.

uh but uh uh I mean very large cooperative they have to pay for uh I don't know a big acquisition 1 billion of US dollar or 10 billion of US dollar I don't think they're going to use a stable coin uh and a programmable uh wallet to do so

yeah so I do agree that it will depend on the on the use case the competition right now I see it more theorical because there's no CBDC's available yet. So I think that we are in an early stage and we'll see how it evolves and I see that regulation, interoperability um and policy has a lot to decide on this.

Just to build on this what what Coty said. So we were also I mean of course we're following the developments on the tokenized deposit side on the wholesale CBDC side but we deliberately decided to focus on stable coins. Why? Because they are the only thing that is there right now for us. So um when it comes to tokenized deposits we're seeing that the if you're a global jip like JPM CTSBC they are doing their they're tokenizing their deposits but they also have a completely different range network and the volumes uh that they are processing with with these systems.

um for a bank of our size, it doesn't really make sense to tokenize deposits because we know that our tokenized deposits would have to be interoperable with uh other banks tokenized deposits, right? And I still believe and there are certain initiatives there, commercial bank money token in Germany, there was a PC in Switzerland, a pilot in the UK, but I still believe that this will take a while until these standards will be developed. That's why we also decided to focus on stable coins because this this is the only thing that we can currently build where we have the regulation, the use cases, um, and also this opportunity to to to build um, something tangible.

Got it. Well, Vid, look, I think you've actually answered the question I was just about to ask you. You know, is it stable coins or tokenized deposits? It sounds like it's stable coins for for you guys. Is that fair?

It's probably going to be long term all three of them. And I think that there will be a competition also on the use cases. Um, but when we're looking at the landscape now, the only viable option for us are stable coins.

Okay, I like it. Um, let's go back to you, Vid, right, for a second. So, and maybe you can kind of fill us in on some of the exciting work that you guys are doing. So, first of all, the the consortium has been set up. I was going to say it's new, but it's probably newish.

There's probably been a whole pile of work going on behind the scenes for a while. But maybe I think for the audience it'd be great to learn more as to okay like what it is, why why it's happening in the first place, why now and what happens next.

Exactly. So this work has been going on for the last two and a half or even three years. Um we just announced two weeks ago that we're establishing a new entity that will issue Euro stable coins. It will be established in Amsterdam. Um it will be a fully regulated e-man institution that will issue Euro stable coins.

And here the goal is really to provide a trusted regulated means of payment and settlement on chain that will support actually the growth of the digital asset market. Um this entity will of course also partner with third parties such as crypto exchanges uh fintex PSPs. So it's not going to be a closed loop system. It's not just for the banks. But of course one of the let's say our goals is also to nudge the banks to start uh building developing the products and services around stable coins.

Um so definitely open um also to to collaboration with third parties but the long-term goal is also to on board the banks and to kind of bring them closer uh to the whole digital asset ecosystem.

And can other banks join up? If there are banks here that are interested, do they get in touch with you or what happens?

Definitely. I mean, this is an open consortium. It was open from the beginning. We're currently nine banks out of eight uh different European countries, which is also, I believe, quite a success. Um, but definitely we will on board the other banks in the future.

One other question if I may. Right. When it comes to consortiums, is how what's it like working together? you know it hard work to get everybody aligned you know can you talk a little bit about that

to be honest when we started I thought it's going to be extremely hard to align with the other banks but we started with four banks and actually we shared a common vision to really have a euro stable coin that is governed by by the banks um and I think that this shared vision also helped us to kind of overcome this problem so from my perspective this was one of the best collaborations um that I could wish for.

Okay. Long may that last. I also mentioned that the other consortium there that was happening within the US, Santandere, Goldman, Deutsche, and others. How is that different to what you're doing?

I think I have to clarify some things. So, h the media has interpreted that the that we are going to issue stable coin. But uh the difference the main difference with their consortium that be has just described is that this is not a consortium yet. It's just a group of banks getting together to explore if it makes sense to do anything on one to one fully backed by reserves new forms of money. that we have not decided that we are going to establish a company.

We have not decided what we are going to do yet. So this is an early stage exploration, not even a consortium.

Cody, you're always welcome to join.

You're always welcome to join.

Okay,

we could we could join forces.

Okay, you heard it here first, right? Magic happens here. Um Okay, I like it. So, okay, let's move on. Uber, let's let's talk about regulation, right?

There's just no no panel without that conversation whether we like it or not. And I think regulation is seen sometimes as a break or it's seen as an enabler. So should we see I guess regulation as something that is slowing innovation or actually it's it's a necessary evil which provides rules of the road and then results in adoption.

Okay. Uh for this question maybe uh I will focus mainly on the European situation. Um I mean clearly at first Mika was an enabler because you can see uh that I would say uh stable coin are no more private money. You have banks who have joined uh uh the the the this adventure to to issue stable coin banking circle for instance BHF uh you have also subg gen with forge uh then it means that you have additional competition uh that's one one thing uh where in fact on this crypto ecosystem banks are starting to move in that area. And if there was no legislation such as Mika, I'm pretty sure that there would be no bank on the stable coin uh area.

That that's one thing. Uh obviously the one of the drawback is that uh uh this we if you have legislation it's rather static. uh and for instance uh you have uh now the US uh legislation with the Genius Act and you can see that there will be a big a big debate between whether you have remuneration or no remuneration on on stable coins for instance in EDU clearly there is no remuneration in the US there is no remuneration but the secondary legislation might open the door on that and uh I would say the concept of reward is very well developed in the US on that that means then the it's not not all stable coins are equal for that at least on on that topic um and there are other things which are of importance uh in Europe now you there was the need of an immediate quick fix on on stable coin where in fact uh they are amending the payment service regulation for that in order to recognize that crypto assets is uh liquidity cash which means also it's not an investment product uh and that's a bit uh odd compared to other region yeah

got it Ben if I can ask you that question just to kind of get your pick your brain obviously experience working in a big global bank experience working with the ECB now you're in a global role if there are all these different rules how does it all come together

so I I think the the foundation has been laid for digital dollar dominance right if you look at how everything is structured and maybe add some context around it so as GK8 we power all unity which is a DWS galaxy and flow traders euro stable coin right so for an individual company, I think the opportunity is great because there's zero or less than 1% usage of uh euro stable coins in the digital environment. So, as an individual company, you really are have the ability to gain market share, right? And as a it's a GI backed stable coin indirectly, right? DW is a storage bank. So, I think that's a very interesting value proposition.

But when you that's on the individual companies level the ability is do I gain up to 20% or how much do I get of the 20% euro usually has in that global global um currency environment but if you then zoom out and go in that macro perspective you see two fundamentally different ways stable coin functions you have a US dollar stable coin right now which is not regulated it's tether right and and [snorts] they are regulated in certain countries but they're widely accepted seem seem to have very stringent rules around their reserves and it works quite well for the market in crypto and and digital right now right and that together with USDC is what 90% of the market right now or more right just and that's dollar right all dollar based if you then look at the next iteration and and you mentioned it before genius act and so on so in the US you now have a new stable coin regime regime where you d get through a stable coin company which is regulated and checked by the US government direct access to a digital currency which is backed by US treasuries. So you have the US government debt one to one backing or more more or less one to one there's some liquidity liquidity reserves in it backing a stable coin right and the government audits to make sure the stable coin is there so I think there already is a fundamental difference because when you look at Europe you have a stable coin which is bankked by bank deposits we all know the difference between the asset safety you have on a bank deposit right? Versus a government bond. There's a stringent different. There's an insolveny risk.

You know, all of that exists. Plus, you have the risk of the underlying bonds. Why do I say that? Well, is the rating for all European banks the same? No.

Is the rating for all European government debt the same? No. So, you have a euro. So, basically, it's the structure problem the euro have. You now have a stable coin as well.

You have a credit risk. It says euro, but it could be actually solely one European country and only the banks more or less in that European country, right? It's it's a little overdone, but the risk you have there is completely different. So you have now a stable coin which is dollar and more or less backed by the US government versus a euro stable coin where you really have to look into the fine print how risk is. The second issue I think we should never underestimate is dollar dominance, right?

People, what do people want? And we saw that in Turkey now and Argentina and other countries. They want access to US dollars. Now you have a regulated US stable coin where an which an American bank cannot touch. Right?

We have these discussions. I have them with American banks. They said my clients want to send tether to Latin America. I'm an American bank. I cannot touch Tether.

So they do USDC. The more of these stable coins arrive that had a wide variety of acceptance, the more likely is that first the remittance is out of the US and that's huge amounts of money and and Cody probably has good insights with Santia operating in in Latin America. So that money goes out. What happens? Do people then take that money and convert it into a local currency or which is high inflation currency or because they're now happy it's a government US governmentbacked currency.

It's audited. I'm quite safe. It's great store of value and then they suddenly start transacting. What does transaction means? Everybody with a smartphone can send another person a stable coin.

So the guy in the local store will also more likely want a a stable coin, right? Because that's dollar. It's just an easy way to transact in dollar. Now think of that at companies. Companies get paid in dollars already nowadays and trade.

Why would they go into the local currency? The moment you have the ecosystem of people and small stores who accept the stable coins, you will be able to pay your local your local staff in in in US dollar stable coins. So that dollar dominance goes all the way and the ecosystem is being built while Europe already has a small role in that area. Now it's getting smaller and smaller also because of the stringent rule and I think interest might pay another reason. I mean you're not allowed to pay interest on US dollar stable coins but you're allowed to pay incentives and it looks like exchanges are the ones who are able to provide those incentives.

So you have interest. So, this sounds like a subject almost that should come up at the World Economic Forum in in February. This sounds like a a serious issue. Um, but and also one that um if I'm a a normal Euro stable coin holder, I need to know about those risks. Uber, what were you going to say?

Yeah. Uh if I may also um I mean for me the the legal uh presentation of a stable coin is not necessarily uh fully accurate for me. Uh when you buy a stable coin you don't have a direct claim on the reserve of the assets. You have a direct claim on the issue which is most of the time an SPV and that makes a significant difference. That's why you have this hierarchy between I would say the the CBDC where you have a direct claim on the central bank then on tokenized deposit you have a direct claim on the bank and that's linked to the final standing of the bank uh and then on the uh on the stable coin issuers you have a direct claim on the SBV uh and okay you have the reserve system but you don't have a direct right on on the reserve that that's a bit If you have a bankruptcy, uh you you need to go to the court in order to get back uh your your potential uh uh part of this reserve.

Uh and uh that's not so easy. That's why I think uh the the main stable coin issuers, they will sooner or later move to the bank status. they will ask [snorts] banking license and because that's that's key in the protection of the uh asset owner

but but that means you know if you think that through I'm someone maybe outside of Europe or who transacts in US dollars right the insolveny of a bank means I'm insured up to the min maximum scheme of the bank or if I'm a corporate it's not insured at all right it depends on the country and the and the jurisdiction or I have an insolveny of a stable coin uh of a stablecoin issuer and the underlying is US dollar uh denominated US treasuries which have a market value of 100%. Right? So the the risk if you talk of about insolveny about all these topics is much lower on stable coins. So the the deposit flight that could happen out of that is tremendous.

Uber what do you think? I I I don't agree on that that presentation meaning that clearly uh I mean if something goes wrong and we have seen that for instance in the context of the flash crash a week ago some stable coin are completely depected a very small number of stable coin but you had the opposite at a certain point of time people were forced to buy uh USDT at $1.07 07.

But those who are not regulated, those were not regulated once. Those who were synthetic stable coins and DeFi stable coins had nothing to do with a regulated uh with a with a regulated stable coin in the US under the Genius Act.

So, okay, let's let's look to kind of close this piece for a second, but so Ben, what's the solution? Where do we go from here? What's the what's the right outcome?

Well, it's a tricky one, right? Because you have the credit transformation of banks, right? So we get a bank deposit and in Europe we strongly depend on bank credit for the real economy right so that's one of the main functions of banks if we enable stable coins too much it could starve banks of bank deposits as well as the digital euro code right that's the the central bank money in Europe has a potentially the same effect right so that's a very tricky one for Europe I it's a very difficult uh topic to answer because you need the deposits and banks in Europe That's very important for the real economy. But in a global context, it makes stable coins not as competitive. That's one, right?

And the second bit is are we willing to give that up that in the new digital age, Europe plays a much smaller role.

Okay. Okay. Thank you. Um let's let's yes switch gears for a second, Vid. Let's talk about um let's talk about my mom.

What I mean by that is right um when it comes to stable coins generally like what's the what's the benefit the the work that you're doing in the consortium why should the average Joe or Jane care about stable coins

yeah so there are a lot of discussions also around the yield bearing stable coins um and I would try to explain this from this perspective so um I think that now in this current system we're used that our traditional bank accounts are used on one side for payments but also for storing value and also the yield is basically generated on this. Um I think that now this is becoming a bit more modular and that stable coins are actually becoming just a transaction instrument. Um what what does this mean? It stable coins enable faster, cheaper, more efficient transactions, enable also the programmable logic. This is something that you cannot do that easily um with the traditional rails.

So from this perspective, I also think that um when it comes to the yield and when it comes to your mom earning um let's say some yield on on her money, I don't think that stable coins will bear yield natively. Um but I definitely think that we should provide a way how this yield is generated and I have this vision that in the future um payments will be done 24/7 instantaneously globally. Also when it comes to investment portfolios this will be um so the trading will be done 247 instantaneously also settled instantaneously um and I think that for this kind of cases stable coins are a really good instrument um so from this perspective yeah I I I do believe that stable coins do bring value uh but when it comes to the yield discussion we have to provide yield somehow but I think that there are other ways than providing yield uh natively It's a utility rather than the store of value argument you're making. So it's not the store value. You want that still as a bank deposit, but the utility of the stable coin, right?

Then if you think about that, I think the the technical thing to think about is how fast can you go from a bank deposit into a stable coin and back, right? So you have the utility, the global piece, your bank runs 24 hours, you can move the money around, but it resolves back into your bank deposit. And that that would be one of the examples how you can solve at least for the European aspect some of it if the money doesn't stay in the stable coin but goes back into deposit or it's seen like a bank deposit right that's another way to do it

I would summarize it as that yield attracts the attention but the utility is what drives the adoption right

yeah I I think that two again two use right store of value when or somewhere else or utility maybe as a European, right? I think that's why I always I'm I'm quite cautious around the CBDC and and stable coins in Europe. I think in Europe the utility drives it because we have a very well functioning banking system. It's we don't have people who are unbanked. We don't all the problems allegedly out there they don't exist really.

We everything works quite flawlessly. So it's the additional utility we can generate of a stable coin. That's the value versus I think in the dollar space the store of value argument for people outside of the US it's so strong. So it's actually two different use cases right and then if you compete for store of value interest is important. If you uh if you compete for utility it might not be that relevant.

If you're global corporate, if you send money around, I mean, we all did that. And it cost 5000 euros to send money somewhere. How long do you have to get 4% on that amount of money to uh to, you know, pay off the difference between a hundred uh uh euro uh wire transfer versus a 50 cent transfer, right? So, I agree. I think it depends two use cases, utility and then store of value.

Store of value might be more the dollar based one in the long run. I don't know. and the utility could be more the European one.

Yeah, look, I I think the the whole thing of stable coins has asked a massive question and it's really based on on Tether in my view. Tether has shown how much money they can make through net interest margin. Other institutions have become aware of that. But also the end user are is seeing and I think is more educated than ever as to how much money banks are making through net interest margin are asking the question why can't I get a piece of that pie and so yield for me look I'm biased you know where I'm coming from is for me is is going to be the next big play around stable coins it's kind of the stable coins are interesting but then it's how do I get them to do stuff for me how do I benefit from them

how to delineate the underlying collateral from the stable coin for the amount of time it's unused, right? Then you can like in a repo kind of environment, you can still immediately earn yield, right? And that's a that will be the very interesting discussion, but it's a regulatory question or it's a technical question.

Okay. Well, it's a question which we'll we'll come back to definitely at another times because I want to I want to close out the last question. So, look, let's let's flash forward. I know every panel's doing this. This unfortunately is definitely the same.

So as we look into into 2030 um what do you see as being the format of digital money? Cody, we'll start with you.

What I see that it's

what is the form or format? What will digital money look like in 2030?

In 20 Well, that's only four years.

Okay. [laughter] Well, then you got to be more right.

Too close. I mean for crossber payments I see definitely stable coins. We are already seeing several platforms that do the stable coin sandwich that they call [laughter] well I mean some of them are being in development. So I expect that in four years this is going to be um a more efficient way of sending money overseas um using the stable coins as settlement asset. I hope that in four years there will be more developments around interoperability solutions for tokenized deposits.

So we start um looking at more mature use cases than than what we have right now.

Thank you very much Uber. Um well uh it's a difficult question obviously uh I think again I mean uh at the beginning we we start with the comparison with uh CBDC uh tokenized deposit and securities token for me they will coexist proportion it's uh unclear uh the certainly we need payment uh onchain but the the format right now for me it's uh it's not obvious because I I would say all competitors have their chance on that.

Perfect. Thank you very much Vid. Yeah, it's a boring answer, but I I do believe that tokenized deposits, wholesal CBDC, and also stable coins will coexist in the future. But I think one is clear that currently we have this opportunity to build stable coins and to develop products and services on top of that. When it comes to tokenized and deposits and wholesal CBDC, we can talk about it.

We can develop this, but this is not something that um is is there on the in the short term.

Ben, please. So from my perspective I think we see very little change having worked in a bank having worked at the central bank just now I think the the progress will much be much slower than we think so your day-to-day activities will not change what we will see is two things we see in the digital arena so crypto digital arena such a proliferation of stable coins and a true race of what is if there's a fully free market how the future could look like so you might in 2030 be able to see it a little bit more how our stable coin infused financial ecosystem with yield with earn strategies with everything could look like and the second thing I think it goes a little bit in in line with coty but maybe phrased differently I think we will see a lot of players who will use stable coin in for example crossber transaction but others where there's very high value added or high value extracted currently through banking and other intermediaries and if you can use a stable coin to bypass that you will use the stable coin. So, it's basically an arbitrage opportunity to move revenue and and and and fees away from current players to you as a new player and they will be much more aggressive pursuing that and Crossboard is a great example but I think there are quite a few others.

Okay. Well, Cody, Uber, Vid, Ben, if we could give him a big round of applause. Thank you very much. That was excellent. Thank you.

Thanks. Thank you.

Thank you. [applause]