So hot, it burns: predicting the fall of stablecoins | ETHWarsaw [4]

have any volunteers. If we don't have any volunteers, I know we have for so volunteers.

Don't read them out just yet.

Anyone?

You just just have to like lift your hand up and and show the and show the risk.

Anyone else?

I'm I'm sure that wants to show up that the risk.

Two more. We can do one. We can do two more. We have the chairs or what's the chairs? Come on, work with me.

There are prizes included.

More and two more. So I think right. Right. Go with right. Perfect.

Um, I think we can start. So, I'm gonna start by welcoming my amazing panelists to the stage. Um, um, let's start with Anna from Lego Chain.

Then, then we have Chris from Spark.

Do we have Nikolola? We have Nikolola. from Dragon Swap and Pot from Stable Watch.

Um, wait, how many mics do we have on stage?

Four.

Four. Then we need to hand over one to Stash.

And are you sitting on the mic there?

Ah,

we missed one mic. Did we lost one mic?

Someone sitting on it.

Oh, I am sitting on that. Yeah. Um um

perfect. We can start. So um since we're going to spice it up a little bit um later on, then let's start simple and let's do a round of introductions and I want to know your um the role you play in the stable coin ecosystem. So um tell me your name and tell me what do you feel is your particular role in the stable coin ecosystem. And let's start with Anna.

Okay. So I would start with the sentence that uh my opinion about the stable coins it's mainly about the political game and especially in Poland. Um so regarding these two main uh legal frameworks and approaches uh we still have uh something new to deal with. But as you can see in Poland uh we haven't still uh um we haven't still um made the same approach regarding uh Mika. So I would uh describe the the latest trend uh about the stable coins and about the mika that we still need the initial stage about the regulations and about the main framework to see what next steps we should uh we should consider.

And uh we still have to remember that um um stable coins and the general crypto market isn't something typical like the typical financial market and it still uh has to remain with the cryptocurrency tendency. So it's not about the typical financial market and typical financial regulations. Of course, we have to regulate it, but um regulations should uh help cryptocurrencies, not to block them.

Perfect. Anna, so you will be in our like impromptu Dungeons and Dragons game like stable coins and dragons. You will be the guardian. That's my role for that.

I would I will try.

Perfect. Chris, what's your role?

Hi. So, I'm Chris. Um currently I'm a CTO at Fenix Apps contributing to Spark. Previously I was uh working at Maker Foundation. So uh I've been involved with stable coins for years.

Um and I guess my main role I I guess Spark's role these days is like spreading uh stable coin liquidity across multiple chains and uh uh protocols. Uh mainly we're focused on USDS uh so the new Sky stable coin D successor but we're also dealing with USDC tet and others.

So you're going to be the alchemist spreading liquidity.

That's let's that's let's let's agree to that.

Okay P what about you?

Hi everyone. Happy to be here. I'm P uh founder at stable watch. So what we primarily do is to help all of the greedy people understand what are the beast yields when it comes to stable coins and how to utilize them and what's even more important to understand all of the risks uh which those uh products inherit with with their uh mechanics. On the other side with projects we work to help them um explain better to their users how the how they work pretty much.

So we do a lot of risk and research stuff at stable watch.

So you sound like a sage in our game like the the you know the the owl. Perfect. And that leaves us with with with Nicola. Nicola. What do you think is your role there?

Hi. Uh my name is Nicola. I'm a co-founder of Dragon Swap. So I feel uh I mean we are in a in a weird stage where there is first of all there is a lot of stable coins and uh it's super hard to differentiate uh what's the what's staying behind of each other. There is they're like differently also I mean some are dollar backed some are algorithmic etc.

So I feel there is a lot of uncertainty still what's uh like how things work especially with the yield bearing stable coins and what we need in my opinion what's currently broken is like we need them to move faster like we need to be able to to move faster stables across across L1's and L2s and uh in my in my opinion currently the the biggest use case is definitely seizing yield and uh accessing money faster. So, you kind of want to be the game master, like push people in the right directions, maybe have them invest in something. So, you're you're stepping into my shoes a little bit. Um, cool. Thank you so much for for the intro.

So, um, the overall objective for us for this panel is not really to talk about how amazing stable coins are. I think all of us here have used stable coins, are actively using them, working in that space. were somewhat they've somewhat um melded with our day-to-day lives. I'm I'm sure all of you have some USDC on your on your wallet. You probably have some locked in one of the one of the vaults.

You're probably not aware of that. Like there's a lot of people who are not aware of that of the fact that they're actively using stable coins when using those giant payments protocols such as Stripe. Um so we are already using stable coins. I don't think we have to talk about mass adoption for stables because we're living it. This is mass adoption for stables.

Like the moment when they become invisible. The moment when Western freaking Union decides that they want to send remittance in stable coins, that means we're already there. Hooray. I I think I talked I had a talk about stable stables like two years ago and we're discussing what would it mean to have global um mass adoption and I think like using them for remittance by a major remittance platform was one of the checkpoints. So I think we're there.

So right now let's focus on the downside of that mass adoption which in my opinion happened very very quickly. So like we went from something that was you know uh generating big volumes but still relatively niche and typical to crypto market and Chris can can attend to that that attest to that that stables have been present in DeFi for many many years. Now they're penetrating into um not even TRFI but to actual just regular day-to-day finance. So, they're already in there. They're already an important part of financial infrastructure.

Let's see how they fail. Let's let's see how we can make them um break apart. Let's see how like what would have to happen for them to um to fall um catastrophically. So, what do you think? And this is like guys, you have them um my dear audience, you have the like um sheets of paper with different risks.

Feel free to lift them up wherever whenever you feel like it. This is entirely up to you. If we don't have anything, we're gonna uh leave this for the for the question slot. But let's start with the um with asking our panelist what do you think would u what would it take for the stable coins to fail catastrophically and let's start with Nicola.

Okay, thank you. So I think there is a couple of uh major major failure points here which is either like uh liquidity impairment or basically you know uh just not being able to convert uh from stable to fias fiat which I think is the biggest one and debagging obviously in my in humble opinion those three are currently the the biggest pain points because we we can you know witness their either like confidence shock with uh with the pegs and uh not being able to like basically halting the the redemption And definitely the the thing I mentioned uh before which was for the just like the pagging and uh liquidity impairment which is kind of also very important as as like a lot of uh I would say most of uh DFA protocols rely on them and a lot of them are assuming without concrete liquidity uh verifications that they are worth $1 for I'm speaking about the stable ones not a yield bearing stable coins etc. speaking about USDC, USDT etc. So I think those are three three main uh points of failure.

The redeemability part is both the biggest um advantage point of a stable coin and I think one of the biggest threat associated with that and in traditional finance we all know um the term uh bank run. So like if there's some panic at the mark oh we have a bank run we have a bank run happening. So if there's like a lot of panic on the market caused by like a polit political event, war, pandemic, whatever, like pick just about anything that happened in the last five years, um that influences um um the exchange rates that influences monetary policy. And I think that stable coins start to behave very similar to actual traditional finance. And um Ana um it kind of relates to the fact that you can also have a bank run on stable coins.

It's not an obvious thing, but you can h you can have that.

Yeah, in my opinion um

and I just like a little bit higher up.

Okay,

perfect.

In my opinion, uh as I as I said before, uh we should still remember that there is a really small difference now. uh I would say um like the stere stereotype of uh stable coins uh which is uh still comparing stable coins to traditional e- money uh e-man tokens and even mika has uh not the strict u stable coins uh definition. I mean um there is a discrepancy between uh definition of the Immani tokens mentioned in EMD2 and also used in Mika directly. So um I would say that uh we should still divide these two two approaches and um in general I would rather compare uh today's situation and stable coins to still having the um the connection the strong connection to traditional banking system to traditional payment system and uh from the legal perspective we still have to depend on traditional financial system because of course we are starting with regulations. We we have Mika fully implemented or not fully implemented but uh we have of of course genius but we have still uh traditional payments and traditional financial system basis.

uh we have to follow unfortunately or fortunately it depends because um I would say that this is the initial stage of of uh general understanding of stable coins and general understanding of cryptocurrencies uh also from the legal perspective because uh we still have to learn how to treat stable coins, how to treat crypto non from the traditional banking system and we have to deal with uh traditional tools with non-traditional stable coin meaning right so

that go on P

yeah I actually think that it's not that big of a risk when it comes to a bank run like we've seen it once with like uh Silicon Valley bank few years ago but I think that the big um impact on that situation was that Biden administration was actually working on choke point to zero operation right so normally when something like this is happening federal reserve going to come and save the bank and everybody who's involved in the business uh but somehow US didn't really want to deal with crypto and that's why they haven't uh provided any help to to SVB but now it's like uh new people in the government also in EU totally new approach toward regulation uh we see that at stable coins we don't use the fractional reserve system so like if you go to JPM chase like PKO you give them 10k deposit and there's 100k credit created out of this with circle or tether this is not happening actually it needs to be backed one to one and in some jurisdictions some coins are banned at the moment because the treasury is not that transparent. So regulators don't know um if there's enough T bills or whatever else is is sitting there. Um and that means that if a bank run going to happen and if regulators did a great job to actually ensure uh we are safe nothing should happen. So now the question is yeah how great uh policy makers will uh will h help us establish some uh yeah uh boundaries to to make the system clear. But I think that a lot of good stuff is happening for the payment side

regarding traditional uh financial system and banking. Uh I will give an example because uh as you probably know in Poland we haven't still implemented Mika fully. So here is a situation I'm dealing uh with a lot of clients. Of course we are we are having a valid vast license in Poland as long as Mika is not implemented. So uh we really need to start with the cooperation between traditional payment solutions and uh crypto solutions because uh for now uh Polish banking system is not cooperating and we are having still a lot of problems with basic uh cooperation like opening banking accounts for VA wasps.

So um this is a crucial uh point in my opinion because um if we would like to uh make next steps we should start from the very beginning and from scratch. If I may add one thing, I think like every stable coin discussion should be kicked off with uh just discussing different types of stable coins, right? Like others already hinted on it, but basically I like to think that there are three types of stable coin. We have like these spec coins uh that basically hold cash and cash equivalents in the banks. So USDC or Tetar to some extent are perfect examples of that.

Then we have uh crypto or mixed collateral stable coins like USDS, D uh I don't know go and probably a few others and uh these are like uh like debt backed uh stable coins uh often with uh like they kicked off where with collaterizing with EH or Bitcoin but these days that the collateral basket is like really diver diversified right um and also includes like I don't know um different trading strategies like itina style uh sty stable coins and and then we have algorithmic stable coins. Okay, I'm going to get to that in a second. And we have algorithmic stable coins which is stuff like you know terra I don't know ample forth and these basically they don't work right but what I'm saying is that that the bankr run risks are totally different between all of them right especially for like algorithmic stable coins they just totally don't work with bankr bank bankr runs which we all saw with teruna and the other types of stable coins they I think they are much more uh secure uh against bankr runs like especially like you know the the first type the the the the cash and cash equivalent backed stable coins like you know um you have like plenty of cash in the bank and then you have treasuries which are also like you know uh pretty safe uh even if you need to sell them. Um

so uh for those of you sitting in the back we had a card pulled um with brakes. So, um, let's let's try to figure out what happens if Aphina breaks. Um, Chris, but also Nikolai, I think I would like to have your insights on that.

Okay, I can I can u talk a little bit about this because we already saw some uh um some small issues with itina in in the past. So like first of all um like itina I think and our risk team agrees is fundamentally like safe uh product uh like uh you know there it's properly backed either by you know spot position holding some some volatile asset but then you know shorting the same volatile asset uh which should net the the exposure the the the the risk but the truth is that itina can uh temporary dep we we saw it uh what was it like a year ago or or um or more than that so these things can happen but I think it's like important to to realize that like the the the trading strategy uh underneath is like more or less sound and you know hedge funds were doing it for you know years uh in the past is just tokenizing this uh this strategy and uh yeah and uh of course like there are some other risks like what if crypto exchange that it locks money in gets hacked and guess what it happened a few months back but turns out that it also and like similar projects innovated a little bit in that direction uh and they are not holding the the c the custody of the funds is not how the exchange as far as I know there's like a custodian that holds the money and it's funny because someone I mean back raised custodian failure um card here uh but I guess uh I can I can stop here

Nicola do you want to add anything to um breaking because I know it has like the possibility of fina breaking for like very various reasons has multiple implications on lots of D5 protocols. This is like a it if it happens this is like a major domino reaction right now like a false morph for falls. Yeah, I would say there is I mean we we would also consider it in a very safe uh I do agree that the packing is a is a big risk and yeah I think there I mean I don't feel there is like spoof like the the single point of failure resist but usually it just cascaded so one thing like just runs another thing and then that cascades and actually we're getting the domino the domino thing and I agree with that like as uh as you mentioned previously for the the Silicon Valley bank uh shoot show a couple of years back it's been the same thing where like USDC lost pe it went to like whatever like says 70 75 cents for for a bit etc. And I think that's a point where every single person who holds it whatever if it's like 1% or 90% of the assets there is like is this actually safe and like if it happened once why why why it can't happen again right so I think that's uh that's I I mean that goes back to like single point of failure risks where where I do think like those things sometimes can cascadedly make a big show even though there is a lot of like I would say fans and market makers like where you quickly rebalance things back. I still feel like if it even happened, it's a problem.

So, it's it's not a matter if if we fix it or not. But, uh you know, it it's not going to be fixable always. So, I do I do agree with uh with most of uh what you said basically. Yeah, I think big problem here in this discussion is that we comparing the uh mean of payment like USDT with a tokenized hedge fund and and uh this is why it's really hard to use the same measurement for like both of those as as it never going to fit. So now while we looking at stable coins, we think of everything uh in this basket from payments to yielding stable coins.

But those are not stable coins. Those are structured products mostly working as tokenized hedge funds uh with like $1 uh per per share. Um, and they do that because they try to inherit uh all of the uh benefits regulators already uh made for payment stable coins. So this is why it's very hard to to talk about that because we should be talking about about it like totally two

totally separate things

different topics. Yeah. Yeah.

I think there's some overlap as in it's not they're two different things. they they exist and and and uh for different reasons and behave differently but the fact is that they are bundled in together in various products which is um the USCC that you're using for payments is also omnipresent in DeFi and there are like so many connections that we can see a situation where um an event happening um strictly in DeFi in um in synthetics tables can affect how the payment flows on the other side of the world in remittance actually um happens. What is the value of that payment? Um P like with stable WS you're right now measuring the um like you're building the stats for for stables but I think um going into risk predictions for stables is also one of the one of the thing do you intend to build something that outlines like do like um TLDDR version of a risk uh scoring for stables such as you know L2B did for L2s.

Yeah. uh not like ultimate scum because actually if you try to do business and sell something and tell people they're like triple C and they're not gonna buy it uh probably. So what we try to do is rather to highlight risk areas associated with all of those products and we realize that it's like totally different work to do it for payments versus this uh yield bearing space or like credit market. Um so what we try to do is we actually focus now purely on the yield bearing stable coins. Yeah.

So there are quite a lot of risks uh involved here. The the biggest problem is there is uh yeah

uh negative interest rates. So we're going to cover that in a minute. I I asked him as well. This is actually good for yield bearing products because if the uh interest rates in US going to go down um in last cycle there was no bridges like no SPVS no like legal ways to pour money from Wall Street into onchain and now Franken Templeton um Black Rockck or whoever else is not testing anymore but actually using onchain products and mostly they're using stable coins and then some third parties helping them with DeFi integrations. So there's a lot of money market funds which not going to be able to produce any profit or any revenue if they're going to stay just with T bills in US and I think that most likely they're going to go onchain uh and this is what everybody's preparing for and Ethereos product for that already doing a lot to to catch that attention from the from the institutions but there are much more really risk adjusted and very um very transparent products like SUSDs uh for example who who are also really great position to um to do that.

So overall like low interest rates going to just uh pump the market a lot like 10 100x I would say in a in a long term and it's it can really be like big uh carrot trade between um thready and and onchain but still there's like maybe three protocols which are very transparent about what's going on inside and this is what we try to tackle at at stable watch. It's maybe not that directly um um addressable for yield bearing and the part that you're working on, but right now for the payments tables, we're relying very heavily on the proof of reserves, which is basically a non-existing thing because it's mo in most cases this is like a PDF posted on your website saying I have money. I also have money. I can print a PDF. Um that and that kind of ties to the fact that we're um with the very very fast adoption of stables.

We kind of like assumed the best um kind of like a a good approach to to those reserves as in like we're going to hold them like you're they're not yet audited. We don't have a proper proof of that but you know we're going to hold them and that poses I think there's somewhere somewhere somewhere there's like a custodian risk um saying that hey yeah you must uh um um you have the reserves, but what if you don't? What if you're lying about the reserves? What if there's some um bad actors at play? And um if you look at the structure of stables right now, especially the ones used for payments, they're all centralized.

Like not even centralized. They're they all have like a single decision maker. Um and it does not take a lot for them to decide, hey, I'm just going to do, you know, I'm going to do a rugpool on you because it's a it's a good moment for me. So I think I don't think we're there yet when it comes to um safeguarding those those funds even though you know Mika engineers have implied have like um listed out the requirements for the banks to custody funds but I still think that the tempo at which we are seeing the adoption of stables in payments in DeFi and hedge funds is not really catching up to what we see among traditional finance. Um and I know that this is an what you mentioned with um payments uh with with banks refusing um VASP holders bank account.

Um but it also means that stable coins can be very susceptible to any political changes happening locally and Poland has a very interesting example on that and I'm going to let you uh take this one over.

Yeah, exactly. And uh I would also say that uh of course we have a lot of special requirements regarding Mika and Genius as well but still we have no practice uh we have a lot of uh audits we have a lot of uh safeguards uh requirements but still um this is the I would say this is the draft let's be honest uh of the whole situation in Europe and uh US as well. So as you mentioned of course and as we spoke before uh this is the political game and uh as you can see for example in US we have like a totally different approach uh two three months ago uh and now uh now we like stable coins now we have to regulate it and also regarding Mika and especially in Poland um I can see um hund 100% different approach. uh when we speak about uh traditional payment uh entities and they have to fit in the new realm they they have to fit into new situation and uh one year ago uh there was a stereotype especially in banking system in Poland that stable coins and cryptocurrencies are something uh we have to be afraid of and now uh there Mika and we have to be compliant but no one knows how to do that and uh yeah I think that uh there is a huge uh uh yeah uh c can you uh uh yeah and uh we have to still be prepared that we have some policies we have some uh internal uh policies uh in uh particle uh entities but we still have no uh practical action plan and we still have to depend on actual political game because in Poland uh we mainly haven't implemented Mika yet because of this political game. Uh we have two different approaches.

We have two different u drafts. Uh one of them is treating uh cryptocurrency market uh really similar to classical uh payment uh industry and uh CASP is treated like the like another payment institution and the second one is uh trying to save this uh this uh independent approach and in general we have to wait just just wait and observe the situation. situation and uh I can see another risk because a lot of uh my clients are dealing with uh external partners who are asking about the Mika implementation in Poland and uh they are dealing with the risk that in the future if we will not implement Mika uh we can be excluded uh from the market from the business partners who implemented Mika And uh that's the uh that's the most important risk I would say.

I think when you're um referring to the like lack of implementation um overall we can see that politics are super important in that particular game. Um and that very much leads to uh the global dominance of of using stable coins as a tool of global dominance of dollar. Um we got do you have comments on that?

Yeah there is actually two things I wanted to mention. Uh one is regards what you mentioned previously about the attestations etc. And I feel they they do like reduce that but uh the only like instant uh kind of like instant redemption on streets is what's going to kill the D about the the stable coins. And speaking of the this is exactly the topic I wanted to mention for the dollars worldwide is u so kind of I feel like if you ask thousand people who have stable coins 99% of them will hold uh dollarbacked stable coins um what I feel is another problem is uh that's kind of a way that dollar gets huge exposure even in Europe where most of us are quoted to to euros right and uh even even by holding take uh stable coins as an example. We we're double exposed to first of all dollar is super volatile due to the to the politics.

It's backed to a couple of other currencies but definitely not euro which is kind of like doubling the risk of why why am I doing the business in dollars if I'm in Europe like right if I go now to like nike.com website and I'm buying it in US it's going to be in dollars. If I'm buying in Italy it's going to be in euros. I'm going to pay in euros and I'm going to get quoted in euros. So I feel that's definitely the I I feel that's the way dollar is getting a worldwide dominance.

I mean it has it already but uh this is just kind of like doubling down on that but I also feel that's not sustainable on a on a long like on the long term definitely because of even the local microeconomies that that like people just don't want to be exposed to to dollar like why why would we we pay all all things in euros or like other European values uh currencies but like we're getting dollars so we're getting a huge risk and exposure of dollar which is really super volatile like I mean it went up and down like 10% more or less this year. So comparing to Euro like from 103 to 117 or something like that which doesn't make a lot of sense as well. So I think that's another problem that's huge huge huge breaker for the mass adoption that just like the reality is right now we accepting this and we are fine with this but uh I don't think any bigger fund or whoever is going to be accepting to turn on its treasury from euros to dollars just so it can get exposure to stable coin yields or something like that.

Yeah. Um, who's getting paid in dollars? Like who got kicked massively on the ass over the last half year? Yeah, I went through that as well. Like looking at your salary shrinking for no good reason.

That's not really great. I agree that like that you that the global dominance of of US dollar for stable coin is something that is a potential um major risk factor like something slowing down the adoption. On the one side, you kind of wanted to have access to dollar because, you know, it's more um like a better source like better way to store your your assets, especially in countries with high inflation. But then when you look at the macroeconomic policies right now, dollar is not really the best to do so. And with stable coins, you can actually store your assets in some other currency, in some other stable coin.

We don't have a lot. Um I'm going to ask about the uh share between the US bearing and non and uh US peg and non- US peected. Um but I think we still have some right we have some alternatives

but let me just ask how how much risk you want to take h how much do you trust them? That's the that's the main question.

Yeah.

Yeah. I'm not really sure about the ratio but there's actually yeah quite few of them but there's not any one which would be really uh implemented broadly across defy or like web two payments or whatever because there's no demand for that. I mean why you would actually hold any other currency than dollar. So where we use USD, it's like the stable coin started being so used in crypto because traders needed to somehow have a like safe heaven for their trade. So they were entering trade within Bitcoin or maybe some other altcoin and the profits they wanted to roll back into USD but not into US bank account or whatever other bank account to use a lot of money on fees.

So that was the first like big PMF of stable coins and later on all of the like uh countries like global south countries emerging economies where uh their currencies uh are just flooding and every year lose a lot of value. They want to have a dollar exposure and there's much less like compliance hurdles if they will be able to um to to access that through stable coin. And then the question is where is the most liquidity when it comes to actually swapping those local currencies like Philippine peso for example or whatever else into USD and uh it's not for euro or any other G7 uh currency. It's only for dollar and actually only for tether uh in a in a few places. So I don't really see um us using the the stable coins like local stable coins like euro ones very broadly unless banks just going to switch the uh their infrastructure and even we will not like get this in meta mask or whatever it just going to be one bank sending to other bank euro thanks to blockchain and and this is this is the only way why this in my opinion could work and the ratio is like probably uh 99 to1 at the moment.

So there's a lot of local currencies but but there's uh really small market cap of them though there is a really large volume because everybody wants to get into dollar.

If I may add uh one thing despite the fact that you know euro uh backed stable coins are like very small compared to to dollar ones there's actually a little bit of innovation happening in that space. Like for example, Monerium provides like u Iban regular bank accounts that are tied with your um Ethereum address and every time you transfer money like from your bank account to the Saibban, the Euro E gets minted on your uh blockchain account, which I think it's it's pretty cool and it works also the other way around. Uh so it's like a very simple on and off ramp. Uh yeah so there are some actually you know some companies working on some innovation in that space even in Europe it happens sometimes.

Yeah but actually like I also use holy health and I just lose money because I put USDC or USDT there and they swap it into euro. So it's not that

spoil it for you. Wolf I'm fixing that.

Cool. I cannot tell with what but I'm fixing that.

And just to add something uh regarding uh the battle between USD and Euro also regarding Mika and this whole political g political game uh we have uh um the limitation about the non-Euro stable co payments in Mika as well. So I have no idea how do we work in practice because uh I think that uh the European regulator should uh consider this approach. Uh it it looks like uh we are afraid of something afraid of dollar. Uh I don't know but uh I can't imagine how it will be um uh implemented. uh so this is uh another kind of risk without any kind of practical solution I would say I think there's some interesting implementations of non-USD stables I didn't mention what I do but I do non-USD stables for anybody interested so um on the non-USD stables I think um one part is that through for like they they function the same as as you um any fiatback stables but um what they offer you is that you know the if you have a developing country and emerging emerging region, they usually have to have higher rates on the treasury bills because they need more money more.

So you can get um exposure to that uh in a much simpler way. So this is just about you know abstracting away the ops cost of getting a treasury bill in Argentina or Colombia and you can actually do that via stables um that are like somehow yield bearing but not you know not fully yield bearing. Um, so I think there's a way to access those financial markets in a simpler way. And that kind of gets back to like the initial premise of just using blockchain, which is you can build complex financial um, tooling without the ops burden that you usually have to take um, when purchasing a treasury bill from whatever um, whichever country you want. So I think there's some interesting solutions in um, in in there.

But um I think um I wanted to uh revert back and add like a global question there about stable coin issuers. So with ma regulation in place and all of the emis um stable coin issuers tend to look more and more like uh like banks. They have the option to accept payments um for you. They have the option to send payments for you. This is like an accidental um um setup because they um uh they have the regulation intended for crypto assets but to be able to anything on the payments market they also had to get the payment licenses.

So you have like a very um weird combination of um entities, EMI entities and and and similar ones that have both the crypto assets regulation and the payment regulation which gives them um features are incredibly like a bank. They can um like what Manarium is doing. Manar can manium can open up a virtual IBAN for you. So you can open up a bank account with Manarium. You can they can accept payments on your behalf.

they can send payments on your behalf and that starts to look increasingly more like a bank. And when you add the feature of them being able to create a wallet for you, of being able to connect that virtual IBAN to your um to your Ethereum wallet, being able to natively connect to crypto, you have this really really nice hack for all of the on-ramps, all of the offramps, um hack that lets you plug in directly to the banking system. And I think Mika and all of the regulation, the Genius Act, everything that followed in the in the world is basically positioning stable issuers as this unique plugins to to banking systems. And right now, if we look at stable issuers, we can treat them as banking as a service catering specifically to crypto people. And I think just realization of that is is amazing because it changes like we can build the swift network just between the stable coin issuers.

We don't have to rely that much on traditional finance. We can move all of that entirely on chain and it's still going to be connectable to banks. It's still going to be like the connection will be legitimized by actual proper regulation. And I think that very much changes where on and off ramps are positioned, where exchanges are positioned. And I think it's a very good setup.

I people have been complaining about the regulation, but I think overall it's a it's a new opening for us and we can build it's like we're be uh we're being given a new set of tools to build on top of stables. This is an open question. So whoever wants to comment

um I can observe also tendants to maybe treat uh traditional payment institutions who are trying to obtain CASP license and trying to connect these two kind of industries. uh more friendly than uh separate uh crypto uh exchanges or CASPs. So yeah uh I totally agree and maybe there is a kind of compromise to um ensure uh traditional uh banking uh entities and traditional payment institutions um fit into the new kind of uh ecosystem and start with this kind of approach uh to find a compromise between um traditional uh ecosystem And maybe it will ensure and uh involve uh this uh this new approach uh into the general crypto ecosystem. And we will try to um then implement uh more uh more uh regulations for non-traditional payment institutions. And uh I can see that uh for example in in Polish ecosystem uh KF uh who is uh potential uh potential CASP um regulator regular sorry regulatory um is uh having a mainly traditional approach and uh the first uh Mika draft uh uh Mika internal draft was uh mainly focused on this kind of traditional approach and uh yeah I can see that it might be a new kind of compromise uh for starting with traditional uh traditional payments approach with uh trust more friendly uh more friendly approach and then trying to find some uh uh some uh next Mika internal approach generation for crypto uh entities.

Yeah, after your talk I realize we now work in fintech and not crypto anymore. Um but uh on more serious note they also regulated as a as a payment providers but they don't inherit any benefits of that. So they don't catch any upside and revenue. So all of those issuers act just as a funds. the only way they make money is through uh yeah getting yield from T bills and not distributing it further and then the question is what else they can actually do because there are much more players interested and much more far away developed to serve now with payments uh like to replace swift or whatever I don't think circle going to replace swift um so actually they have big problem I believe mostly because I believe there going to be tokenized deposits sometime soon available like why JP Morgan won't do that and then there's like no sense in using USDC because you can't have a credit creation out of it but from the JP Morgan coin you will be able to do that so um all of those issuers made really big effort to bring crypto to actual real world and and become fintex but I think that most of them are now bad position because of that because now they don't fight with some other crypto folks but they're going to fight with JP Morgans of this world.

I think what you said about us no longer working in crypto but in fintech resonates very highly with me. Um I was panel yesterday about like importance of stable coins in DeFi. I was like but just just fine. No no it doesn't have to be DeFi right now. like implications uh of stable coin and finance right now is a like big enough subject and what you said about stables um like the stable issuers of yesterday or or of now are going to be competing with the JP Morgans I think it's something that can be the actual downfall as in it gets you know when it gets so popular um that it's invisible do we win or do we lose like as a you know general crypto crypto um community Do we consider this final stage of mass adoption or do we consider being um overtaken?

Do we consider being um um I would say acquired?

Yeah. So I think there's also like possible positive scenario that while we switch from the old infrastructure like Swift, SEPA or whatever into settling all the transactions on chain that means that the barrier to entry that market is lower. So actually it's not only banks with like uh uh under banking regulation can enter the space but actually much more fintex can start serving the same uh customers and as the nature of of like onchain finance is that it's open you can build whatever you want you will see much more entities which going to uh distribute this yield further because if you like to build PayPal like from the tech standpoint, it's not that hard. Uh you just need to have enough money to build it, but you can't replicate the network effects of it. So, so this is the hard problem, but it becomes much smaller when you're in the onchain economy.

Um so then maybe there's a there's a scenario where all of the new entrance going to push first some smaller entities like Venmo for example, etc. to actually um start losing their uh their revenue through NIM and give out the yield to users and maybe it can go up uh and and JPM also would need to do that but I think uh there's a lot a lot of work to to achieve this. I think we have um still a lot of work but like you mentioned that we still need time to get this tested and like the the fact that you know those major players are entering the space is both good and bad can be can be a can be a good thing can be a bad thing um but I don't think there's enough time to prepare I think yesterday striped stripe launched a chain for stable coins tempo um just a few weeks ago we have we had um

ARC

ARC by um by Circle um I've mentioned my favorite team Western Union going into stable coin payments um but we also have Robin Hood with you know launching their app on Arbitrome. You have those major players going into that and they're all going to make a solid solid bet on um on stables and I have two more questions. One will be a short one. Uh P what is the how many stables do we have right now? Oh yeah, a lot.

Yield bearing ones we counted more than 150. So the pavement ones I think it's also quite much above 100.

And what's the volume?

Yeah, I'm not really sure. Yeah, at the moment. I'll need to check our website.

Okay. Uh go to stable watch. Uh check the volumes. But my final question is are they uh it's a very simple question. Are they too big to fail right now?

Do you think the stables that we have the 99% of the markets that

No, it's like it's like the the M M1 M2 like monetary supply of US dollar domestic. So not like counting petro dollars uh euro dollars is much larger and stable coins at whole. So also yield bearing products and payment products together at the moment it's like uh 1 I think 2% of of M2. So it's really really really tiny for a real world economy still.

Nicola Chris Anna any comment on that?

Just to sum up uh as you mentioned we actually have no time to to prepare and uh the main uh issue the main risk in my opinion now is to change the general approach from um Crypto is something we we are not tolerating to we have to implement crypto fully and we have to start uh treating uh stable coins and alternative payment solutions as something which is a part of the general ecosystem not the optional uh payment solution.

So are stable coins too weak to fail? Um I don't know to to collapse the whole world economy I would say no but to make a lot of people poorer especially in this room probably yes

I think this is an an uplifting um summary for them uh for for today I think it's good that we are facing mass adoption I think it's good that we're already there with big customers going into that space um but we're nowhere near being as ready as we should be. We're still lacking the um playbooks for any risk situations. We we're still lacking the right arbitrage options. It's still not where we want it to be. So, I think it's good that it's not yet too big to fail.

We can still afford another stable coin in this crisis. We're hoping that it's not going to be the case. Let's not hope for another one. Um but I think we can still afford it as in we're not that the sables are not that merged into global finance so that this would collapse the whole economy. Perfect.

Thank you so much. I stash do we have time for questions? Do

we have time for one question? Okay. Um uh David

if you you remember my name that's good. So I got general question about stable coins. So in nowadays era of you know mica regulations being you know big companies going into stable coin games um is there still room for a little bit DGEN defy only legal but not Minecraft compliant uh maybe decentralized money decentralized stable coin or is it too late or it's not possible in your idea anymore? there's liquidity and you can fork it pretty easily and there's a lot of implementations. Uh and yeah, I think that the this guy is also doing really amazing job with the decentralized finance

for not ma compliance tables go to Chris answer first.

That's what I said.

Yeah. Uh

I'm not

I'm not a lawyer. So uh you need to ask lawyers about this but we have one here. So you're in

okay so I would say that we have to divide these two uh two approaches. Of course there is a room but uh of course we have uh a traditional uh perspective and uh we have a lot of uh entities uh who will follow this traditional approach and um for now I would say it depends on the business model and for example a lot of entities uh my clients are trying to run from Poland from Polish regulations uh but still we have a few who are trying to fit into the traditional system traditional legal polish framework even if we are not having it yet but um yeah there is a room but it depends uh what is the structure what we uh would like to do and what types of pi payments and clients we we would uh we would have

amazing thank you all so much. Um, Anna, Chris, P, Nicola, thank you so much for the amazing panel. Um, it was a pleasure hosting you here um, today and thanks for the audience and thanks to everybody who participated.