Stablecoins: Monetary Infra for National Defense

hi everyone I'm Anna uh I've been working on all things stable coins at salana foundation for the last two years and now I'm starting my own project called Pena so today it will be more of a a thirdparty opinion talk on stable coins as monetary infrastructure why we should care about infrastructure for stable points um from the angle of of National Defense so this stable conference is very evm and def5 focused so I thought instead of giving another talk on stable coin design I might as well talk about a very Niche topic that I think more people should care about so disclaimer here is that I do not necessarily support stable coins used for National Defense or for geopolitics it's more just an objective um objective reality that this is happening and I think more people should care about it so the fact is people want dollars um not not something that I'm not American so this is not a patriarchy or anything but the market has spoken and many times so the last year I basically spent a year trying to bring non USD stable coins to salana uh I brought on a number of stable coins from CHF e to AUD but we just have haven't seen that level of market demand in the end 99% of the 166 billion of stable coins issued is dollars and I think not only do people want dollars due to liquidity for trading but people also want dollars because they want to escape from their um dysfunctional and extractive stable extractive currencies in their own country preserving and expanding that conduit from currency which is cash to Fiat Bank custody Fiat uh which is subject to Capital control um to stable coins which is the the as far as it goes now the freest form of currency that that could exist is Paramount to helping people get out of the evil and extractive financial systems that they are a part of so giving people access to the dollar is a public good and one that is also insanely beneficial to the United States um as an aside I wish we are not so globally reliant on the Dollar's overwhelming dominance I wish we have other currencies that are counteracting the Dollar's growing penetration globally um and I think this is why this talk is to raise awareness for other jurisdictions and Regulators such as as uh for R&B e or even CHF to to be more supportive of stable coin Innovation and I think like R&B e are two where we they could play a part in financial accessibility but not with the attitude that the current regime has so we just celebrated the 4th of July where I live in the states um took me a couple of years to to succumb to to this acceptance of Freedom constitutes of military uh ability to attract and retain talent and the dollar hemony so I think The Narrative of stable coins as uh defense Tech is a very small but growing narrative and there are roughly I think three companies that that have talked about this so far so there's Austin kembell who was the the reserve manager at pao's Chief risk officer he spoke about um stable coins as defense Tech from zero knowledge consulting which is his firm Inca digital is also in close contact with the US government uh speaking about this and testifying in front of Congress um nfx so Morgan is the co-creator of uh DM she has also been advocating for stable coins as defense Tech uh again this is not to say that we should use this for military power power but to say that this is something we cannot ignore even though everybody here is interested in Defi and I also love defi um but this is just an angle that it would be beneficial for everybody to to be aware of so with that in mind the current monitary deack is super Jank both from a trap VI perspective which we've been building on top of H Century old Legacy Tech and innovating iteratively on top of that but also because stable coin World in Defi and Beyond defi in in the blockchain space is shaping up to be hyper concentrated and not conducive to to growth um so out of the total issuance 166 billion 160 billion being roughly speaking being fiia backed so decentralized stable points have not really got a lot of market share but also more importantly 155 billion of those are from two companies there's tether and there's Circle so you're looking at this basically it's a it's a country with two Banks uh even Iceland has three Banks and this is highly problematic because when you have two Banks and one of them has issues um whether it's dpeg or whether they are simply expressing their opinions in a way that is not very welcoming to other issuers or other participants in the market for example it's very common for people to spend more than six months waiting for a circle account and if there those are the only two options that you have it is very hard to scale this ecosystem so both issuance and existing Market structures are not conducive to scaling the stable coin issuance and therefore the stable coin based economy which is currently mostly in crypto defi but I think it could goes It goes well beyond defi so I think there are three macro trends that show us um support why we need infrastructure now so the first one is a lot of issuers are coming to the market regardless of this challenge that majority of the stablecoins are a backed by to duopoly so whether it's USD GBP HKD uh CHF and Beyond in the fiak world there are a ton of issuers coming and this is not even counting the nonh and cash equivalence stable coin issuers so a couple of the the speakers here for example Agora mzero uh Mountain they're all in the cash and cash equivalent space uh backed by T bills or or overan repo and cash but there's a ton of issuers also working on backing stable coins with commodities real estate and and so on and so forth the second trend is that the newcomers are playing with yield so the speakers uh at stable Sumit I just mentioned uh these guys are all very willing to give out yield so the market I think will go through an economic realignment among stakeholders there is it is unfair for us to be taking on counterparty risk from the issuer if the issuer is not paying us anything this is not it doesn't happen really in any other mature Financial market and this is a a weird uh situation for crypto so I believe infrastructure can help that help Propel that change the third trend is that stable coins will continue to grow and expand Beyond defi trading I know we're at ECC um but majority of P to Pure volume a lot of it is on Tron and ton and and salana um all of those folks are are perhaps not very present here um but we're focused on use cases not just in defi but also Beyond and a lot of that means payments so the current stack is underfunded underexplored and AD adversary to having new issuers having Forex also it doesn't scale first-party rails AKA The issuer Mint and Redemption because everything is super siloed so uh our peers at m0 which presented earlier this morning they're reimagining the monetary stack by owning a lot of the owning and extrapolating the complexity out of a lot of the the stack however this is the roughly speaking I drew it last night so like the current stack looks like uh all the different players and as an issuer or as a market stakeholder you don't really have a place to help you grow you're competing very much Upstream just from from let's start from the trafi level so there are custodians there are Auditors there's Banking and payment rail but as an issuer you have to go Source all of these and none of them are really supporting issuers the way let's say um a stable coin Launchpad could be on the CI side issuance as a service there's paos Braille and Bridge uh regulatory disclosure Chris brummer out of DC is building a regulatory disclosure as a service firm but largely speaking most issuers are still spending a lot of money on compliance on their own most of them are in-house on the third party rail side there um there are a ton of them there's like moonay transact mercuro uh unlimit Etc but almost no none of them are specifically focused on stable coins so even if as a user so I live in the US which is fairly easy to on and off ramp if you're willing to fully kyc but if you're in other countries there are a lot of places that are really really difficult to get into and out of stable coins and no almost no provider is purely focused on this the the other big problem is if I'm an issuer and all of you are issuers we are not really collaboratively scaling the stable coin economy because my issuance doesn't talk to your issuance you don't accept my stable coin however why Visa is so powerful is because now I can go anywhere in the world and I can pay with my Visa card and your bank is willing to accept that so I think this is the part of the infrastructure that's missing on the defi side there also a lot of missing infrastructure I spent two years helping issuers coming to salana and every time an issuer comes they have to set up their own just from the smart contract perspective all the way to liquidity um their own stable coin liquidity pool their own integration they go do all the BD which is not really necessary for most of the issuers because maybe their value prop is in payments like PayPal is more used for merchants than they should be used on defi why do they have to do what everybody else is doing which is putting up half of their liquidity uh principal liquidity that is at a cost of capital closer to 10% or maybe more on chain not earning yield and giving that yield to Circle when they could be pulling together Resources with other issuers together in in the form of say a balance or pool where five issuers are sharing that Source common source of liquidity there are other categorical infrastructure players that I think are underexplored at the moment whether it's the integration lawyer layer uh Clearing House model or dark pools which uh my friends at Mac exchange which are previously known as hourglass they're exploring but a lot of those hidden liquidity is still in on OTC markets where it's very much institutionalized it's opaque again we're going back to this sense of of trafi century old Tech and not opening up liquidity to to the the masses so what are we doing um we're building decentralized infrastructure for money I think the monetary Tech Revolution is just beginning um I'm not trying to take on every aspect of the monetary stack but just focusing on one aspect which is the increase Capital efficiency for onchain money I think of money as at rest and at work so CDP in my mind is at rest because the money in the vault are sitting there doing nothing stable coin stable swaps are money at work but the at work efficiency compared to trafi is extremely low so if you look at stable swap amm the onchain 24-hour turnover is less than 5x in a trafi market for FX even for spot the on the turnover 24-hour turnover of principal capital is maybe 50x or more so we're super early like for us to talk about defi as a capital efficient open market Market is a travesty because we're actually less efficient than trfi in many ways so I'm setting out to do research and building infrastructure to address that small but Growing Pains uh as well as I'm sure a lot of the other people here building defi markets are trying to do as well but why why defi defi is cool but payi is cooler so if you think about it trading volume trading is value transfer and it's curest form I send you a financial asset and you send me back another financial asset that accounts for roughly 20% of the GDP and that's already the 20% is super high in the US uh for other countries that accounts for Less much less of the GDP so the rest of the 80% of the GDP you're looking at I'm paying you with a financial asset and you're paying me back you're transacting with me with a non-financial asset so that part of the GDP and the economy we largely have not touched it's been touched by Tron a lot and I think ton has a very good chance at at tackling that market but for ethereum and salana largely speaking we we've not touch that is super interesting for me because payy like supply chain financing is really it's broader it is the underwriting takes forever liquidity is opaque is super hard to use especially in Emerging Markets where in LM you talking about 20% plus cost of capital to get payments financing so this is something a concept that at Salon Foundation we started talking about in the last couple of months is how to enable defi for payments use cases I think this is a super nent but again why it kind of goes back to the the topic of my talk today which is stable coins is defense technology because in the end it goes back to Growing protecting and supporting each country's local economy so this is a a very roundway roundabout way of saying St coins need infrastructure we need infrastructure not because for ourselves for our countries but also for for geopolitical stability and for Global accessibility to a a functional currency that is currently the dollar but it doesn't mean that if forever has to be the dollar and I hope that a good portion of the economy can run on this new monetary stack uh thank you [Applause]