Beyond the Baseline. What it Really Takes to Scale Institutional Stablecoins

Hello. Uh, my name is Tim O and I'm with Upheaval, the makers of Ironweave. We protect people's secrets by putting individual units of data in independently encrypted blocks. And why that's relevant for this room, payments are just another form of data. So, we can help facilitate private compliant financial transactions for groups such as Society General and also chains like Stellar among others.

And allow you SA and Dell to introduce yourselves, please. Hello everyone. Uh so I'm Simon. I'm CPO of Sal forge. We are subsidiary of Sust and we are focused on stable coin.

So it's it's good to be here and we have two stable coin, one in euro and one in dollar. Uh and so we try to deploy in a different network but we'll come we'll come back on it later. Hi everyone, I'm Danell Dixon. I'm the CEO and executive director of the stellar development foundation. We support the growth of the stellar network and the ecosystem around it.

Great. So by the end of this lecture or panel, we hope that all of you will be able to issue your own bank backstable coin. So first we're going to see how the sausage was made or the crepes were made at Society General. So Sven, if you can walk us through where this all began. So 160-y old bank, lots of different divisions.

What was the genesis of the move into digital assets and how did we get where we are today from that beginning? Um that's a good question. Uh so we started as an internal startup. So it's uh it was in 2018 uh and all was about uh security token. So at that time uh bitcoin crypto was not good but blockchain technology was a great thing.

So to uh to on board uh susted with with security token uh we receive a lot of validation uh from the group in order to provide uh customer group with bond uh and structure product in token format all with existing regulation. So on mid MIT things uh and so with the time being we uh we did some uh experiment with the crypto space especially with with maker that uh make some noise internally especially because to uh to work with maker at that time it was not so used and we we take time to uh to do it. We take we took uh two years to uh to uh to uh deliver this this use case and uh and with this use case uh we decided to uh to go through stable coin issuance because at the at the end stable coin is is just another financial product without the same regulation but it's just another financial product. we have all the uh let's say the brick in place in the bank. So I mean cash account uh all this kind of stuff.

Uh and so when you clean all the compliance uh side when you clean all the license things uh I I don't say it's easy but you can start deploying your your your stable coin and the the group was behind us in order to uh to promote this uh this business case. So let's go a little deeper. So now take us backstage. What different groups had to be involved and how did you get through all these hoops and hurdles inside the bank? Wow, a lot of department from the group.

comprehens of course we we are 30 people from s for so it's not so uh so so huge but we outsource a lot of things in the group and that's why they are deeply involved because we we outsource the care stuff in the group so risk uh operational risk market risk counterparty risk all is on compliance and I was quite uh stopwise when I started. So forge the number of compliance we have just for 30 people. So we have maybe six departments from compliance from EML sanction well a lot of thing uh GDPR it's it's it's quite impressive and all the operational things uh will be also on on um on sustaination in order to impact in the legacy system the risk exposition that we have on forge. Uh so uh and all the governance also is is outsourced to sustance in place that is um more tradey but need to report at the ECB level and other European jurisdiction like NPC so committee or this kind of governance is very important for the for bank and we go through this kind of kind of so let's say there is a 10 department and it could be 100 people in the in the group for to that's working on part of the station for it's quite huge and then we've talked about how you created kind of like a skunk works at Apple where you had this digital asset group was outside of the main mothership and that allowed you to work a bit more nimly and more like a startup than a huge 160-y old bank and then also talk about how you were able to operate within this huge institution using the small team which often we've seen in financial institute initutions is like the redheaded stepchild you know now it's getting a lot more popularity but back then it was difficult to get a lot of traction from the mothership so how did you do that as it is national startup we were quite flexible as it as at that time and we we were outside sessional so we find I think it was the biggest issue and we we solve it for the better it means that we um we find a way to have our own flexibility for important governance within sessional. So I I I I I talk about NPC but we have an NPC that is forational forge where we uh we have a decision committee and we don't rely on some specific part of the group for that and I think that it was it was a key point and uh with the time uh session want to bring some external stuff within within within sessional and that's why now we are clearly 100% sal for for all the governance and cir and and operational team but this governance things that was outside was really important thank you now Dell you see many different financial institutions I mean stellar was the OG payments chain you've worked with the United Nations with Moneygram now with society general and many others so now things have changed especially in the US with this new administration and the new legislation that's coming it's kind of like you had this girl who at least for me pulling her pigtails back in the seventh grade and she had braces and wasn't that attractive and then she goes away for the summer and she comes back and she's this beautiful girl.

So now you're getting all this attention. So who are you speaking to and what is the process like for you to work with groups like society general to see them through this process with all the expertise that you have which they might not have? I've just never had stellar described that way. I just kind of want to sit in that for a second. It's all yours.

Um, it's been great. I mean, I think that one of the things that I many people probably didn't know is that even during the time when no one was supposed to be like banks weren't supposed to be talking to blockchains or building on blockchains, they were doing it. And so they were doing it on test net or they were doing it sort of behind the scenes. They weren't issuing the asset publicly, but they really wanted to get into the business. And it was kind of frustrating because they would get to the very end of it and then not be able to issue on mainet because of what was happening in the United States.

And so now it's just a completely different world. And so, you know, I think even back in the early days, it was more about like we got to get on blockchain because we got to be cool. It was when blockchain was cool before AI came out. Blockchain was like the cool space. Right now, we're like a second class citizen.

But, um, the idea now is that we everybody's really focusing on the why. Like why should we build on blockchain? Instead of we have to build on blockchain, it's what is it going to be valuable for? And that's what's most exciting to me is because so many businesses are really looking at Stellar and looking at other chains and saying this actually really suits our business needs to be able to build these assets on blockchain and deliver that value into not just our own companies but also to the retail side and also the other businesses that'll use it. Okay.

It will be interesting to understand what type of support you give these financial institutions that are looking to leverage Stellar because through my research I found out that back in 2019 Franklin Templeton got zero support from Stellar all the way through the filing with the SEC. So explain yourself please. Yeah it was super cool actually. We had actually had our first uh Meridian which is our annual conference and it was the I think two days after Meridian in November of 2019 when we saw the SEC filing that Franklin Templeton uh put out to explain that they were building on Stellar. The coolest part about that for me is that I'm all about open source.

I'm all about the tech speaking for itself. That's sort of like the whole genesis of my career and what I've focused on. And so we didn't support them before. We do now and we work very closely with them. But it was amazing to us that they actually saw the value of the tech and they wanted to come to build on Stellar because they saw that all the things they needed from an asset issuance standpoint, the compliance pieces, all of that were there and they were able to get that through the SEC at a time when it's it's shocking that the SEC was actually engaged around that a different part of the SEC than on the regulatory side.

Um so we support um and now institutions come to us um and and now it's because of Franklin Templeton I think especially in the m in the money market fund side they come to us for support from a tech standpoint and so we have product support we have technical support from an engineering standpoint we also help them with respect to liquidity needs sometimes and also getting listed on different uh exchanges and uh we really think about what these assets are going to do in the ecosystem. So we combine a lot of uh these players with other players in the ecosystem. So think of us as like a convenor. So we help obviously on the tech side, but we really try to bring everyone together and help them to build what they need to build. Maybe just because it's it's an important point for um for institutional like us.

Uh the main point is the the crypto space is is all about liquidity and support on on exchanges and to have a foundation that could help us on this this point either on the support of your token uh stuff but also on the liquidity side in order to provide market maker with with loan or whatever agreement is really important and uh this this ecosystem is really not the same than thread. Fy in trade fight all is about a loan but with collateral and for example market maker don't like collateral but because they don't like collateral they prefer unsecure loan in order to uh to to have reserve in in in both asset and especially on the unconvertible and so to have agreement with foundation that can provide this kind of reserve to to our market maker is really important for us because the balance sheets cost is reduced and to be honest is really expensive this business case of commerce but also for is good. Thank you. We actually I mean one of the things that I think is really important and maybe all of you understand it. I don't think a lot of people who get in this um business initially understand it.

You can't just issue an asset and then be like all right we're done. Let's just let let it be. You got to like really figure out like how to get that asset to be used. How to make sure that there's liquidity for the asset. What is the value of the asset into the ecosystem that you're deploying?

It's a really important piece of understanding, you know, which blockchain makes sense for you to deploy on first and what you're going to get from each of the blockchains. Stellar is really amazing for payments and asset issuance and you really think about everyday financial services. Those are the kinds of businesses and entities that you're going to meet on Stellar and that you're going to be with on Stellar and so you got to think is that the right space? Hopefully it is. Um and and those are all really good questions to think through when you're as a bank, as an institution thinking about where to deploy and why.

And there is a misconception also on the on the stable coin business because every bank want to do now they want to do their own stable coin and it's not so uh so easy. So uh when I spoke with when I speak sorry with other bank and I said well why you want to issue your own stable coin you can use us we have we try to to find liquidity we can make it together it would be easier but people want to have their own sequ maybe there is some there is some reason because today and I think is the main problem is sable coin is used for payments so it's only a payment thing and the funding part so I mean all the liquid the liquidity the liquidity ratio behind the business like LC and SF this kind of stuff will be applicable only on the cash reser and so that's why they want to promote their own stable coin but I think if we have a clear regulatory and and um and credential clarity on on stable coin it could make it easy to have not 10,000 stable coin but maybe 10 20 but a good one in order to have a sustainable ecosystem we would see. So speaking about the ecosystem and the different players in it. So there are a bunch of different roles that need to be filled in order to launch and maintain a successful stable coins. You have custodians, you have market makers, you have exchanges.

These are all people that are now outside society general, but you need to interact with them in order for Stellar to be able to do its special sauce and to allow the community to come together to actually use this in a meaningful way. Can you talk to us about how those relationships evolved? And maybe Danell, you can jump in and talk about how you can facilitate these types of relationships and then what it's like inside 160-year-old bank to get them to approve using this market maker, this custodian. And then maybe as a a follow-up after Denell speaks, it'd be interesting to then talk about how the DeFi protocols get approved to use the stable coin so that you can actually use the stable coin in DeFi, which is where the flywheel almost always starts before then migrating into the traditional finance world. But that's a lot.

Let's start with the ecosystem partners, how those relationships evolved and how you got sign off to use these different parties internally. Um, it's it was a long journey to to have this kind of entity on boarding within sessional. It's a it's a lot of educational thing within within within sustain to uh to discuss with our compliance and risk officer. We also have a partnership with um uh training school pre technique in France in order to provide but to to send them in this training program and to uh to to be comfortable with this with this technology. So all this kind of stuff is important because at the end all the on boarding is done by this uh this department and they need to be aware of what is what is the technology how we can use this technology and how we can use KY stuff in order to be comfortable with the monitoring and the EML things of of example our first exchange was bit stump and we I think It took one year and a half to on board.

Wow. Uh and so we so well it's it's long time ago now we uh we have now a process that could on board crypto entity faster. So normally we have a SLA with the group in order to on board in less than five months. It's good compared to when to when you're not and all has been has been has been all thanks to this educational educational purpose. After there is another thing is you you do on boarding and after you need to do business with with with entity.

For example, for market maker, uh we need to find a way to uh give us some loan in order to to to make their activity because they don't want to to buy too much euro stable coin because of balance sheet because of this kind of stuff and so you need to go through a credit file within and for example today even if market maker is quite big because we're working with three market makers and quite big market maker. Uh there is still the reflex on the on boarding site on the credit fight size to rate this entity as junk and fun. So the rating is absolutely horrible and the the the capital that we need to put in front of this activity is really huge and sometimes it cost a lot for just to have a 10 million loan. So there is still a problem with on boarding of this entity because bank doesn't consider the financial statement of the of the firm but they consider that there is risk repression risk and there is crypto inside and so you need to put some bad rating. So we need to uh I need to have this kind of thing uh that could go better.

I feel for you. So Dell, so how do you work with folks like Yeah. So how do you take them by the hand and then introduce them, work with them, help them understand because there probably a lot of people that are calling you now and they're not half as knowledgeable as S is. So what's the process like? There's a bunch of players who have their built their own tech that their own um technology teams that they can build it out.

There's some that use third parties that we can actually help them to engage with third parties. I think about like where we were even like four years ago and where we are today. We think about this very differently. So we approach every asset issuer that comes to us. Not all of them do by the way.

many of them issue assets on Stellar without um engaging with the foundation but when they do we actually think about it as a product launch. So we think okay like what do we need who who needs to be involved in this from a product launch standpoint to make it successful because any asset issued on stellar we want it to actually be successful in the market because otherwise what's the point of putting all the effort into it from the tech standpoint and also from the bank standpoint. So we think about like what what do we need where where is this going to be focused like what region do you want to start and and then we think like what are the wallets that are going to leverage it what are the um institutions that we need to be able to hold those assets and then we also help them to think through like what are the um exchanges that you need to be listed on and that's when the liquidity issues come into play too. So we introduce them to a lot of the players that are already building on the network and then we also can bring new players in. Um when we think about that we also you know from it depends on if you're doing an asset that's a native asset on stellar or you're doing it on Sorbon which is the smart contract there's like auditing that we actually uh support uh we have audit firms that come in and we can have we um pay for some of those audits to happen of the smart contract itself like we do a bunch of these kinds of things to help to like make everything really successful for everyone as it comes to it.

So very different from the early days uh when we were like kind of fast and loose with it. think about every step uh and also even before any particular institution comes to us we've tried to especially when you think about Sorabon which is our smart contract platform as we built that we built it for redundancy so we thought about which players do we need to have in the smart contract ecosystem and then let's have four of them so that we make sure that everyone's there so that you know you can you have a selection to choose from so we really approach it very differently than historically and I think it's super useful for the institutions that are now coming to us makes sense now getting back to the other part of this question that I was hinting at earlier. So these stable coins don't live in a vacuum. When they launch, typically they are released into the DeFi wild. So you have exchanges, you have lending protocols.

So how is your stable well now your stable coins being integrated into these defy protocols? And what is it like for you to persuade your colleagues internally to play ball in this permissionless world? uh maybe next week uh if I come back uh I will say how I am in the def protocol because it's not the case today. So we don't we are not integrated with with defy protocol. We uh we hope we work we're working a lot on on that point but there is a lot of uh constraints especially IO you can on board def protocol how you validate def protocol uh so we try to do it with uh well protocol first uh with some lending brewing protocol and exchanges protocol to open uh the new and other distribution channel uh but I don't have the key now so sorry for that maybe next And no, no, next next year.

Sorry. We'll get back to you on that then. Sorry. That's all right. Well, Danell, can you speak to this with some of the other institutions that you're working with?

How did they solve this issue? Well, everyone wants to get into DeFi, but not everyone can get into DeFi right now, I think, from the asset issuer standpoint. And so, a lot of them, we actually do the same exact thing as I said, like think about it as a product launch. And so we think about who are the players they need to be working with in that on on Sorbon in that space and what do we need to bring to the ecosystem for them to be able to um there are very few uh institutions that have issued the assets that are um regulated institutions that have issued assets that are in the D5 protocols at this point. Some of them are like from a wrapped standpoint um but maybe not native and they all want to be though.

And that's one of the things that um I I'll be honest and tell you that we didn't have a smart contract platform. We were super cool without it. And then we realized we needed to be able to do this because it was really important to be able to have this kind of opportunity for everyone to um to use DeFi. You could do a lot of this in Native Stellar, but you couldn't um do it yourself. So, you couldn't figure it out how to do it yourself and and just, you know, make whatever you wanted to make.

And so, that's why we built Sorbon for this issue. So, I think that every asset issuer that comes to us wants to play in the DeFi space. most of them cannot yet um if they're regulated financial institutions but they want to just and and and maybe next week we'll hear a different story but for example we have some uh uh because as a bank we need to validate uh what we plan to do through our regulator so we bring to the regulator the fact that we will appreciate to be on defy and uh could you validate the the the fact to interact act directly with some uh with some protocol. So to prescribe the liquidity to own our own reserve of convertible and yes could you validate it and so the the answer was quite strange because by default the the regulator don't trust you by default the regulator don't like stable coin because now they push the digital euro so they they are not really comfortable with a private stable coin and so they well they say no except if you go intermediaries. So you need to go through intermediaries.

You cannot do it by yourself. Uh and it's well it slowed down the process a lot unfortunately. You're saying intermediary is when interacting with the regulators. No intermediaries to interact with the protocol. Yes.

With the I see. Okay. Interesting. Market maker broker. H and then we have a minute left.

So let's just talk about liquidity and how you do bootstrap liquidity and provide the fuel to these D5 protocols through the intermediaries or entice the intermediaries to provide that liquidity so that you can actually take wings and and fly. It's all about uh loan uh so we need to provide loan to this um to this entity. We are working also with with the foundation in order to help us on uh on that. So yes, it's all about loan and I hope um later when the group will be comfortable with crypto. So to pro to get crypto and their balance sheet we to have a secure loan with Bitcoin later will be very helpful.

We'll see. Wonderful. Well, thank you S. Thank you Dell. You are now all prepared to issue your own bank stable coin.

So go forth and prosper. Thank you.