Awesome. So, regulation, guys, we finally have it or I guess we're soon to have regulation. So, today I'm going to talk about what the Genius Act is and how it's going to impact us and all the Trafy friends that are uh coming into crypto. So, first of all, what is the Genius Act? So, the Genius Act is this lovely piece of uh legislation that tells us what a stable coin should be and shouldn't be.
Um, unfortunately, the answer is nothing that we're building right now. uh and most of the DeFi applications are non-compliant. That's like the overall um kind of message. Um so I'm going to just break it down into two big um pillars. One is the stuff that we've already been doing and the other stuff is the new requirements that the government is asking us to abide by.
So the established practices that we already have are that all stable coins should be collateralized. We should have a reserve and they should be redeemable. uh the era of Luna, of iron finance, of other undercolateralized stable coins, even CDPs is over, right? All major stable coins today are not CDPs, they're not AMOs, they're just simple reserve back stable coins, whether they are the PSMs or whether they have T bills in a bank account. Um so we already do that and we already have the consumer protections that Genius Act is asking for.
for example, making sure that the entities holding these T bills um prioritize redemptions over debt holders. So, this is all stuff that we've been doing. The new requirements that are interesting from the Genius Act are uh especially around yield. They said no yield and it's pretty clear. There's no way around it.
They do not want stable coins giving yield to retail investors. Um and the other one that's big is that you have to be a qualified issuer. You can't just go to a hackathon, build a stable coin, start giving yield like people used to. Um, you can't just fork, you know, liquidity and just start your own stable coin and give it to Americans, right? Um, so those are like the the big things.
Obviously, there's like AML compliance, but I think we all saw that coming. Now, where are we today? We're right before the Genius Act. What does it look like, right? Um so first of all large companies are not were not launching stable coins for the longest time right it's only uh in the last couple of months maybe after the election that you have Fidelity that you have Walmart Bank of America even talking about making stable coins they were too scared and what this caused was this cottage industry of TI bill rappers right a lot of people came out with their own um stable coins in uh tropical islands or maybe smaller countries where they had uh government connections and So they were able to bear the the risk of regulation by doing it themselves and then they would just do stable coins for other people and that's kind of the meta that we have today.
Um also there's like a huge focus on innovation in the bad way. Let's just make yield in any way and launch any kind of stable coins and we saw obviously Luna and Iron Finance being some of the largest collapses of stable coins. But trust me there's there's many other examples of stable coins not going well. So now we know what the Genius Act is. How does it affect the projects here?
How does it affect a affect us, right? Even a cap. Uh well, the first thing is that it's not going to become very difficult to make a stable coin, right? At least from the point of view of the American government, a payment stable coin, um it's not going to be very easy to do it. And so it's going to favor larger companies with a lot of um with a lot of resources.
Um, another big thing is that all of the stable coins that we know today that we really like, the large decentralized stable coins are non-compliant, right? We have right now a lot of stable coins that are basically hedge funds, right? Where you put USDC, USDT into a smart contract and then the team goes and does, you know, funding rate arbitrage or they'll go lend it to some centralized uh yield generator. All of those are not compliant and they cannot offer it to American uh users. And so that's not ideal.
Uh, one thing that we've seen a lot of people do recently is that everybody's dropping the world the word stable coin. Ethena dropped it. Uh, a lot of other like of our peers dropped it. And so now they're using all sorts of words like synthetic dollar, digital money. We say digital dollars, right?
We're not going to say stable coins because it's it's hairy. You don't want to be caught in those uh regulations. It's yet to be seen what the actual enforcement of these rules will be. So maybe not calling yourself stable coins will be fine for now at least during this administration. And then another thing that's really coming up is non USD USD peg stable coins like Hong Kong dollar etc.
Well I can't make a US dollar stable coin and give yield but what if I give a Hong Kong dollar stable coin and give yield. So there's a lot of experimentation that I've seen from my peers uh in that realm as well. Now for the broader industry this is huge right? I think stable coins are the only place in um crypto that has ample PMF, meaning the world's largest companies in that sector chose crypto technology to fulfill the needs of what they're doing. And we're going to have it.
I mean, Walmart's making a stable coin, Fidelity is making a stable coin, Black Rockck, Franklin Templeton, it doesn't get bigger than this. So, if these guys are making stable coins, then that will be the future of payments. Um, and so now there's like a huge rush for everybody to have their stable coins. Unfortunately, that rush will mean that there's going to be fragmentation. Uh, Tether and USDC will no longer be the largest stable coins.
Right now, we're going to have many other stable coins that surpass them. Right? Because if JP Morgan decides to make a stable coin tomorrow, which they did, you can bet it's going to be much larger than Tether and Circle. Um, and that also means that there's going to be a rush to the bottom. If every single company in the US is making a stable coin, then how do you differentiate?
Well, you start cutting fees. And so it's quickly not going to be very nice to run a stable coin. Um, so unless you have maybe another business line uh that feeds into the stable coin, then it's not going to be great to have one. Now, I think we should repeal the yield ban because I think in the at the end of the day, uh the stable coins that survive are going to be the stable coins that generate yield and whether they're in the US or not, people are going to find their way to those applications. So I think eventually we need to to repeal it.
So, I mentioned a little bit about this. We're going to have a thousand stable coins, not to gloat, but I did mention this at the last uh stable summit. There's just going to be a lot of stable coins. Um, and we're going to lose single of money, right? The world of just using Tether and everybody's going to accept Tether is gone.
And now we're going to have Wait, which stable coin do you have? Um, and then another thing, yeah, I mentioned the thing about yield. So, those are big headwinds that we have and a lot of peers are focusing on trying to fix the fragmentation of liquidity issue. Obviously, I have to talk about CAP, right? I'm the founder of CAP.
Uh, so how does CAP fit in? How does our stable coin stay compliant in the age of uh the Genius Act? Well, first of all, CUSD is just a reserve of compliant assets like payment stable coins such as PayPal's PUSD or money market funds such as Franklin Templeton's Benji and Black Rocks Bidd, right? All of these are compliant and they have their own like AML uh resources. Also, they have great insolvency safeguards.
We inherit all of those, right? If you can mint and redeem CUSD with uh Benji from Franklin Templeton, it's basically similar thing, not the same thing, right? You still have the risk of Bold and PYUSD. So, in theory, we have this pristine collateral backing uh that you see from these other uh digital dollars. Now one unintended consequence that we didn't really see coming is that if you add all these assets as collateral suddenly we can offer instant um settlement between them.
If I am backed by Benji if I am backed by B now I can offer swaps between Benji and middle instantly with no slippage and you can't do that anywhere else. And so I think that's going to be a interesting thing coming up for us maybe even more interesting than the stable coin itself. Uh the other part is yield, right? We are giving yield and I did tell you guys a few slides ago that you're not supposed to give yield. So how does that work, right?
Um so the way we're looking at it is that Genius Act covers companies that are generating yield on behalf of users and giving them to the users. We're an open protocol, right? I can disappear today and CAP will work for 100 years in the future because it's an immutable open protocol like Ethereum, like Bitcoin. Um, and I'm not giving anyone yield. So, um, we'll see what futures regulation come about.
I think regulators in general don't know how to treat, uh, truly decentralized finance, but anybody that's lying about being decentralized and they're actually centralized, they're definitely out like that. The age of of that, uh, kind of DeFi is gone. Um, and regulators are going to come after them. And so, that's why I think if you're a small builder, if you're not like JP Morgan, the only way for you to build is to do autonomous verifiable protocols, right? because those are the only things that are not being regulated at the moment.
Awesome. That's all I have to say, guys. Well, thank you
Automatic transcript — names and jargon may be misspelled.