Stablecoins as Infrastructure | Gerrit Hall, Jelena Djuric, DeFi Dave, and Katie Talati

Welcome. Hello everyone and welcome to the New France Village. It's the pinnacle of technology here because this backdrop is actually showing the price of Ethereum in real time.

Oh, it's red. Okay. All right. Well,

that's fine. We're going to enjoy an amazing panel on stable coins as infrastructure. And as much as I'd like to introduce everyone here, this really is a marquee panel. I'm going to allow them to introduce themselves. So, why don't we start right here to my left?

Hello. Uh my name is Katie Totti. I'm the director of research at ARCA. We are a cryptonative asset manager. Um we run a flagship uh liquid token fund and we're focused on investing in long-term fundamental ideas in the crypto markets.

How's it going everybody? My name is Defi Dave. I tell stories for CAP. We are a holistic covered credit system with a digital dollar product and a yield bearing counterpart.

I'm Zerox Joshua. I'm on the board of Sporkdow, the DAO that owns and operates uh ETH Denver. I'm a steward of so thank you all for coming. This has been a a great event so far. Um, and I am uh founder and CEO of Azos Labs, which is a stable coin uh base over collateralized by uh climate finance and energy rwas and uh commodities.

Uh our goal is to uh make money clean.

Excellent. Thank you all very much. So, let's start off with the topic of the panel, which is stable coins as infrastructure. Do you believe that stable coins have all the infrastructure that they need for mass adoption or is there critical pieces missing?

Yeah, I think we have most of the pieces there. I mean, we have the reg regulatory framework with the Genius Act and Micah. We have the rails with Visa, PayPal, all them coming online. And we have the demand. I mean, there's like over $200 billion of stable coins in circulation or 300 billion, who knows?

Uh, but what's missing is to tie it all together, is to put it in the hands of people. And so it's really an issue that we're going to overcome with UX and it being something like how we use the internet every day, but we don't really think about the protocols. Stable coins are going to be the same thing. And so once we figure out UX, once we figure out clean on and off ramp, then I think we'll be there.

Do you two agree?

I agree with some of this for sure. I think that we've come a long way especially in the last couple years, especially in the adoption and definitely in regulatory uh framework. But I think that the, you know, the ultimate goal, right, is that nobody's using credit cards, nobody's using a bank, right? This is like very like the pie in the sky, I think, goal for everyone. But to get there, there is not just that you need the consumer on this end to be like, "Yes, I'm comfortable putting my stable coins in this wallet, holding them this way, and paying for them."

You also need that merchant adoption. And I don't think a lot of people necessarily understanding um digital assets just because we're not on that like payments end of it, how hard it is for all the individual merchants that you see to accept stable coins. And right now we've come up with some really great solutions like Ether was just talking before this um they're they've done an amazing job at creating a non-custodial solution for spending your crypto and getting it essentially accepted in different places. But um the acceptance that's still happening with merchants is that they're not actually taking payment in stable coins and having settlement that's instant. As a result, what they're doing is that they're basically, you know, you're paying with your credit card and it's still going through a few more intermediaries and settling through a bank before it goes to the merchants bank account.

And so I think to have like that pure stable coin adoption, you need to get to that. But that is a very difficult problem to solve. credit cards, credit card companies, and digital payments are finally just getting this right in emerging markets. And I think that we probably have like 10, 15 years until we see that same amount of proliferation with stables.

Can I ask a question, please?

Do you think that that's primarily a technological barrier or a regulatory barrier?

I think I think it's both. like we do have Micah, we do have Genius, which is I guess I mean like huge strides in the last like two years. But I do think that there's every jurisdiction is going to have their own regulation. So we need that. Um but at the end of the day, I mean when I say merchants, like I'm literally talking about like the guy that is like using Square Pay for his like really small corner store and doesn't, you know, isn't like built into like a big overall framework.

I'm talking about like the nail salon that us gals go to and they're charging us 3% if we use our credit cards there. So like th those are the places that need to start with the adoption of stable coins and they're going to be like that last adopter because that's it for the most part it's not always in their interest and it's for them to change over their tech. It's expensive. Do

you have any uh thoughts on it or just questions?

Yeah. No, I agree with that last point because I was I was thinking about how to answer the question and my first thought was that it would be a regulatory problem and it's the onofframp and if if it's easier to offramp stable coins then they would be much more ubiquitous. But I guess the the bigger solve here is if people can just spend it the way they and use it among each other and go to the corner store and get your nails done. um you wouldn't need an onofframp and so that that is a a cost of tech hurdle rather than just a regulatory one.

I'm just curious uh as an organizer of ETH Denver like how much do you look at stable coins for payments with vendors or with people coming to the event? Is that at all in the discussion or do you just think ah the infrastructure is not ready?

Uh most of the sponsors pay in stable coins.

Nice. uh every year uh going back to the beginning with Austin Griffith and the burner wallets and uh Xi before it was Nosis chain um stable coins on testnet even being used at the food trucks most people maybe not in this room today but most people in the industry's first transaction in the real world was buying food at one of our food trucks here

I was one of those people yeah

yeah very common story um I don't know if the vendors are still using that. It's We opted for a cleaner user experience rather than trying to cobble together something that no one's going to use after

again.

Makes sense. Makes sense. Uh I mean at the time for me the wallet uh on the mobile phone was the issue because I didn't want to have my funds on my mobile wallet. But no, I uh

we did talk a few years ago. We almost had a Bidd stable coin that we were going to use backed by Treasury that would be like a there were securities problems and we're like the lawyers were like don't just don't do it don't. Um so we're at ETH Denver and I'm going to start with you Josh but I want to hear everyone's perspective on this. Um Ethereum still is the majority home of stable coins by a very thin amount. Um, do we think that that is because like Ethereum and stable coins are just a perfect fit and Ethereum has properties like decentralization and such that make it a natural home or do we think that we're going to see other chains possibly supplant Ethereum as the majority home of stable coins?

I think it will remain the home indefinitely. I think there's no other network that has as robust infrastructure and decentralization and like we value that but do institutions value that and I think yes they do because they don't want to be on chains where some other CEO can be like all right well we're just going to censor this transaction especially uh government to government uh are some governments around the world are they going to want a California company to be able to just censor central bank to central bank transactions. The answer is very obviously no they will not. Is it possible that something will reach the size and scope of Ethereum eventually? I I don't think so.

Dave, you talked to a lot of institutions. Is that what they say?

Yeah. Uh to answer your question, I think Ethereum has the three L's uh positive L's. Uh Lindy, longevity, and liquidity. Uh, Ethereum has just been around for so long and has garnered so much liquidity and has been so battle tested, you know, no downtime and everything. So, it really is the go-to home for stable coins.

And also, to your point, neutrality and central and decentralization are huge factors when it comes to um, stable coins and not having one party over dominate another. They all kind of check each other whether it's Tether or USDC and whatnot. Um, but I think Ethereum will be the home for settlement for a long time, but I'm not sure if it'll be the home for payments. Um, I think that is still up for discussion whether it's going to be an L2 or whether it's going to be some other alt L1, but I think Ethereum is the home for settlement because of Lindy liquidity and longevity. I I definitely I mean I think I agree with the payments piece that you were saying DeFi Dave because at the end of the day why else would we see the launch of things like Tempo and Plasma and ARC which at the end of the day like we can say ah like these are alt L1s to Ethereum like who knows if they're going to take off or do well and they're centralized etc etc but these institutions are putting serious money behind them because they think there could be something there and they are looking to optimize for something that isn't there.

Um, and look, I I love Ethereum. I agree. I think it has really achieved um a mainstay in terms of being the home I actually think for DeFi for sure, but I don't know if that necessarily means that they'll be the home for things like stable coins, especially because, you know, we still haven't solved some of the things around privacy, KYC, and I know there's other solutions out there that are working on that as like layer 2 um or, you know, with some of the ZK tech that's coming out. But I think that's why you're seeing these alt L1s pop up focused on payments because they're like, "Well, we'll just solve this from the ground up."

Yeah. I think different stable coins dominate different areas and use cases. So, you had Tether, the first stable coin was the settlement for centralized exchanges. You had USDC, which became the stable coin for DeFi. And then you had other different stable coins fill their niches.

uh in the future, I'm sure you're gonna have a stable coin that will dominate payments and maybe dominate maybe it goes regional and like one dominates uh South America, another Asia. So, I think uh the script is yet to end. Uh there's still a long way to go with stable coins, but for now um I'm an Ethereum romantic, so I want to see Ethereum be the home for stable coins. Uh but we'll see. Um

yeah,

right. So, as we move to a stable coin centric universe, uh technology very often has winners and losers. It's not always the case. Sometimes it's all winners, sometimes it's all losers. Um, what do we think stable coins is going to be?

Because there's a lot of players in this chain, right? From banks to retailers to end consumers. Does everyone win? Do some people win at the expense of others? Do some people win more than others?

Open question.

I think in general like everyone can be a winner and and that's not me just being like, oh, we're going to give out awards to all the kids. Um, I think anyone can win in this space. I think it's the groups that just say like we're not going to go with the innovation. and we're not going to evolve, they're going to fall behind. Um, you know, I have talked to some folks at banks that are like, oh no, like stable coins will never, you know, replace banks and they're never going to do this and that.

And I'm like, they they already are replacing banks in some places. You just haven't explored different jurisdictions outside of the United States. Um, and I think that there are areas that will definitely grow more than others. I think right now the problem is, and this is something I was kind of getting at earlier by explaining that there's still several leaps when you make a stable coin payment, for example, with a crypto card. um those those uh those old school payment pieces, they're still extracting a piece along the way.

And so I think it's great. We're we're seeing solutions though from projects like Rain which essentially take like three steps of that like payment stack and like smush it together and reduce the fee. And so I think you're going to see more solutions like that. And that's just what's happening all over finance, too. I mean, even with things like tokenization that's coming on chain, a lot of all it's doing is it's getting rid of like paper back office like processes at banks and, you know, institutional invest uh investment firms and stuff.

So, paper pushers could lose out. Let's hope they learn AI. Dave,

I feel like I answered this with previously my last answer, but I think there'll be a few big winners uh just because of network effects, but that doesn't mean new entrance can't come through with their own solutions or use their own network effects. Like I imagine a future where Amazon comes out with a stable coin to use for in their Amazon ecosystem or Starbucks. Starbucks is like basically one of the biggest banks honestly if you look at it with all their points. They come out with the stable coin that's huge. So I see where I see stable coins, I split them up in two categories.

is I see distribution stable coins, I see infrastructure stable coins. So distribution stable coins are what I just mentioned, the payment stable coins, the genius compliant, the Amazon's any, you know, anything under the Genius Act. And then infrastructure stable coin is well these genius compliant stable coins are limited because they can only be backed by short-term treasuries. But infrastructure stable coins, well, you can do a little bit more with that. And there's stable coins out there like the one I'm working at called CAP which actually takes these payment and payment stable coins as and it's a layer built on top of it and I like to call it the uh UNO reverse card on uh central on DFI and I I have a Uno reverse card here and basically how it works today is a lot of DeFi a lot a lot of stable coins they go offchain they try to wrap their assets in RWA and it doesn't work because they deal with friction but with cap where I work it's you have institutions coming onchain to enter our pool of capital and in order to access us they have to play by our rule so instead of defi going to tradi coming defy the uno reverse card

I'm getting a little wild there Dave

yeah oh he put a plus4 on me

I don't have a card out where's my card

I got you guys after

I don't think I have anything to add um the uh I saw a clip from margin call earlier today that was like there were no matter what the all throughout all of finance there will be the same percentage of winners and losers it's just who wins and who loses and what the technology ends up being at the end I think that probably remains true

fair enough

on the subject of technology of course AI is huge in the news um and there's an attempt to push this narrative that AI and stable coins are a natural fit um do you you guys believe that narrative? Is it hype or is it just cope? Like what do we think?

Uh I think there's, you know, definitely some merit behind it. Uh you have things like X402 which I didn't know about until I researched about when you put this question for the panel and I didn't realize it was actually a standard put way before our time and it anticipated something like agents. Um, and if you think about it, stable coins are the perfect uh store of value and monetary asset for agents because they don't, all they need is an API key and like a few different functions and boom, they can transact. Uh, so I definitely see a future where there's agents using stable coins. Sorry.

Um, and whether it's like X402 or some other standard, it's just a matter of how.

What do you all think? Feel free to just, you know, make something up.

I mean, I think at least Well, I think part of it it sounds bad. Some of it is cope, right? Like we're trying to kind of stay relevant in the news at the end of the day when, you know, asset prices are really down and AI is all the rage right now. Every, you know, people are leaving crypto to go work in AI. I see this every couple years, by the way.

It's not true. Um, but I think that I do think that AI has the ability to unlock new use cases for digital assets in crypto. Um, I think stable coins is the easiest fit just because of like the payments angle, but I'm sure that because we're I mean at the end of the day, think about six months ago, we didn't know that we could have run like, you know, open claw and have an agent run and do all your like personal tasks. Like that wasn't something people thought could happen six months ago. Like the rate of development in AI is super fast.

And so I think they're going to as soon as they start to kind of integrate more with crypto closely, you're going to see more and more use cases pop up faster than just simple agent agent payments. Uh, I I agree with Dave. Um, but I I want to go a step further to say that I think decentralized stable coins or overcolateralized stable coins will be will end up being the the stable coin of choice for agents because it's much easier for them to verify onchain that the assets are valid. And when you start going into like what is the black box that is Tether and Circle they just won't have that data available as quickly.

Interesting. I haven't heard that take. That's good.

Stupid take. I don't know. What does the audience think?

No, I like it. I like it. Um, so Dave, you already started answering this, but I'm curious to hear the perspective of the other panelists. Um, and I also have a follow-up for you, Dave, so you're not left out. Um, which is that under the Genius Act, like there's like a long kind of long list of things you need to check off to be an officially regulated stable coin.

Um, and by the time you've checked all these boxes, does this make all such stable coins completely interchangeable? Like is it like the case that like one bank's USDcoin because it does the exact same thing as any other random regional bank's USDcoin, it really doesn't matter. There's no particular use case. Like how can and should stable coins distinguish themselves in such a world? And the followup for you, Dave, is I know that you've expounded upon this a little bit with your uh stable coin thesis.

So, I'll let you get to that when the time goes.

Uh my first instinct would be that the people who are taking in these stable coins are very likely as as was mentioned that will end up being issuers themselves and will likely want to keep that guarded and there will be third parties that end up charging fees of vig to like swap them out. So they're like, "Yeah, we'll we'll accept this other thing as long as it can be swapped into

my native one and also we're going to take a vig on top of that, which is an annoying eventuality, but this is how banks and corporations behave."

Makes sense. Makes sense. Katie, you want to add anything?

Yeah, I mean, I think we could see some sort of like liquidity layer, right, for all of these, you know, stable coins to transact amongst, I would say, like the more centralized parties like the banks and such. Um, and then by the way, that's kind of what happens now. Basically, like if you if I'm sending a wire from my Bank of America account to your Bank of America account, it gets there same day. But if you bank with Wells Fargo, it's going to take two days.

Right. Right.

So, they're going to build up walled ecosystems is what you're saying.

Yeah. I guess with your question too, were you also getting at um maybe stable coins that aren't just pure payment um pieces because that's really what Genius was built for versus stable coins that are more representative of um let's say more like investment strategies such as you know some of like we talked about like the decentralized stable coins. We can talk about algorithmic stable coins in that same vein.

I mean really it's open-ended. I was just trying to get a nice healthy fight going between people. Uh Dave, you've uh articulated the type three stable coin thesis which might help to uh shed some light on that.

I think the biggest shift we've seen in stable coins is we went from teams and projects being strategists to teams and projects being allocators. And what I mean by that is in early versions of stable coins, you had either endogenous stable coins, so it's yield within itself like a CDP or something, or you had type one stable coins where it was like one team, one strategy, and the team decides to put in like treasury bills or the basis trade or something like that. But that can only scale so much and you're still relying on the team. Uh then you have like type two where you get into the allocation territory and that's basically people are deciding where to allocate the underlying u backing of the stable coin. So you have things like Sky and Maple, uh, all great projects and all have their own different risk profiles and and whatnot.

But it's at the end of the day, that's people that are deciding what to do with the underlying collateral. Then you have type three stable coins and instead of people deciding what to do with the underlying collateral of the stable coin, you let markets decide. And that's where stable coins like CAP comes in. Uh, I like to describe CAP, you know, in the same way uh like Uber has no cars, but it's the biggest taxi company in the world. Airbnb has no houses but is the biggest hotel company in the world.

CAP has no yield but is the biggest yield aggregator in the world. And instead of people deciding where the capital goals, you have different basically um you know people with edge institutional borrowers they're competing in a free market to access that collateral. They can only access it when they receive an outside delegation or a vouch from a large capital party. So we built this very unique three-sided marketplace. Uh I know we have a minute left so I'll hold back on it but uh it goes from internal team deciding on a strategy to allocators deciding and then markets deciding on allocation.

Excellent. And people know where to find you if they want to follow up. We'll just give everyone about 10 15 seconds for closing thoughts on stable coins that hasn't gotten a chance to mention. You can go ahead and start Dave because I cut you off.

Uh stablecoins will eat the world. You can follow me on Twitter defave22. You can follow up with Cap at capmoney_. You can find more about cap at cap.app.

Katie, oh, sorry, Josh, you

uh stable coins are what they eat, so we should feed them things that align with our values.

I like that.

Uh I'm Zerox Joshua on on Twitter and Farcaster.

Katie, last word.

I think we're we're finally at that inflection point. We're going to see that mass adoption. Um if you want to follow me on Twitter, I don't post that much, I'm sorry, but it's Katie Tott. Um, and then if you want to follow ARCA, we also post some good content. It's ARCA, Twitter handle, or you can find our website, ar.

ca. We are not a Canadian company though.

Thank you everyone.

Thank you.