Fireside w/ Chris Giancarlo (ex-Chairman CFTC, Patomak) & William Mougayar (TRUSTSHIFT) at ETHConf

Hello everyone. Nice to see you again, Chris. We have known you for over 10 years. So I'm looking forward to this conversation and I want to thank you for being thank you for being here with us. So to start, uh, let's start with a basic definition.

What are your thoughts on the differences between stablecoins, CBDCs, and digital dollars? I'm using dollars as an example, but really any type of sovereign currency is being digitized right now. And I remember you once telling me about the differences. I wish everyone knew these nuances. I think this is a good basis.

Yes. So, I would say that digital dollars are money that refers to the dollar that travels on blockchains that travel on digital networks. And there are two types of issuers of this money. It could be a sovereign government, a central bank. In the case of the United States, this would be the Federal Reserve.

But it could be the Ministry of Finance. Um, it's going to be a central bank digital currency. This would be sovereign money or stablecoins that are not sovereign money. This is money processed digitally, but generated by a private sector entity, and in the sense that we already have this in the traditional system. Banks are constantly creating money, but the money they create is not sovereign money.

When a crisis occurs, people go to the ATM and do it because they want to convert private bank liabilities into public sector sovereigns. They want to convert their money from bank money to sovereign money. So in the hierarchy of issuer quality, sovereign money is always considered higher than private money. But that doesn't mean there's a problem with private money. This simply means that in times of crisis, you turn to the issuer with the highest creditworthiness, which is government money.

So, central bank digital currency is sovereign money issued. Stablecoins are privately issued money, and they are all digital, in the case of dollars, all digital dollars because you had a project that you led called the digital dollar. Where is he? Yes. So, the digital dollar project that I founded when I left the federal government in 2019.

We launched it in January 2020. This is a private think tank dedicated to studying the US dollar on its journey into a digital future. And we exist to ask three questions. How do we secure the future of the dollar for the future world, the world of 21st century digital value networks? How do we preserve its reserve currency status, which it is easy to argue has been beneficial to Americans?

I would say that it was beneficial to the whole world and it is something worth preserving. And worth preserving. And third, how do we ensure that the dollar, once digitized, reflects the values ​​of a free society for free society for which the dollar has historically been known? In a world where other sovereign states use their sovereign currency to fight, creating social control social control , as in the case of the digital yuan, or social surveillance, as in the case of the digital euro. How do we ensure that whoever digitizes the dollar, whether it’s our government or stablecoin operators, does so in a way that is consistent with traditional American freedoms, including the Fourth Amendment right to privacy in our transactions, including our financial transactions financial transactions ?

Yes, that's great, that's an important nuance. Er, the one that doesn't seem to be thought of much in Europe. Well, you know, in general, Europeans are hypersensitive to corporate surveillance, but completely calm about government surveillance. Okay, they are completely calm. They are well aware that GDPR legislation allows for full government oversight.

It simply prevents corporate surveillance. On the other hand, we Americans are hypersensitive to government surveillance, but we are completely calm about corporate surveillance. You know, we allow Amazon and all of our social media platforms to turn us into a product, controlling everything we do. And so, and, ladies and gentlemen, here's a dirty little secret. Everyone says that a CBDC digital US dollar will violate our privacy, but you know what?

Stablecoins do this. The word " do this. The word " privacy" doesn't even appear doesn't even appear , but it barely appears in the appears in the Act of Genius, and not in the context of protecting our privacy. Stablecoins do not protect privacy. In fact, they are subject to the Bank Secrecy Act, which means they are subject to surveillance.

So there is a view that we can't have CBDC because it would violate our privacy, but we can have stablecoins because it doesn't harm harm stablecoins. I deeply believe in the power of believe in the power of stablecoins. But on the privacy issue, don't buy the idea that your privacy will somehow be protected if you use a stablecoin, but it won't be protected if you use a CBDC, because our government has made sure that it falls under the Bank Secrecy Act. And the Bank Secrecy Act is not about secrecy, but about surveillance. Of course.

Interesting. We will come back to this later. Let's talk about risk. Yes. There was a recent report from the BIS, er, the Bank for International Settlements, and they're not known to be very supportive of blockchain in general, but take it with a certain amount of skepticism.

They said they identified capital flows in stablecoins as a mechanism for capital outflows that threatens monetary stability in emerging and developing economies. They say that this increases, uh, increasing flows of stablecoins are associated with further depreciation of the national currency, deviations from interest rate parity, and widening gaps between the implicit and official exchange rates of stablecoins in segmented markets. So they throw a lot of frustration, a lot of fear, uncertainty and doubt, especially into developing countries. They scare them. What is your perspective and what is the reality check on this?

So thank you for citing this report. I'm serious, they specifically look to Nigeria, Turkey, and Argentina as their evidence base. Their argument is that stablecoins will allow citizens of these countries to essentially abandon the monetary policy of their own central bank and their own government and switch to the issuer of the stablecoins, which in this case would be the US dollar government. Well, all of these currencies have failed, and this is failed monetary policy. Their people will still find a way out of these systems.

All stablecoins do is make it easier. Their biggest objection seems to be that these people are exercising their freedom to choose better monetary policy and a better currency, avoiding control from their local central bank. And I think the reason our European friends at the BIS are afraid of this is that it would allow Europeans allow Europeans who might one day want to leave the eurozone to choose a better currency and lose monetary policy. In their view, central bank control over monetary policy is always a boon, even if they lose it. And, um, there's no doubt in these countries that they're losing it.

So, as someone who comes from the very beginnings that democracy means individual freedom to choose our financial transactions and methodologies, I think their, um, argument actually shows exactly what they fear–the loss of control and freedom for their citizens. Yes, to some extent I mean that they accept the fact that unfortunately there is a problem for these countries. So, again , speaking of the Europeans, uh, what you were alluding to earlier, uh you were alluding to earlier, uh , there seems to be some positive win in that they like the CBDC aspect. So, European Central Bank board member Isabelle Schnil said that, in their opinion, banks are responding to the risks associated with stablecoins stablecoins through strict regulation and the use of CBDCs. Yes.

They argue that this preserves the fixing role of central bank money, which is exactly what you said. I mean, they like to keep it. And of course, I mean we're joking, calling CBDC a central bank digital control tool. Yes. So what do you think?

Let's look at this in a little more detail. You know, my roots go back to Europe. I have enormous respect for European research and science, achieved through their universities, and for European culture. But when it comes to technological innovation, whenever Europe fears a threat from the United States, it always responds with tight regulatory controls and centralized action. So it doesn't surprise me that they are very afraid of the threat of dollar-based stablecoins, and very afraid of US dominance in global payment systems, whether it's Visa, Mastercard or others.

And so the reaction is , you know, it's, frankly, the reaction of the old Soviet Union. Let's build walls to keep people out, and let's build walls using, uh, regulatory control and their future digital euro, uh, to at least preserve the dominance of the central bank, uh central bank, uh , over the eurozone. I don't think, at least from what I understand and what I've read about the future digital euro, that it won't have much application outside the eurozone; but it is designed to keep control of the eurozone financial system in the hands of central banks and commercial banks. This is their comfort zone . Yes.

So this fear is real because, uh, Federal Reserve Chairman Christopher Walker said that the global adoption of stablecoins would extend the reach of U.S. monetary policy to countries that use the digital token. Uh, do you think that's true? Or if global adoption happens everywhere, does it level the playing field and everyone advances accordingly relative to the US dollar?

Because I know that in Canada, where I am, the Genius Act became a kind of wake-up call, and some people realized that, in fact, this is what's coming next: more dominance not only of the US dollar, but also more dominance of US dollar stablecoins. Yes, William, I have a book coming out in October called The called The New Adventures of Cryptodad. And I'm very excited about it. But in it I talk about what I call the struggle for freedom in the 21st century. Currencies will fight for dominance in the 21st century.

And ultimately, what they will offer, beyond the usual things of financial stability and greater utility, will be a struggle for values. If the values ​​of the future digital dollar lie in financial privacy balanced with law enforcement, sure, but if we get the values ​​right, the dollar will become a currency that anyone with a smartphone, smartphone, anywhere in the world, can download with a swipe of the screen. And this will compete with currencies that are subject to exchange controls, that are subject to weak or wasteful monetary policies. Currencies will compete like never before. And this technology simply makes this competition more effective.

It doesn't change the dynamics. You are still struggling with which currency you want to use because it provides you with the right level of financial stability, transfer longevity, and ultimately privacy and economic freedom. Is n't that right? The 21st century, the 20th century, the century of some of the most amazing wonders, from landing men on the moon to the internet, was created with free money. There was no government that said, "Let's pour money into Silicon Valley to create everything it created."

This was financial freedom, which controlled societies had not really succeeded in yet. And if the free freedom of money remains, and you can download it, download it, anyone in the world can have it, then ambitious people around the world will choose the currencies they want to trade in that have not only the technological characteristics but also the social characteristics of a free society free society . But the answer that countries should adopt is to have their own stablecoin, pegged to their own currency. I mean, that's pretty much how see it. Yes.

So, first of all, I think every major, um, economy will try to develop, um, some form of digital money, whether it's sovereign CBDCs in China or the private sector like we're doing in the United States. In fact, once artificial intelligence comes along, once we have micro-commerce, analog money will seem useless, right? We're not only going to, um, change the whole way we collect information, from our subscription-based model to just paying for article reviews in micropence, charging our car, our electric car as it drives down the highway, in microwatts, um, all sorts of new innovations that won't be possible with traditional bank money will have to be possible with digital stablecoins. So it's not far off. Countries will allow you to pay taxes with digital money.

So there will be a need for a digital yen. There will be a need for a digital euro. As I said, every country will follow this path. And once they all follow this path, values will become the differentiating factor . But I'm surprised they haven't already done so, since there are so many stablecoins denominated in US dollars.

They dominate this space, I would say, more than, um, actually, um, the Fiat segment. I mean, the euro should already be doing this. That's how it should be. I was talking to a man from Croatia as we were leaving, and he said that for said that for any large payments he uses dollar-denominated stablecoins. He doesn't use the euro, he uses it to go to the local cafe and buy coffee, but other than that he uses everything related to dollar-denominated stablecoins.

I mean, Europe needs to realize that this is happening. This is already happening. Yes. I mean, the US leadership is already there. So let's dive into the use cases, because we just touched on it.

Um, where do you think the best use cases will be, and why don't we have more use cases for stablecoins? In my opinion, there are not enough of them now. Um, stablecoins are often used for storing money, for trading currencies. Um, will they be used for retail payments? Will they be used for business?

Where do you think they will move? Let's discuss. So, one of the drawbacks of stablecoins is that, as you know, most of them, over 90%, are used for crypto transactions, right? Guess what happens to the dollar in the analog world. 90% of analog world.

90% of it is used for large financial transactions. With money, a large percentage is always used to conduct large-scale financial transactions. This is not unusual. The fact is that the volume of transactions with stablecoins continues to grow, even though the new issuance has not yet begun. Right?

I think it will gain momentum, but I think it will gain momentum as we move from a traditional payment system to a new digital economy where we use agency payments. And by the way, agents can't have bank accounts bank accounts , and where do agents actually make payments, and where do we go from, you know, like I, you know, recently flew on a plane to fly overseas. I had to pay $18 just for Wi-Fi access on a 9- Wi-Fi access on a 9- hour flight, right? And I only wanted to send a few emails because I planned to sleep the rest of the night, but I had to pay for the entire flight. Why can't I just pay in micropayments for, you know, for the piece of information that I'm sending?

Well, with Aentic Digital Stable Coin payments I can do that. The reason you can't do it now is because bank transfers are too expensive. It doesn't make sense to send an email for 30 cents and then pay $3 to service the credit card company. But why not do it with a credit card? I mean, I pay for parking.

Sometimes it's a very short time, 35 cents, and the card accepts them. Um, yes, but it costs the bank more. They can help you, but these costs are still built into the system. Once we move to a digital network system, the cost of payment...William, I've seen statistics that show that the current cost of moving money around the world every year is eating up 1 to 2% of global GDP just to move money around the world.

Okay, imagine we get that 1-2% back by switching to a technology that doesn't require all that face verification. As you all know, a traditional standard money transfer from the United States to the Philippines goes through six banks. Yes. Think about how much savings we can get when we reverse these frictions built into the system. For example.

This is what I call overconfidence . Yes. And I talked about this yesterday. This is a very good remark. This will be in my next book.

Hmm, that's the cost of doing it today, uh, compared to what you would have done otherwise without blockchain technology. That's right. And there is a huge amount of money that we will save by using blockchain to make these transfers. This is already happening. You know, we always expect it to happen sooner than it does, but in 10 years we'll look back and say, "Wow, how the world has changed."

But what do you think about the movement of using stablecoins for retail payments. Will they contribute to retail payments, or are they just being put in there to save a little money on infrastructure, as if behind the scenes? So I don't think we've seen it yet, but I think it's coming. I think retailers will find stablecoins to be very useful tools for brand loyalty and business development. So at one time, every major retailer, Macy's, Gimbals, and Bloommy Dales, had a store card, and they used it to build relationships with their customers, but over the years they've abandoned that in favor of Visa and Mastercard.

Now that's not the case. They don't have that kind of relationship. But once Bloomingdale's stablecoin comes out, think about how they can communicate with their customers and say, "Hey, we know you bought a new winter coat last year. Well, next week we have a winter coat sale, and if you use your, um, Bloomingdale's stablecoin, you get an extra 5% off, and so they can build relationships through their stablecoin operations. So stablecoin operations.

So , I think it will happen in retail. I just don't think we've seen it gain popularity yet. So this will be an evolution of the points system, of loyalty. That's right. Loyalty.

Yes. Because there is less friction with this money. That's right. Essentially, less friction and a direct relationship with the customer. You know, we often think of, um, um, tokenized securities as maybe demand-driven, but I tell people as a former senior executive of a public company that the demand side and the supply side are going to be huge.

Wait until public companies can use tokenized securities to have a direct relationship with each of them.” their shareholders. Now, public companies are lucky if they know who half of their shareholders are, because those shares are registered on the street and in different depositories, different transfer agents. But wait until they can use tokenized securities for direct communication. So I think the supply side of tokenization, whether it's stablecoins or otherwise, is as big a driver as the demand side.

Will they be allowed to do that from a regulatory perspective, though, to have that straight-up... in this administration they...Okay. So, let's talk about regulation. It was a setup, was n't it?

It was a perfect setup. Let's talk about regulation, because you've seen all this, uh because you've seen all this, uh , from the beginning. Uh , from the beginning. Uh , where do you think we are now? Uh, apparently, is the Clarity Act in good standing?

This is, uh good standing? This is, uh , one question. But overall, will we see a watered-down version? Uh, let's talk about where we are. You know, I say this, and I do n't mean it in a partisan sense.

If you're an innovator, if you're...an innovator, this is the best of all time best of all time . And the reason is that it's not really a crypto-specific thing crypto-specific thing . This stems from the Trump administration's general belief that we face a mountain of debt, just like any other major developed economy. And the truth is, we're not going to significantly slow down our spending on Social Security.

And so the only way out is growth. And so they essentially said they essentially said we're going to encourage growth in every technology. America has always grown through technological innovation. Right? We are not a country.

I mean country. I mean , we are, but you know, this is the way forward for us. So whether it's biotechnology, space technology, drone technology, nanotechnology, um, um , uh, and of course, uh, digital networking technology, the United States must be a leader. So, basically, the message to every innovator in the world is: come here. We are not going to chase you abroad.

We're not going to, um, uh, uh, give you a dime on every little regulatory issue. We want you to innovate here, and we will adapt the rules around you, not the other way around. So, and this is something I write a lot about in...my upcoming book. The previous administration really pushed back on innovation in the digital asset industry.

I believe in the mistaken belief that maintaining the status maintaining the status quo will somehow preserve financial stability. Well, you don't maintain financial stability by leaving everything the same. You are simply creating a long-term recession. Look at Europe. And that's why this administration is focused on innovating, let's grow now.

Now it should be ubiquitous it should be ubiquitous . That means Congress needs to be a part of this too. We need to pass the Clarity Act. But you know what's funny about innovators, they innovate even without clarity, right? They have been innovating for the past four years.

They will continue to innovate. Clarity is really needed for scary, for scary cats. It's not that the Standard Charter doesn't need the Clarity Act. This is something that, you know, the First Bank of Des Moines is sitting there and saying, "Oh, I don't know if we can do this." “But they are the ones fighting, they are the ones fighting this right now.

That's right. Well, you know, American banks have fought every innovation that has come their way over the last 50 years. Whether it's bank branches, ATMs, or chips in credit cards, the American banking system has used its powerful lobby in Washington to try to stop every innovation. And then, over the course of 5 years, as this innovation spread overseas, and customers came back from Europe saying, “I just used the chip reader on my credit card. Why am I swiping my card?

”, the American banking system said, “Okay, we’ll embrace this innovation.” But they fought it first, and they're doing the same thing again doing the same thing again . But this time I hope they're not going to, they're not going to win. I remember how banks fought credit cards online, saying in 9697 that it was dangerous. This is not safe enough safe enough .

Yes. And they literally said we had to go through the locks. I just bought some woods in Vermont that are adjacent to..." I have a cabin that only sells once every 50 years. And I managed to grab her.

Yesterday, people sat in a conference room in Vermont for 5 hours waiting for a bank transfer. And I joked with them, the good news is that in 5 years you will be waiting 5 minutes, not 5 hours. But I mean, you know, this whole series of calls to the bank, the bank said the wire transfer went through, can you give us a tracking number? I mean, it's so archaic. And actually Europe has moved beyond that, but we are still in that world here in the United States.

But hopefully what we're talking about today will change that. Definitely. So let's talk a little about Ethereum. This is the Ethereum conference. After all, we all know that Ethereum is currently the giant in the stablecoin space.

Literally, uh, now it's up to $3 trillion a month in transfers. Er, 51% transfers. Er, 51% market share. The market capitalization of Ethereum stablecoins is 160 billion, which is 54% of the market share. What is your opinion on this dominance and how it positions Ethereum in the long term, as an outside observer looking at it from the outside looking at it from the outside ?

Well, first of all, that's a huge advantage, is n't it? It's, you know, if you follow Formula 1, it's like being on pole position and there's no one in second or third , there's five cars behind in front of the next car. So that's a huge advantage. Of course, now it all depends on how you take advantage of this advantage in the future. And I think a lot will depend on the continued updating of the protocol.

L2 developers continue to innovate and evolve, and many of you are here today and attending this conference building on that. I also think you know that some of this will depend on external conditions. Do we know if this favorable environment for development will continue? I'm sure development will continue? I'm sure it will be for at least the next three years.

It will be. Adoption of the Clarity Act? I think this will be very useful. I think this will be a big breakthrough. Um, uh, I mean economic conditions, interest rates, all that stuff.

But I think once you get that pole you get that pole position, you know, the challenge is challenge is not to screw up the startup. You know, when the green light comes on , step on the gas and go, keep innovating, keep evolving and take advantage of it. The future is the future of finance, the future of banking, the future of money on digital networks. There is no doubt about that. Ethereum is one of the major networks that is functioning, working well, being built, modernized, and people are building on it.

So this is a huge advantage. It's just a matter of not messing it up, and at some point in time it will have a network effect. It's very hard to, uh, compete with network effects. Absolutely. By the way, I still believe that the future of digital networks will be as complex as the analog past, the future will also be complex.

There won't be many situations where the winner takes all. Here it is, the future of digital networks—it's a multi-network system, like, you know, in credit cards we had Visa, Mastercard, AMX, MX, Discover. Why is that? Because they all found their market, right? And I really think that in the future we will have giants, but we will have competition.

And you know competition. And you know , competition is good, right? Competition—there is strong competition for Ethereum. They are behind pole position, but there is strong competition. And competition makes us all stronger.

This is true. And we need to develop the market. I mean, in the end, if the market goes up, everyone wins. And competition is a market for those who are not yet in it, not just for those behind you. Let's finish by telling us a little more about your book.

I'm curious. Er, and, er, what is it about? So, it's called "The New Adventures of Crypto Dad," and it's an inside look at and it's an inside look at ...politics under Biden, under the Trump administration Trump administration . So it has a narrative story, but ultimately it's a story about how, uh story about how, uh , hierarchies like the financial system, like Tradfi, we're here in New Tradfi, we're here in New York, with Wall Street right around the corner.

Hierarchies often dominate, but then insurgent operations emerge insurgent operations emerge , often posing a huge challenge to them. And I use the fact that we're living through the 250th anniversary to point out that this anniversary is the anniversary of the revolution that began when the most powerful army in the world, the British Army, met the challenge of a disparate network of network of farmers and militias in Concord and crushed their power. It took seven years to win the war. But in the end, it was not the militias that won the war , but their combination and the new Continental Army Continental Army that we created. And the result was a hybrid.

The American government today is a combination of Washington hierarchy with states' rights, individual rights, and separation of powers. It is a hybrid of centralization and decentralization. And I use that as a metaphor for where I think cryptocurrency is going. The traditional financial system has been challenged by digital networking technologies, decentralized networks. And yet, I think there will be a future, and I point to this in the book I point to this in the book , that will be a combination of centralized finance and decentralized finance.

Perfectly. So you mix the past and connect it to the future, uh, the future of money with a few stories along the way, including a few stories from some of the characters in our industry that I've had the pleasure of knowing. Is there music there knowing. Is there music there ? I'll also talk a little bit about music, you know, like I did in my first book.

Perfectly. Thank you very much, Chris. With pleasure, William. Thank you. Big round of applause for Chris.