Adoption of Stablecoins and Digital Euro

[Music] hello and welcome to everyone we have a very exciting panel discussion in front of us where our three experts are gonna discuss the adoption of staple coins and the digital euro please welcome to philip karan and dante i'm gonna now give their word to karen please go ahead and enjoy the panel discussion bye bye thank you victoria um as she said i'm karen o'toney i'm the director of ecosystem and hyperledger foundation um i think we have an interesting discussion lined up here for you all um i want to introduce my panelists um and have them share a little bit about um initially just what um what you work on and also um you know how you relate to this topic in particular about stable coins um so if philip if you could um introduce yourself to the audience please yeah perfect thanks very much my name is philip i'm sitting in germany right now we have founded the blockchain center at the frankfurt school which is a university in germany and we are dealing with blockchain stuff now since five four five six years with our at this point of time ten employees and we have basically demanded the digital euro uh what we call it already uh two three years ago at that point of time the european central bank did not really think about it but the chinese did apparently and uh therefore i think we are quite well equipped with knowledge to to discuss this um actually my basic position is that the european central bank it's basically tackling this topic this is good but they are doing this in a much too slow way i also think that stable coins will be the future here and there once regulated properly and i also see that we are having some issues here in europe but i think we will discuss this later on and i'm very very very happy that you and the organizers are putting the stable coins on the agenda because some politicians in europe they are happy that libra or now dm has left the continent and they partly don't really see and know what they have potentially done there in terms of damaging the euro and its potential future in the digital ecosystem thank you phillip um i i love that you have a lot of strong opinions and i look forward to hearing more about them um dante uh you almost go i think without um a need for introduction in terms of how you're how you're involved with stable coins but for those who may not be aware of you i think you are on mute by the way um please share uh please share a little bit about yourself sure thank you karen well and and it's great to share a virtual stage with you and with philip i hope i'm not declared personal grata in europe uh having been an enormous fan of the european blockchain convention since the very beginning and it's great to be back hopefully next year it's in person so i am circle's chief strategy officer and head of global policy circle for those who may know um is the issuer of usdc or a dollar digital currency uh today a 40 plus billion dollar digital currency that has supported more than 1.4 trillion dollars in cumulative transactions on multiple public blockchains and so like philip i too believe that the stablecoin is the greatest proxy we have for what digital currency innovation looks like um and rather than it being an abstraction or an aspiration uh the the work we're doing here at circle is very real empowering all kinds of activity in in these markets on both sides of the atlantic and frankly around the world so great to be with you thanks so much dante so um let's start off a little bit more broad and then um we'll hone in on to what's happening in europe um you know we're heading towards the end of the year um and it's always nice to look back on um where we started so um we've seen a lot of shifts in the stable coin arena since the beginning of the year if we think back to january it feels like it was two years ago um a lot has happened this year um not just in the digital currency area but in in all kinds of um in politics and health and everything so um but now that we're at the end maybe you can give us a picture of where we were at the start how things shifted um you know there was a lot of talk about this defy summer with how did that play out um what was your perspective on the year looking back and feel free so so i'm happy to start and then and then of course i know philip has uh has strong experience and views on these issues um well there's no question you almost you can't look at 2021 as separate from last year from 2020 and that if you think of both of them some up together it's like we had two leap years back-to-back and while on the one hand there was an enormous amount of complexity and obviously economic trouble and a lot of suffering around the world because of the covet 19 pandemic on the other to the extent there's any silver lining in these dark clouds it's the fact that we've accelerated perhaps a decade worth of technological adoption and digital transformation in the span of maybe 24 24 months um and then not surprisingly all aspects of the crypto economy have blossomed in that same time span um just just to give you a direct experience usdc closed last year around 4 billion and today it's over 41 billion dollars a lot of that growth is a function of the things that we cannot do with value transfer and technology at population scale and so you're starting to see this mainstream adoption of digital currencies and all of the related economic activities that they support from the growth of non-fungible tokens digitally scarce art the growth of d5 the growth of different blockchain protocols that have started to emerge as real challengers such as solana for example which recently had their major event in portugal and so i think across the spectrum the laggard in this world seems to be the central bank digital currency right that the sum of free market activity yet again is proving to be a difference maker while many weight into philips point are waiting for the public sector to catch up i'm in the camp of let's not pick technology winners and losers from the public sector rather enable free market activity that is responsible and then you see exactly what we've seen in last year and 2021 so far yeah perfect then i'll jump in um i i basically i quite much of the same opinion like dante is maybe i think to to to also bring another perspective here i think we always have to ask ourselves where do we use the digital euro for right and then there are retail payments that's something like a credit card then we have industrial payment that's for example when uh automotive companies are acquiring components from automotive suppliers so that's basically intra industry payments then we have the capital markets of where settlements of securities take place that's number three and we also have now the crypto domain and i think we all and we have finally cross-border payments right in my mind these are the typically five domains where money is being flowing retail industry capital market um cross-border payments across for example individuals and also the crypto domain and what we see now is exactly what dante has said we see that stable coins have been invented they work and they have been one important point for driving the entire crypto ecosystem such that now you have basically dozens of billions of volume of stable coins day by day that's trillions per month right but those people who are basically disregarding cryptocurrencies d5 and so on they with it are also disregarding stable coins and then they come to the conclusion that stable points are don't really make sense and they should not be here and they are not here because they simply do not see what's happening in the crypto ecosystem right and this is applicable to many politicians all over the world they who are just not wanting to see the crypto domain even though you have dozens of billions of turnover here day by day then one more word about the ecb the ecb basically tackles the retail domain within europe so that's basically to speak it very simply the ecb is tackling the payment method of credit card so to say but credit cards are working already the iphone is working and what the ecb is planning to do might work potentially in 2028 that's seven or six years from now on and they will have replaced something which is working already since years and decades honestly that this is that's really crazy and therefore i think what we should look to is also the domain of payments in the industry this is basically where traditional banks could be of a benefit benefit when they are basically tokenizing uh the the euro could be a stable coin solution could be something else the same is true for the capital market for cross-border payment i think stable coins make sense for the crypto domain also and i think now starting from the crypto domain now starting to move over to the cross border domain i think we see stable coins rising even more and but we should always see the context and the context is the question what kind of payments are being executed here and then and then basically make sense to discuss it or not and therefore stable coins are there but only in specific sub-segments of the ones i've just explained stable coins for example cannot be used yet for settlements on the capital market or for payments within the industry you know this is simply not possible for various reasons but stable coins are on the rise but just in a couple of the domains we just have mentioned well you kind of started to get into that philip you know let's um let's hone in on what's happening in europe um this is the european blockchain convention after all so what do you think about the state of stable coin projects in europe um in terms of what's already out there and also the use and demand of it i mean you just said that there's there are some things you can't still do um is that because it's not being offered or is it because of the um the infrastructure or regulations around it and is there demand for that yeah that's a good question so to be honest i i don't think there is a systematically relevant stablecoin denoted in euro already here and i also think that it will not be here actually for various reasons um i think the reason is that the us dollar stable coin is basically solving issues which have been out there first issue was the volatility in crypto markets this is where stablecoins uh red added some value but the lu the value added by stablecoins uh it denoted in usd was significant the value which would have been added by a euro stable coin is not significant on top of that therefore you don't need a euro stable coin for the crypto markets the same is true for cross-border payments because here you have transactions fees being five percent maybe eight percent uh or even more who knows across all kinds of legislations basically cross-border payments and here the u.s dollar already solves the value and the additional value of potentially being sold by a euro denominated stable coins is not very significant that's why we also do not need the euro stable coin there so actually all problems in the area on behalf of investors in d5 markets and people doing cross-border payments their problems have been addressed by us dollar stable coins and therefore a euro stable coin actually at this point of time is not adding so much more value in addition to this we have regulation coming up in europe that's the meca regulation which will come into force probably in 2023 and according to this regulation stable coins should be regulated according to the e-money scheme and e-money basically is not carrying any interest rates and since we have negative interest rates in europe on the back end it means that the issuer of a euro stable coin is operating at a loss as of day one so the day an issuer is issuing a stable coin denoted in euro he has or she has or it has to pay negative interest rates on the back end and there is no basic no possibility to forward these interest rates towards the customer so it's just not big fun for such an issuer to launch such a business model and therefore this is also one reason why euro stable coins have not really picked up in the market and why i think they also will not pick up because there is no good reason for an issuer to do this as as long as we have negative interest rates so there is a multitude of reasons why we did not have an euro stable coin and why we will not have an euro stable coin and in my mind that's basically not too good news because on the eastern uh well hold on let's let's i want to wait until we get into that part because um i want to hear um i want to and i want to talk about mika in a bit as well um dante i'd love to hear any thoughts you have on um from your perspective obviously you work with the us dc um you know do you agree with philip um you know why hasn't there been as much of a demand or use of a digital euro stable coin in europe yeah i mean i think phillips summary is right that to launch a euro stable plane under the existing frameworks or at least the proposed ones would be a charitable activity to be generous and that fundamentally it would it would reflect sort of a domestic european innovation rather than a cross-border one so on many levels something close to 140 150 billion dollars of stable coins in circulation referenced the us dollar at varying degrees of quality and and levels of sort of prudential soundness to use big banking terms but nonetheless you could argue the dollar is very much the currency of the internet at least these emerging blockchains as we see it today but there are really important elements that the europeans are proposing um oftentimes stable coin issuers and projects tended to negate or neglect the pre-existence of electronic money regulations and requirements um and so i do think there are aspects of what the europeans are proposing with the markets and crypto assets frameworks that make sense from a consumer protection point of view and makes sense from a same risk same rules technology neutral approach to regulation however if in the spirit of trying to stop big tech from innovating i'm at the margins of how money moves on to the internet um you end up creating such a heavy-handed regulatory regime that you kill entrepreneurialism i also think then the the balance has to shift a little bit more towards enabling responsible innovation in in the european context while at the same time acknowledging that on many dimensions the european sort of payments and money movement landscape already has a number of policy advantages open banking fast payment systems and so on and so it perhaps just to philip's point the advent of a euro stable coin may be less to do with domestic needs in europe but rather putting the euro onto public blockchain markets cross-border payments remittances and so on the the european the the people in europe from diaspora populations certainly would welcome a digital euro as a means of sending remittances to their home countries and so on so so i think the void can be filled and it will likely be filled by private actors but at the current rate if not it's not an environment favorable to entrepreneurs um since we we dipped into the regulations here let's just give some context for for the audience so we've mentioned um mika um the markets and crypto assets regulation that's the regulation in europe could you provide a little bit of context um you know how um uh how does it compare to some of the other regulations you're seeing dante i know you're in congress all this week and um speaking with congress and so um you know what is it is it um you know more extensive more strict or um how does it compare to what we're seeing elsewhere yeah so i've long said um in the early days when the markets and crypto assets framework was originally just a sketch that if passed it would be to crypto what gdpr was to privacy and so on the one hand i completely applaud the european approach to having depth of thought uh in terms of the the broad broad classification and categorization of the crypto markets um in europe and i think my only message and my only sort of admonishment would be be careful not to overreach right in in barring the gates of big tech competition and payments be careful not to have such a line extension that you end up killing entrepreneurialism which is the very thing the europeans want to get moving um on the other hand it is a pretty broad framework and many jurisdictions around the world in the absence of large economy crypto asset frameworks are in beginning to think of gdp sorry beginning to think of mica as an anchor and so you're seeing other jurisdictions starting to reference the markets and crypto assets frameworks um here in the united states i think you know broadly speaking we have quite a lot of upcoming policy and regulatory recommendations but in some ways you could argue i won't make judgments but you could argue that the model at least is favoring free market innovation companies like circle live under a regulatory regime similar to a paypal or major payments companies which would be the equivalent of e-money in europe so i think there's there's hopefully transatlantic alignment if nothing else on on how these innovations continue to thrive because the competition is geopolitical and geo-economic as i'm sure philip was about to mention in moving east from europe um what do you all think though about the fact that maybe it would be helpful to have more more guidance and more regulation for um to allow companies to get licenses in different countries in europe or to help them operate more like is if if if maybe the us has taken a more hands-off approach do you think that's you know affected how things have developed in europe to have more guidance for that should i answer or should uh dante answer right okay so uh perfect yeah it's a good question actually so i think you can see very nicely that the us is basically not really taking a perfect hands off approach look at tether right tether is out there for quite quite a while and they have always been on on under regulatory scrutiny and but still they have not been entirely been prohibited right so they are still there right but they have been scrutinized multiply but still there is no regulation out there which would prevent companies from doing this therefore you have also usdc and you have also a couple of other um stable coins out there in the us dollar markets because it's not prohibited in in europe once you now read the the micro scheme under which stable coins would be regulated then you come inevitably to the conclusion that it doesn't make sense to issue a euro stable coin because of the the negative interest rates and other things and taking all this together you know you are basically hindering innovation and that's why i say you we will not have a euro stable coin here unless we will have changing the law and still i would have to agree to dante inevitably the mika is still a good regulatory scheme because at least it provides some clarity in other forms of of crypto assets you know the utility tokens defy stuff and so on this is all good but in my mind one of the major flaws of the mika uh is basically the the e-money tokens or the stable coins and maybe maybe one one point i would like to add in europe we in case we talk about the digital euro for whatever reason we are not very often talking about stable coins but rather we are thinking about how to empower the industry and the capital market with a digital euro this is not necessarily related to stable coins you could also create a digital euro with other means right and one one solution for this is the so-called trigger solution where you basically leave the euro where it is in the legacy bank account in the iban account and then you are integrating the legacy ibn account the legacy bank account with the blockchain network with an interface and thereby you get you get some kind of simulation of the digital euro on chain yeah so the euro is not on chain as a token but you get some kind of simulated digital euro doesn't sound perfect from a technical perspective but it's still sufficient for the demands of the capital market and of the industry for the next two three years right so we do have some solutions here at least for the industrial segment and for the capital market segment but we do not have a solution for the stable coins so what are the implications of all that you know you've both shared your views on um uh sort of the state just an adoption of stable coins in europe um and how basically the us us dollar stable coins became a default so what are the implications of that looking at what is going on in china i know philip you wanted to kind of bring that in earlier um uh how does this uh affect what is available to users in in europe um but also just the um geopolitical um situation with that [Music] difficult to say maybe a quick word you know on the on the eastern side we have china where china is creating a government driven digital chinese version right they they are doing experiments with 104 million of people who are basically allowed to transact in the digital chinese version of their cash right this is more people than we have in germany that's massive experiments right and uh on the western side we have the us where the where the fed and the government is not having a government solution right to be launched like in china but in the u.s you still have the stable coins which also represent some kind of the digital dollar once they are regulated uh maybe even more in a better way right so in europe we might have a void here there might be a gap and the question is what is the implications of this i think for the industry and for the capital market the implications are not too severe because there are solutions for the digital euro made for them but especially for cross-border payments for international payments and so on i would expect that the euro is simply taking a lesser important role in the future we already see this now in the newspapers right in case the bitcoin price is quoted very often in german newspapers you see the price being quoted in your estola right that this is crazy because it's not our home currency but you see here there uh there is some mind share being opened up for the us dollar especially in cross-border context or in international contacts such as the crypto world this is something i think will will develop to a larger degree in the next in the next years and vice versa the euro then might play a smaller role in cross-border contexts where the us dollar stable coins might provide sufficiently good solutions you know payments between south america and japan fourth and back in all kinds of directions and networks yeah um dante um this is a topic that's been going on since probably the start of this the invention of stable coins is you know are stable coins going to topple the dollar are they going to um you know threaten um it as a major world currency and um you know we've seen the development of central bank digital currencies and many central banks are researching this um some have uh have gone live with this um um not accelerating as as you both said as quickly as the stablecoin industry as of yet um but uh you know what is your view on that topic you know could it be that the opposite actually happens you yourself have said you know how much your how much circle has grown in just the last year um could it actually be uh helping the us dollar yeah well it's um a lot of fascinating topics we could dive into i mean on the one hand how much consumer protection can a government ask for such that it keeps hundreds of millions of people and billions of people around the world locked out of the financial system because they cannot take risk so i think that's very bad and i think it also runs counter to the spirit in europe of trying to spur entrepreneurialism and financial services innovation it cannot be done if the only solution is the government effectively picking technology winners and losers and so the analogy of what is happening at the geopolitical level with money and central bank digital currencies and stable coins is often con compared to a digital currency space race but imagine how useful the skies would be if aviation safety authorities also built jet engines and flew planes we would have very few options they would be very expensive they would likely be very slow and personally i think the safety record might be a little checkered so free market competition is an important criteria here and i should point out that the same holds true with how money moves the sum of private sector activity has enabled global payments networks like ach and swift and visa and mastercard travelers checks all of these innovations tend to be built in the private sector inside free markets and according to first principles and regulations and then later they start to scale that's what's extended the the role of the dollar all over the world and now through stable coins like usdc extending the role of the dollar on the internet um we have um something that's come in from one of the uh questions from the audience um you know how will these uh fiat back stable coins work with or compare with cbdc's that get launched i mean quickly and i know philip will have something to say about this i i think personally it's the greatest proxy you know the expression uh imitation is a sincerest form of flattery after all a stable coin is in fact the imitation if you will of its underlying reference asset the other point i would make is that 95 or more of all value-added money in circulation around the world is in fact privately issued whether it comes from fractional reserve banking or whether it's captured on a plastic card like a credit or debit card most of the money that we consider value added is privately issued doing the same with a tokenized blockchain based asset i think is just a reflection of that same paradigm of innovation okay we only have one more minute um so real quickly just two last points i'd love for you both to make one is what do you think we can expect to see in this first quarter coming in 2022 with the um uh uh adoption of stable coins or proliferation of them and then um what's something that you would recommend our audience read or listen to over their holiday breaks to learn more about this topic yeah i give it a try so what will happen in q1 next year so i think um people will discover more and more how important stable coins will be u.s people will also discover that they have missed out on a government initiated solution like in china and at the same time they will discover that stable points might be their solution once regulatory uh efforts are changing a little bit to really basically get the stable coins um all under control in a from a regulatory perspective and then they have a very very good worldwide international efficient solution for you for a digital dollar right so this is something i i would expect for next year maybe also q23 to be discovered you know by politicians um once they discover that all this what we are discussing here has a geopolitical importance and how to read difficult i think the best the best the best tactic is basically to create a google alert and you type in digital euro and you make a google alert of this term and then you simply read on a daily level very briefly what's happening in the world to get an overview but it's difficult you know it's time it's developing so dynamically it is it is dante i well i i see uh we're at times so i'll be super brief like a swiss clock to all all i would say is um if 2020 was the year this came out of beta and 2021 was the year the stable coin went mainstream then 2022 is the year the technology fades into the background when we stop talking about blockchains we could change the world with it when was the last conference you attended that discussed the hardware and software of the internet so i think the movement of money and the internet of value is on the cusp of the same transition and what should it what what do you recommend as a reading well i would say read everything that philip and his wonderful institution publishes and then listen to all the panels of this wonderful conference that you could not attend yourself that's wonderful thank you so much phillip and dante it's hard to fit um such a big topic with so much going on in in just half an hour but you did a great job of really giving us a broad perspective but also really understanding what's going on in europe so thank you so much and thank you victoria and the european blockchain convention for having us thank you karen thanks to the three of you amazing panel discussion and yeah and i think an easy one is as philip said have some google alerts on digital euro and other relevant topics and you'll become experts quickly thank you guys see you in the next uh conversation you go to the schedule tab and see you there thank you thank you thank you karen thank you thank you bye