BBW23 – Day 1 – Recent Developments in Stablecoins

[Music] just quickly uh myself Justin adal co-founder and partner of blockwise advisers a proud cubic Labs member company uh so just shout out to I and those guys uh but we work very closely with both public and private sector entities to help them unlock the value that blockchain has to offer uh but I'm just also uh very personally curious and interested in this stable coin space as really one of the key tenants of everything that we're building here whether it's defi or bringing traditional Finance on chain uh and things like that um and I also will say this will be the first of two very exciting talks on stable coins uh we're honored to have Nick Carter from Castle Island Ventures here giving a keynote on uh stable coins as well tomorrow so this will hopefully be a good leadup into uh that discussion so uh with that being said but before we dive in I'll ask each of you just to offer 30 45 seconds on your backgrounds uh your focus on this space and then we'll get into the Meda things so sa you want to take it down there yeah yeah sure hi everyone uh great being here I'm solid Elite product at metrica we're a Boston based um Global startup I guess in the blockchain ecosystem we provide uh observability and monitoring and risk management for blockchain applications working with everything from the protocol teams building the actual chains to financial institutions leveraging uh those chains um and um yeah prior to this I'm originally from Latin America so I've been involved with uh blockchain since 2012 201 13 cool yeah I'm Austin my uh background is a little bit boring trafi in a lot of ways I was at JP Morgan for a long time running cash stability products uh got into crypto in about 2018 and for there I've been at Stone Ridge which is one of nid Dig's parents so helped with building a custodian lending operations I've been at city in the digital Assets Group and I was at paxos where I was the head of the stable coin project there and the chief risk officer good well great guys really appreciate you you uh you both being here and so I wanted to lead off with um just some insights into a prep session that we had which um went in a little bit of a different direction than I anticipated and that means nothing because you guys are the experts here but um I initially approached preparing for this panel with you all um with a focus on how things like regulation and policy Drive commercial adoption and commercial use cases and as we started chatting about both of those respective areas and and recent developments in each um we started to think maybe it makes more sense to approach Us in the reverse where uh a lot of the recent developments that we'll talk about here today are actually on the commercial side uh commercial side is not waiting for government in a lot of cases right and and in a lot of cases they're actually forcing the government's hand when it comes to stable coin regulation and policy and everything related to that and so you know we're going to talk about things like the introduction of PayPal's stable coin um Shopify introducing salana pay as a payment option um to all of their hundreds of thousands if not millions of small business Merchants today um and then some of the developments in places like the Caribbean in Latin America with Maro Libre and Island pay and how uh adoption outside of the US affects things like dollarization right which is a pretty he concept but we'll touch a little bit on uh on all that today so um but before we get into the fun stuff let's start at the most basic level um so Austin what is a stable coin oh boy all right putting me on the spot so when I teach the definition we use for a stable coin is just a stable coin is a representation of a unit of fiat currency on a blockchain right like all systems where you're exchanging value need money right to grossly oversimplify the statement stable coins are just money on a blockchain I think back to the regulatory point one of the most important things that falls out of that very quickly though if you understand that is being anti-stable coin is basically being anti-com on a blockchain right you are fundamentally against their use for economic activity if you're against money being represented somewhere got it and and Sal maybe take that uh to a little bit of a deeper level um not that we're going to get overly technical here but um Austin Now sort of conceptually what it means to to be a stable coin how about from a little bit of a technical perspective what does it mean when someone has a dollar and then that dollar is Unchained in a way that they can use it so yeah sure so I mean you know the technical definition would be something like stable coin is a claim G on a US asset given to you by a smart contract running on a blockchain that's a bunch of words I mean I think an easy way to explain this would be uh it's essentially you know think of it as a you know a digital um a digital certificate that says that you have ownership over a dollar and that dollar you you know you trust a certificate uh because you trust the issuer of that uh certificate which could be you know Circle or pxas or uh aand in the future as well um but essentially like what it means is essentially that this certificate you can go and exchange it for a US dollar anytime that you want behind this there's a whole infrastructure both on the blockchain itself and then on the different issuers of this uh you know stable coins uh which entail you know if you're using usdc you know Circle has the dollar that you give them in theory they have this in an account somewhere and you can uh you know trust that they actually have it uh cuz they're well regulated and audited and so on but at the end of the day you know you're trusting that that institution uh has that uh Fiat stored somewhere or invested somewhere um for you um that refers specifically to Fiat uh back stable coins there's a whole discussion and I mean Austin was you know testified about this but you know there's a lot of talk about what should be called a stable coin because there are other uh assets that are called stable coins that have um either a you know portfolio of Fiat currencies behind behind it um to you know back it up or uh there's like you know dig purely digital asset backed stable coins which have a portfolio of digital assets like you know Bitcoin and others that um are kind of like instead of having a US dollar they have that as the asset backing up your claim over it got it and I think it's fair to say guys correct me if I'm wrong when we think about stable coins for this discussion we're going to focus mainly if not entirely on tradition traditional Fiat fact stable coins so that's your USD CS of the world maybe your tethers wink wink nod nods depending on your view on that um but less so the Dy or the fraes of the world right so just just point of clarification uh uh for the audience um so so let's talk about one of the recent developments here and it at least my perspective maybe the most recent notable commercial development over the last maybe month or two and that is PayPal's announcement of py USD as a you know digitally native blockchain based stable coin that will be I believe fully integrated into most if not all of their their Payment Solutions um Austin you were at paos before your current role I know you can't disclose all of the discussions but paxos is a critical part of the PUSD ecosystem so if there's any inside knowledge that you could share as far as I guess did PayPal come to you did paxos go to PayPal I guess what was the Genesis of the idea and again maybe some of the mations along the way yeah so I think you know I'm I'm just building on some of the things that have been said publicly here but if you really think about the implications of blockchain like a peer-to-peer Network for the mutual exchange of value that is an existential threat to PayPal's business model as it currently exists and they understood this pretty early on so I would say there were two parallel Stripes of thinking at paxos where we were like well this is an obvious company that should probably be looking at this because they have a whole competitive and Innovation problem but if you look at people like you know say Jose at PayPal he got that very early as as well so there was a if you will Mutual Coincidence of wants between those two companies for that I would also say what's interesting about PUSD is this was not done with the goal of providing a solution to the people who currently exist in crypto py USD is existing to be able to use money in new ways and bring new users into crypto and in an Ideal World I think from PayPal standpoint abstracting away the fact that they're even using crypto when they do it right because one of the things you'll hear from that team often and I'm not sure I disagree is crypto will go mainstream when nobody has to think about the fact that they're using crypto got it very interesting in um in in s maybe touch on and I I don't believe correct me if I'm wrong that metrica works with a PayPal or axos today maybe you do but how does a company like metrica itself a network monitoring platform I think is a fair way to look at it how does that help enable someone like a PayPal to launch something like a py USD how does it give them comfort that you know once it out it's out there in the wild they have visibility into it to control into it um so how do platforms like yours allow for that visibility to allow for that Comfort yeah I mean I think the way I I think it's easy to understand is if you think of how we evolved as a company so we started working with uh the protocol teams themselves so teams like algorand and Boston and others like Dapper L and so on building the visibility that they need to run their uh chains and make sure that the blockchain itself so the L1 is running healthily through that we start working with the node Runners of those chains so remember like blockchains are you know the the true ones are decentralized systems so nobody owns or controls or has full visibility into every single node so we started developing tools for those persons or institutions running the nodes to be able to guarantee that the nodes are healthy and that therefore the network itself is healthy and through that work we start working with institutions regulators and so on that are building on top of it so smart contracts for tokenization uh custodian staking and so on so through that work you know essentially you know stable coins is just one use case of a more broader use case with blockchain that's tokenization so tokenizing a real world Assets in this case it's a US dollar that you're tokenizing but essentially it's the same you know same principle um so if you're an institution that's issuing this or if you're a regulator and so on you can use metrica to make sure that the system is working as it's supposed to be working both on the you know smart contract level as well as on the underlying blockchain level so so if you want a concrete example we're working with a bank uh that is actually issuing their own um their own stable coin uh and they're using it uh you know as you said like nobody none of their customers will know that this is being used in the back and it's part of their you know Financial ra like piping uh you most people don't care to know how their money is being routed and like what system is being used so they're using this to do CrossCountry settlement so um they use a platform like metrica to guarantee that the block first to evaluate what blockchain they should be using uh CU not all blockchains are as healthy as stable um and then once they choose one of those they can monitor that chain to make sure that it's uh you know healthy and operational and then if they detect any issue on the on on the RIS side they can use metrica to mitigate and to act on it got it great thank you in in aome just to uh continue along a comment that you made as it relates to PayPal's motivations um you know largely not targeted at existing crypto users or natives this is to bring a whole slew of new folks into the market again whether they realize it or not it's almost moot point right they just want folks uh involved here um so another recent development Shopify announced that they're integrating Salon pay which will allow their millions of merchants to accept usdc I believe directly um within each one of their their storefronts uh would you characterize that as a continuation of that same theme around hey this isn't really geared towards the existing stable coin use cases this is actually trying to open it up to new folks as a way to hey prove out maybe this is that proverbial killer use case that everyone is desperately wanting for right so a continue continuation of that motivation would you say or yeah and I so one I would say I think we've already found the killer use case of blockchains which really is stable coins I think the thing to remember when you're sitting in this room is some of the people people in the world for whom stable coins have the least immediate utility are people already in the United States right we have a financial system that works pretty well we have dollar rails that work pretty well I can pay at the deli at 2 a.m. in New York where I live with my credit card and it's fine right that works that is not the case in many places so as you look at the integration of things into consumer apps where you're using stable coins in the background or you look at sort of these design decisions to put stable coins out into the world I think while some of that is relevant here the reality is that is going to be picked up in other places where it's a larger marginal benefit for those people faster and as evidence for that when I was at paos running B USD we were 225 billion at about the peak over 95% of our users non- us persons a lot of them were clearly using this to pay each other peer-to-peer regardless of the blockchain and so I would say this is more formalizing what has already emerged as the use case and professionalizing it so that it could scale got it got it great let let's use that as a segue into um a little bit of the sort policy regulatory geopolitical angle to all of this um mentioned earlier there have been some interesting again commercial developments in Latin America in the Caribbean uh again whether it's marcard Libre which I believe is sort of integrated stable coins from a transaction acceptance perspective uh Island pay from a crossborder Cross Island perspective in in the Caribbean um sa maybe just given your unique perspective coming from Venezuela um just some thoughts on some of those commercial developments and what you're seeing again giv your perspective there and then we'll transition over okay how does that Force the hand of government to actually do something yeah yeah I mean I think I couldn't have put it uh better than Austin uh but I'll I'll say two things I'm not first I'm not surprised about the you know uh demand for this outside of the US for two reasons one is regulatory so like there is more regulatory Clarity in a lot of other jurisdictions you know Europe has miciah uh the UAE is super friendly with u you know with crypto like there's governments believe it or not that are actually saying come do business in our countries we want the industry um so I think there's a lot of that that makes you know financial institutions and startups and um different players um more willing to you know uh experiment in the space and actually leverage it for the you know for making their business better um I gave the example of the uh bank that's doing a stable Co issuance you know abroad there's sjan is doing it NAB is doing it there's many more that are working on this you don't need to come from a country like Venezuela to benefit from it because if you're you know a bank in Australia and you have customers all over the world and you want to do settlement immediate settlement across all your branches guess what stable is a great way to make that happen um so that's on the regulatory front and then on the demand side as Austin was saying you know I think we underestimate what it is to have a stable Financial system if you live in the US as we're all like fortunate to do uh but if you're from a country like Venezuela you know I grew up with hyperinflation Capital controls which essentially means you could only buy a certain number of dollars per year um or you have to go to the black market which is unaffordable for most people um so you know if you're coming from a place like that be it Venezuela Argentina Lebanon um you know many other countries um this and stable coins but crypto more broadly and digital assets more broadly is a way for you to have Financial inclusion uh uh in the you know in a stable uh if you have a stable coin if you're using this crypto maybe not as stable but still uh a way for you to preserve uh your wealth um you know outside of your own country so um you know I'm not surprised by the developments of uh you know um outside the US having so so much demand for all these use cases anything D Austin or no I think that's very On Target and I think you know it relates to this point I was making earlier on you're going to see adoption in places where there's the largest marginal benefit like one of the key things about crypto in many ways is the fact that it's an Open Access system which again we easily underestimate the value of in the United States but I dare you to go try to build a business on top of like JP Morgan's banking rails without telling JP Morgan about it and see what happens right when you have an open access system in addition to being a large immediate marginal benefit in these places it's almost permissionless as to who can do it so everybody can pile in and innovate and combine things and you know composability is the term you would use in crypto in a way that unlocks not just local value but a lot of combination value that's hard to see until it happens got it um all right so let let's shift a bit here in the last 10 minutes to the geopolitical angle um and I know you both will have strong opinions on this which we love um so there's this concept that's been floating about more and more called dollarization you guys may have better definitions I just generally think of it as um less International Commerce being denominated in dollars right um again that may not be perfect but generally how I think about it um and as we talked about some of the commercial adoption of stable coins outside the US ostensively that drives demand for dollars right which just um improves or enables the Dollar's you know uh position as a unit of global trade that's great um but then we have domestic policy makers and Regulators who are taking a bit of a different tact that could actually affect the dollarization or dollarization Trend that we're seeing um so Austin maybe you can just touch on a little bit of what you seen and heard given your travels on on Capitol Hill U how do folks think about this trend where is it on their priority list do they understand maybe not even the technology but the implications of the technology and and and in does this affect actions that they're taking either this cycle or next cycle from a political perspective yeah I mean I I think I can pretty confidently say I don't think we've had a great grasp on the long-term implications in the United States because if you think to complete Sals list if we think about places that have legitimate stable coin Frameworks in the world now it is Japan Hong Kong is publishing theirs probably late this year early next year Singapore is already done you can get a major payments license from them you could do it in Europe under Micah you could do it in berm UDA which by the way like third largest Insurance regulator in the world that is not a Backwater right and yet in the United States if you want to launch a stable coin really the only place you could do it in regulated fashion is New York right under the nydfs and even they are constantly having fights with the feds about what they are allowed to do and what they are not allowed to do so we are actually very significantly behind like if you think Massachusetts is unfriendly to innovators to giggy back on the last panel go to like France and yet I want to point out they have regulation and rules way ahead of us here in the United States what is going on so I think that's one element is that our choice globally is Yes stable coins in the US or just Yes stable coins offshore right the idea that you could stop this it's not a thing all right two in the United States a lot of the people who are anti- crypto I think are in many ways more pro- intermediation and Pro centralized control of financial companies right if you look at the concerns that are driving them you talk about kyc AML and commentary coming out of the treasury you talk about financial stability and the ability to control distinct choke points like some of the enforcement Folks at the FED if you talk about wanting to limit the activities of financial companies period full stop at the FDIC that is more a statement about control and the more centralized a system is the easier it is for them to control it so if that's your viewpoint this is a natural enemy the flip side of the coin is again I think the point we're missing in the US is you cannot stop this Force you can only stop us from using it because as a general statement when I was at paxos there's only one country in the world where we were absolutely certain nobody owned one of our stable coins and that was North Korea right so the key to stopping this is you have to take the internet away from your citizens so my my view is in Washington right now I don't think they really get that because of the current Administration I do think probably starting in 2024 we're going to have to Grapple with that more as other places continue to license more launch more and Congress really is now very far behind the eightball I also think to be totally honest there's a chance that there's some tradeoffs in the upcoming budget fight because I know one of the priorities for the Republicans and house Financial Services is going to be either the stable coid bill or the market structure bill I think it's TBD on witch got it got it and if I could ask you just to double click and um sort of a line of commentary there uh even if there was a world where Congress woke up one day and said ban stable coins no US citizen can own a stable coin it's not a a means of trade etc etc that doesn't mean us denominated stable coins go away because there's this concept of an offshore stable coin right which is I think how we classify something like a tether compared to a us usdc um so maybe just s of explain that a little bit more what it means to be offshore versus onshore and that Uncle Sam's reach actually only goes so far and in this case yeah I mean so we can back up to a traditional Financial concept for that which you're going to get a lot more of from Nick so I'm not going to front run his comments too much he's a friend of mine I know what he's going to say but it's just there's the dollar market which we typically think of as US dollar denominated money within the US system and then there's the euro dollar market right which is us do Den denominated money outside of the US system unless we want to stop trading with people in dollars period there is no way to stop euro dollar stable coins right like I am familiar with a project that is building a stablecoin in Hong Kong right now that does custody with Chinese Banks and gets all of their t- bills from China how do you stop that from happening you would have to stop letting China Buy treasuries anyone right so we can't control non- us euro dollar markets very well I mean we can influence them some fine but we can't really control them and so again this is kind of my point on the technology is coming whether you want it or not like Banning forms of technology as though the Innovation will just go away historically has never been a successful like tact for anybody and we don't want to put ourselves in the position of you know Henry Ford invents the Model T and we tell him get out we hate this and then all of the giant Automotive Innovation is in Europe but that is what we're doing now got it got it uh so couple minutes left guys uh and then and then we'll wrap up this has been fantastic um so I'm going to kick this one over to you just maybe as a way to uh increase the willingness of policy makers to understand and believe in the concept of stable coins and that's through the use of Technology whether it's metricas or someone else's um you know from a monitoring perspective uh are there technical tools and products that can be presented and or developed if they don't exist today that would benefit the conversations that someone like Austin has at the policy level to say that hey with this tool maybe it's not control but it's visibility it's so on and so forth so I mean obviously I'm bias so I would say metrica is uh trying to help there uh we're not the only ones and like the problem is big and you know we need as many people as we can to help um I think it's a tech problem at this point frankly I think uh to Austin's point I think what we need is the clarity to know if we can build this here or if people will have to build it abroad I think from a national security point of view to me it makes no sense that we're going to send this industry abroad uh and if you want to keep some level of control over it I think it makes more sense to keep it in the US um and you know like if you think about it not only is it not a tech problem but from a regulatory point of view it's not really that novel either I mean I think you mentioned the euro dollar market if you think of uh money market funds uh in the 1970s when they were introduced again traditional banking pushed back a lot against them but it's I think a lot of parallels with what a stable coin essentially is um and you know it's a great product for us to export US Dollars all over the world to people in countries that have unstable uh economies but also to countries that have very stable economies like you know all the countries that um that Austin mentioned so I think we just need to you know give that Clarity uh and that framework so that people can build uh the tools to make it happen got yeah I I would even take that one step further and say please this is not Financial or legal advice but if you're ever going to commit a crime should have led with that by way sorry yeah but if you're ever going to commit a crime do not use a blockchain use cash right like the degree of traceability and the amount of information that public blockchains leak I think people don't fully stand but I would tell you it is my personal view that over time if you really understand how a blockchain works and how you can use token standards and like the analytics that are being produced by companies these are going to be far more effective for interdicting financial crime than the current system which is very opaque very fragmented and very difficult to understand from a regulatory and like legal point of view think about it this way if you're a prosecutor and I tell you here's your choice of systems okay system one money comes out from an ATM you have no idea what happens and then at some point a year later money goes into an ATF all right system two you know the out and while you don't know the specific identities you know the time amounts and pseud Anonymous IDs involved with every single transaction in a chain and then money comes back in and by the way that's all public and you don't need a warrant one of those systems is much better than the other you'd think if you were a member of the forensic accounting team with the FBI you would much prefer our criminal commit a crime on the blockchain versus Maybe envelopes of cash from a tracability perspective I I would say I think the biggest problem is the FBI blockchain team is literally five people well good we can get there we can get there if anyone's looking for forensic accounting jobs maybe ring up the FBI see if they have anything to to offer but um with that said guys thank you so much uh that's the close of our panel here hopefully you all found this interesting uh our panelists will be Milling around for a little bit afterwards if you want to come over and say hello um but otherwise stick around for the keynote tomorrow which will be part two of two as relates to stable points but thank you Austin thank you salt appreciate it thank you well [Music] done