Where Stablecoins Go Next: DeFi in Emerging Markets | Peter Choi, Dennis Huisman, and Aditi Sriram

Okay, thank you again everyone for your patience. There is still some room up front on these comfy bean bags. This is the last panel before a lunch break and then we'll resume at 2. So, thanks everyone for joining the stable coin summit here at ETH Denver. For our very last panel, we have three distinguished guests.

We have Peter Choy with JPEG trading. We have Dennis Hullsman with ADI DLT Foundation and our moderator at DT Shrierum with Perah and they will be speaking on and the topic will be where stable coins go next DeFi in emerging markets. All right, welcome to the stage. Thank you. [clears throat]

Works. Hello.

This is working.

Hope everyone has some energy.

Draw right before lunch.

Right before lunch.

Let's go, guys. This is the last one and then food.

We'll round this out strong.

Yes.

Cool. Um thank you everyone for joining this panel on where stable coins go next um DeFi in emerging markets. I'm uh the moderator ad I am the head of business at parah which is a wallet infrastructure company serving crypto and fintex. So um we have roughly 10 million plus users serve hundreds of customers um and have been around since 2022.

Hey folks, my name is Peter. I am a partner at JPEG Trading. Uh you might see us on your little name cards for the conference this week. Uh we spent some money on branding finally. Um if you don't know us, uh I won't it won't come as a surprise to me, but we are a liquid fund research firm, trading firm at the heart.

Uh we're a prop trading firm. We also have a full service marketmaking arm, a research arm, venture arm. Um long story short, you know, we like to invest in interesting opportunities, uh trade cool products, meet new people, and build cool things in crypto. and have, you know, dedicated the past decade of our lives um building trading systems and all that fun stuff. But yeah, that's me.

Great to meet everyone.

Hey guys, I'm uh Dennis from ADI. ADI is a project from the UAE. Uh and it is a part is it is the blockchain project from the international holding company that is a holding company worth at $240 billion of 1300 different companies. Um it's very much a a layer well it is a layer two on Ethereum that's directed towards institutions uh very much geared towards being the the payment rails for institutions for well the digital world as it's uh officially named.

Awesome. Um clearly both of you bring uh a really nice perspective to this panel. um Peter from the investing side kind of high up and uh Dennis, you're obviously building a really really um incredible layer 2 ecosystem and so I'm curious um what regions or corridors are you seeing um in terms of the most organic stable coin adoption today and what do you think is driving it?

Sure.

Yeah. So I think there's a couple of things um that honestly speaking there are two schools of thought here, right? Like the first school of thought is that those that remain unchanged like those narratives that have stuck around for the past 5 years when talking about the birth of stable coins, the need of stable coins and the utility of them. I think a lot of those narratives do still exist today. And then you kind of have the newer narratives that are a little bit more like DeFi centric, a little bit more cryptonative um that you might see being proliferated around especially in the past 12 to 24 months.

Um, in regards to kind of that first school, uh, revisiting that real quick, I think to be honest, it's probably the most applicable and most honest use case of stable coins that, um, that is widely spoken about, right? So, where am I talking about? I'm specifically uh, referencing those in a little bit more like volatile macro economic conditions, those geopolitical areas and regions that are a little bit more capitaly controlled. You know, you think of Latam, you think of certain regions in Southeast Asia. people have been talking about these areas and regions to be a hotbed for stable coins and a little bit more financial stability for many years now.

Um, and so you still see a lot of themes and a lot of narratives out of these regions to build a lot more reliable infrastructure when it comes to crossber payments even within border payments and just general better systems uh to optimize those things, right? Um, and I think those narratives are really really still strongly proliferated today. I for a personal touch I live in Singapore um and spend a lot of time kind of traveling to different regions in Southeast Asia both economies that are fully developed and others that are underdeveloped or developing um and a lot of these discussions are being had both at like corporate/ like government levels to like private and small uh medium-sized businesses but a lot of people are talking about stable coins as applications that they can have within their borders and outside of it. So I think that narrative will constantly remain to exist because it is one of the most valuable use cases of you know tokenized uh uh tokenized assets that live on a chain um across any other use cases. Now the newer use cases that are you know popping up these are for you know probably the most crypto educated DeFi educated um crypto native as you might want to call them.

Um and these narratives are getting hotter as well and you do see a lot of kind of people who are building in this space or raising money in this space or doing interesting cool things in this space as well. Um but these are the stable coins that are a little bit kind of trying to fix I guess you could say the incumbents. So whether it comes to uh you know things like transparency, things like speed of transaction, right? These stable coins are those that are trying to solve for those things. But in the base layer of it all, I think a lot of fingers still point back to the question of how do we solve for financial sovereignty um um in a system where things are not created so equally.

If I think about the question too um from a different angle from the institutional angle um nation states or issuers of uh uh fiat uh can see that this is a new distribution platform for their fiat currency and it also aids to uh it helps uh uh yeah pay for their uh national budgets um while uh at the same time not having to uh distribute yield necessarily to the users. So um uh there's there's companies that we've seen that have gotten very large so far and that this has created notoriety in the community for uh uh yeah crypto as a distribution platform for uh for uh whatever FX. So uh yeah I think that's uh that's one thing that really contributes as well to uh to this.

Yeah I I really resonate with both of your um points. Uh certainly on on the wallet side we see tons around uh remittance style use cases, crossber payments, things like embedded finance. Uh on the institutional side it looks more like money movement um and just simplifying that especially cross borders and crosscurrency um in the FX case. So very cool. Um, both of you have uh DeFi experience and think a lot about DeFi in in your jobs.

And I'm curious how much of the demand that you're seeing is from people that just want dollar access versus people actually using pretty serious DeFi primitives like lending or borrowing, etc.

Yeah. Um so as a very cryptoNative institution that spends a lot of time trading and onchain and all these different things um we spend a lot of time on the ladder. So whether it comes to kind of capital efficiency lending and borrowing um using it as margin collateral whatever it might be stable coin uses our daily um in size and in heavy frequency as well. Um but I think like looking at us as an example uh is a pretty irresponsible thing to do in my mind. I think it's, you know, probably a more accurate representation of the general broader stable coin market to take a look at what like the general Joe, you know, Jack and Joe will do with it.

Um, you know, I think to, in my mind, you see a lot of adoption still coming from non-crypto native users that really just want exposure to the US dollar into it. Um, so I think, you know, there was a point in time in which you have like DeFi summer of 2021 where lending rates are going sorry, uh, where where interest rates are going crazy on the things that you can lend and borrow from. um those things do exist to a capacity to this day. Um of course they've kind of fractionalized and kind of died down a little bit. Um but again, yes, I I really do believe that the main kind of use case of this is exposure to the US dollar.

And a lot of people are using it now a little bit more as like a yield mechanism or kind of like a structured product in it of itself in the most simple case. Um versus a kind of thinking about it from a more structural, you know, like how can we make DeFi more efficient? How can we make interest? How can we make stable coins? rather than that perspective, people are generally thinking about it more of an exposure perspective.

Um, that's again not to say that there are those in mass in size really kind of using it as a more capitaly efficient tool, but for that kind of to be translated to broader numbers, it'll probably take some more time. What I've also observed is uh from personal um experience, I've seen uh folks from uh war areas use stables and crypto because uh their bank system has become fully unreliable or sanctioned. So uh yeah, and they want that stability and they want it to be in a distributed network that's very hard to break. then uh yeah this this was a perfect use case for them. Uh what I've also observed is from uh folks that um simply want to uh also obtain some alternative form of finance uh for yield for their stables which they don't obtain in their local banking system uh because uh the banks are too bloated honestly their uh their uh their profits are too thin so they can't distribute that yield to the users but but yeah in DeFi these things go uh quite easily you don't need to uh you just need a lot of code and that does the Um offstage we were talking about uh where our separate companies are based.

Um I know for us uh being a San Francisco based company in the US um our business just took a turn as soon as um Genius the Genius Act came out and obviously with the Clarity Act like we've just seen a lot more net new adoption around payments and fintex with stable coins. I'm curious um from both of your perspectives if there's anything from the macro backdrop that has changed recently um and and how that's impacted kind of stable coin adoption with with your individual projects.

Yeah. Um I you name them pretty well, right? It's like these regulatory new regulatory things that are be introduced under the guise of legislation and all that that naturally do affect the trading operations of a of a trading team. Um, one example is like the new Mika stuff in Europe, right? Like so when Mika went into place and a lot of these exchanges, whether it be Binance, Bybit, etc.

, they're all applying for the Mika license. Um, and the clear conditional thing upon receiving it is that European users of these exchanges post Mika are no longer able to trade USDT denominated trading pairs. Um, that's a big hit. If you see volumes in crypto, like 90% of the flow in any coin will always be with a USDT denominated market pair. Um and so to currently tell users that are in Europe, hey, you can't touch this pair.

It can only be USD, USDC or Euro denominated pairs, that's a crazy shift in liquidity, right? So liquidity gets fragmented. And now as a market maker, we have to adjust for these things. We have to adjust for the volatility. We have to adjust for how the book behaves because there is lack of liquidity there.

So it's a lot of kind of tinkering around systems to figure out what's the optimal path to kind of play with those books in the face of these regulatory things that change the structure of how the game is played. Um, so that's kind of how I we would generally think about it. It's a little bit still too nent to have like a playbook and like say, "Hey, here's how we rinse and repeat the approach to all these things." Um, because I think there's a lot of different variables that can be interchangeable throughout all these different regime changes. But, um, yeah, those are kind of just the, you know, more recent things we're observing.

What What are people using instead of the USDT pair?

So, they're trading straight up USD euro or USDC pairs. Um, time will tell if liquidity will remain. people don't seem too excited about not trading the pairs that other people trade and have to take another step of clearing. But um yeah. Yeah.

Yeah. I feel like uh we've recently had the fall of the dollar for for a while and this has uh created an opportunity for uh uh different nation states to uh bring their currency on chain. And uh this has created like this new wave of competition for uh uh new issued uh uh yeah crypto uh uh stable coins.

Yeah. Um something we think about a lot is the on and offramp landscape. Um and that being like a pretty significant bottleneck in terms of like how we think about the wallet business. And I'm very curious from both of your perspectives, what what does that look like in your individual companies and what do you foresee as kind of the bottlenecks as we see more and more people kind of trading and using stable coins?

Uh yeah, if I start um uh yeah, it is an inconvenience. I think the UX is poor as it stands at the moment and indeed it's a it's a choke point in uh uh in the in the chain and I by chain I mean the value chain um however uh depending on the ecosystem this can look differently um but right now uh uh we are in a in a monetary system in which uh pretty much uh everything's interconnected and it's tied by the same um by the same uh uh uh major rules. tool set. So, this drives for this for this choke point. Um, I would be hopeful that this would change in the in the future, but uh uh to be frank, I'm not sure it will.

Sorry, [laughter] Dennis. Quick uh curious uh on the the um institutions that you're working with, how how are they solving this right now?

Well, uh no, frankly, they align uh completely with the system. So, uh, so say, uh, like what we have right now is we're going to use, um, uh, Facet. Facet, I think it's with an S. They're like, uh, one of the largest, uh, Islamic, uh, crypto banks. So, um, 60 million or 100 million users.

Uh, they're our main provider for interfacing with on-ramp, off-ramp in the Mina region. uh so and they use uh one of our uh uh one of the famous three I saw it in in the like I think it's Mercury or or like uh one of one of the three on-ramp off providers um and that's that's fine for us but um for projects on our chain that also simplifies uh their uh developer experience setup experience yes because they don't have to think about KYC AML anymore because that's being handled by these so that's a benefit of this uh of like uh there being like this this number of players that do this uh that way they don't have to do it themselves because like any funds that come in out on-ramp off ramp from their apps uh then go directly through the these providers and they're the ones who handle the uh KYC ML.

Yeah. Um to take a half step back um I think this topic and like stable coins and all that in general I um to be honest with y'all I I really do think that stable coins are the most boring topic in all of crypto. Um and this is a good thing honestly speaking because if it's boring it means that it's probably somewhat safe. Um, and when we talk about crypto, safety, crypto, they probably don't go in the same sentence too often, uh, in our space. Um, and I say again, this is a net good thing because when you think about traditional finance or you think about just finance and financial products in general, the most safe things are probably the things that we talk least about or are probably the most boring.

So you talk about a rails, you talk about Swift Rails, like these things are just things that we almost have embedded into our lives as kind of like protocols.

Yeah, exactly. Um, and I think stable coins are very similar in vain, right? like no one really likes to talk about the things that they're backed by whether it be T bills or whether it be other kind of treasury products or whatever it could be an algorithmic one. Um but I I think at the end of the day when it comes to the issue of on and off ramps like this is something that I honestly well I don't know the answer to um someone might have very good insights on but it's ultimately answering the question of what is a transaction cost a user is willing to bear in order for their transaction to go through at what speed right so you kind of solve for X being the transaction cost and then you have Y in the equation being effectively the speed of transaction equaling Z. So figuring out to what extent someone is willing to forego speed of a transaction and willing to pay up to what cost I think that's a company that who figures it out ultimately wins.

That's number one. And then I think second is just about variety of coverage right because I think there are a lot of good local providers when it comes to on and off ramp isolated in all these respective regions that kind of need this type of service throughout the world. If you look at Indonesia, you look at Singapore, the Philippines, even look at Latam countries, there's all these kind of local service providers that might help do stable or stable coins to native local currency, fiat currency on and off rails. Um, but the issue is that a it's probably expensive or b it's very consolidated and uniform within only that native currency. So if there can be issuers or service providers rather that can be a little bit more comprehensive in the assets that they're able to support on platform.

Um I think it just lends overall to a better UI UX experience that effectively Dennis was uh describing because I'm in very much agreement with him um that UX sucks. Um and it's boring.

Yeah. And I think you touch upon like something that's very important about successful stable coins them being boring. And but what does boring mean? Like boring means like uh no uh overcolaterization or no undercolaterization like they're not using leverage that they're they're their balance sheet looks very boring like it's all like a short-term T bills with a little bit of cash actually that's that's what you want 100% backing fast redemptions uh uh because like if redemptions are slow you can you can trigger a run um you want uh uh transparent governance uh uh you want uh uh uh the governance itself the governance structure should also be not like too concentrated. Um uh these are all very boring things like uh I I I'm not thinking like oh there's anything exciting here.

What is exciting is seeing like your stable coin go to like 80 cents and then the next day it's going to 110. But what does that mean? That means that they're playing they're doing some games at the back. Like for example if they're oh yeah I missed something. Like if if a stable coin is like on a tier zero bank so a central bank that's the ultimate uh uh show of safety, right?

But they're not. So like mo most stable coins are like either a two tier two, tier three banks, uh sil silicon valley bank, uh etc. They they fail. Uh then the stable coin drops all the way to 80 cents. That's a classic of of like the the safest kinds of stable coins.

I'm not talking about the algorithmic coins. Those are like even more fun and exciting because uh I don't know if anybody here remembers US but like that was the most recent like uh major uh explosion from a stable coin but like like if you have like the more like uh dumb uh boring ones I call them dumb because like yeah I see them and then I don't but um uh it yeah they they have like this backing but like tier one backed um uh transparent uh solid governance uh what am I missing? Yeah, the T1 bank touches on the aspect of insurance. So like if if something breaks, if the bank if the the bank it's tied to breaks or like uh goes under, like the insurance also saves them, but like the closer you are to tier zero, the better that is. And this is like an excellent time for me to plug our stable coin project.

So uh we're doing a uh first uh a deer hum so the official deer sponsored by the uh uh central bank and the UAE uh project. The contracts were deployed last week. Uh right now it's being uh uh um uh uh uh the partnerships are going between the institutionals and there activity is starting right now but very soon uh this this stable coin will also make its way uh to the Mina region and it will reach very soon 60 100 million users from the get-go but this this is an example of a boring stable coin like tier one bank FAB bank is like uh the JP Morgan of the UAE so uh um uh what else uh yeah it has like all the the governance the transparency um uh the tech. You should look it up. Uh, so yeah, got my minute.

I know we spent some time kind of like on stable coins and how boring they are. No, but in reality, I think like I also say that to say that I think stable coins are the quickest to accomplish the dream quote unquote, right? Like when we talk about serving the masses, like banking the unbanked or bringing financial stability or sovereign, you know, financial decision-m to people like stable coins have been the first thing to somewhat accomplish that dream. when we talk about all these different L2s and all these perexes, all these prediction markets, whatever else that people are building these days, great um and net novel and wonderful to our industry. But at its core, like when we really kind of strip it away, look at what stable coins have done on a net basis to the industry and to general crypto users and financial customers.

Um and you compare that with some of these very cryptonative and cryptocentric products that are being rolled out. Um the the net is a little bit wider between one and the other. Um so it is really really good. At JPEG, we've also invested in a number of different new stable coin protocols. So, if you're looking for money, happy to happy to do that.

Um, but no, I think there is generally really really good novel ideas when it comes to stable coins. There's a unique use case for many different stable coins, too. Not all stable coins are built the same. Um, and you know, shout out to Dennis and his team. They're doing fantastic things on the stable coins as well.

So, um, yeah, boring, but definitely has use cases, definitely has a lot of legs. I think there was a recent stat in a report that said um 77% of people would actually want to open a stablecoin account. Um it's just the access that's a bit of a question mark. And so um I might be the only person that finds stable coins exciting here, but [laughter] like I think that's pretty cool. Um all right, we'll round this out with um a question around DeFi primitives.

Um, so things like uh insurance, savings products, under collolateralized lending, are there kind of structured DeFi products that you guys think are a fit for frontier markets and emerging markets? And what will it take to get those products out to um people that can use them?

Yeah, I think uh uh high inflation environments definitely need a stable coin. So that's the one we already know. Um if I am to think like uh interesting ways like yeah like like to be honest uh crypto is known for innovation and what does innovation mean in crypto? It means you stack risk or you create a new market. It's a or b.

So uh either you overlever or uh you trade something that you shouldn't. Uh uh that's pretty much what it is. But um uh trade something you shouldn't could also mean trade something that's not there yet. Um and uh that's where where a place that might be interesting to use stable coins like stable coins is is this place to um for example uh right now we're all very used to using uh like web web two payment rails for uh infrastructural like uh no institutional uh GPU clouds for example like and what I mean is like there's institutional infra that's not being used and uh we're all used to paying with stripe but uh in the future you could have like an open router of uh abstraction ction for uh institutional infra and you can cater immediately to the global markets um for that stable uh so um that works additively for institutions. It's like uh the the the state has additional demand for uh the currency but also the institution is also benefiting uh for uh the extra usage and the extra distribution for their for their assets.

Yeah, I think what Dennis brings up is definitely got legs and is very novel there. Um, in my mind, what we see these days, uh, I mean, it's over proliferated, don't get me wrong. Um, but I really am interested to see who's going to win the prediction market battle. Obviously, you have incumbents, you have winners, Koshi, Poly Market, everyone knows those guys. Um, but, you know, are they going to be very DeFi native marketplaces for these types of prediction markets moving forward, right?

like and what are the kind of DeFi native functions that you would be able to do versus a more centralized more incumbent type of marketplace um such as a Koshi such as a poly market for example in the concept of stable coins I think you know people who are trading crypto whether you be a day trader whether it be an institution you're effectively gambling a little bit with the market right and so when you're kind of doing these prediction markets you might want to have a semblance of similar feelings or similar kind of capital engagements that you can have structured so what I'm effectively uh uh implying here is it would be really cool to see people being able to lever up on a prediction market, right? Or borrow to a lend against a pool or borrow from a pool and use that to lever lever up. And obviously the collateral uh to be used there would most likely be a USDC, a USDT or more kind of, you know, a very liquid stable coin in all of crypto. So those are kind of interesting things. Another thing that we're a little bit um pretty bullish on and have invested in recently is a lot of kind of onchain prime brokerage solutions, too.

So because we trade a lot on chain, if we have a position in a or on compound, we would love to take the collateral and you know use a collateral against something to borrow from a different protocol somewhere, right? So kind of having people be there sitting as a middleman almost as an onchain clearing house, onchain settlement layer, onchain prime broker. Um those are interesting things to have as well. Like stable coins are a part of all this stuff. Um unless you're of course kind of like collateralizing or settling in another um another asset, it's going to be something incredibly liquid.

um and and many times, nine times out of 10 cases, it's going to be a stable coin. So, they'll always have a part to play. Um and uh yeah, I think we're over on time. So,

that's that's my take.

All right. Well, thank you both for joining. Thank you everyone for listening and see you soon.

Thank you.

Yeah, this was fun for sure.

Thanks everyone for hanging around and well into our lunch hour. Thanks so much to our panelists. Uh so this is the lunch break now. Uh we'll be back for sessions at the stable coin summit at 2 o'clock. So feel free to get some food, check out the the vendors.

Uh again, all of this is being livereamed and recorded on Twitch and YouTube. So if you missed something, came late, you can check out recordings there. Thanks all for uh tuning in and we'll see you later.