Keynote by James Smith, Head of Ecosystem, Ethereum Foundation

Good morning everybody. Congratulations on getting out of bed and getting here this morning. Seems to be quite difficult to do. I'm going to talk to you about stable coins. The the truth is I think stable coins have won and that conversation is over.

We processed $5 trillion onchain last year. Stable coins moves at the speed of the internet and people actually use them in the real world which is product market fit 101. So I think stable coins have won but what really happens is the coordination rails is what the hard part is cuz I feel like the system is quite fragmented and I'm going to talk to you about that today. So if I start with a little bit of a story, let's say there's a city and in that city is one bus company. In that one bus company, they sell one ticket.

You can get around the city, but it's not that con it's convenient for you. And then as the city grows, you get 10 bus companies and you get 10 different tickets. What happens there is it's great for competition, but a terrible, terrible customer experience. To get across town, you need three different tickets. Now, and you lose a little bit of money and a little bit of time every time you're swapping buses.

This fragmentation leads to the mayor saying, "Okay, guys, you've got to stop." What happens? He says, "You can compete on service and comfort, but you're going to share one unified ticket." And this is where we're at at the moment with stable coins. Stable Coins is in a position where there are many different stable coins, but you have a fragmented system under the hood because the the rails that have been built are super fast, super convenient.

People are transferring money across borders. This works. So, as I said, 46% of Latin Americans actually use crypto for stable coins, not for speculation. They're actually using it in the real world. You've got a similar number in Africa as well.

So people are actually starting to use stable coins in their everyday life. Somebody at the Ethereum Foundation can't open a bank account and we pay them in stable coins and they have to actually use that to pay their rent, to buy their groceries, to send home to their parents. Stable coins has become life-changing for a vast amount of people. There's still 120 million people in Latin America that don't have a bank account. There's this concept in banking called the singleness of money.

So, we've actually been here before. What happened in the 1850s is you used to get the Bank of Boston issuing Boston dollars, Bank of Charleston issuing Charleston dollars, and they would all trade at different discounts depending on how much you trusted that bank and how much you how much the the net worth in that area was. So in 1913 14 you had the Federal Reserve was created to unify this system and bring it together. So it stopped a lot of the slippage problems. So this is history repeating itself in another way.

Oh, I slipped a slide. So what actually is stable coins in terms of in terms of it's actually a messier system at the moment but ideally in one way stable coins is fully transparent fully reserved and in some aspects safer than current bank deposits whereas bank deposits they run on credit risk lending and the and the actual system of fractional reserve is the business model of banks. So in one ways we have to have a safe a safer options for citizens around the world to already use. However, without the coordination rails, it's fail it's actually doing a disservice to all of those users. And that's where I think we can have an opportunity to correct the system before it goes too far.

So why are there so many different stable coins? Why is there USDT, USDC, PayPal's one? Why is there die? Because owning the rails and owning the full stack is just too tempting. If you can own the payment rails, the architecture it runs on and the stable coin, you get the liquidity mode, you get a lot of power, and you get to extract value from all of the users.

That is why this is springing up at the moment. You're seeing ton of different stable coins all competing for each other. And it's the system that we live in. You've got one stable coin that paid around $900 million last year to a major exchange to own that distribution moat. That is fantastic for one company's P&L.

Terrible from a competitive you aspect and terrible from a a users perspective as well. So I see this could go three ways with stable coins. It's a winner takes all. It's incredibly centralized. you have got uh the full stack owned by somebody and we're back to paying Western Union rates around the world.

Then you've got the second one where it's permanent fragmentation. So you have a lot of innovation in this space. You have a lot of creativity, but then you also have a bad user experience. Every time they swap between stable coins, it becomes a bad user experience. Or the third option I like to call coordination rails is where it's very similar to the internet.

you have many implementations across one standard. It's frictionless for these for different stable coin issuers to move across one another and they all sit a standard of what a dollar means. So there's there's not the discount issue that we had in the past as well. So if we were to compete on service which would be a concept for a lot of uh enterprises out there and this keeps the competition there as well. Keeping competition, innovation at the forefront of all of the coordination efforts will stop centralization plus also mean the customer keeps on getting served better and better because this is this is where I see a big danger zone of lots of companies are currently trying to own the full stack whether they're acquiring companies or building their own infrastructure out.

They will extract value from all of the users and we've only ended up building a swift 2.0 with new tech behind it and we haven't achieved anything. So this is a really big danger zone that I see and I think if we are able to get ahead of the coordination rails, we can build a resilient and decentralized system that invites many stable coins as well. So why is Ethereum important in this? Because as a neutral ground, I've been asked six times in the last two weeks, will Ethereum ever have its own stable coin built into the protocol?

That goes completely against Ethereum's um philosophy. And in terms of what we want to do is we will never bake anything like that. We will never compete with a stable coin. We will never compete with um any providers. We want it to be a neutral layer that invites innovation and competition as well.

So you have Ethereum not trying to capture all of the value. We want people building on top of it in my mind and this my own opinion. We want people building on top of Ethereum so they can take value and they can offer services that other people can come and compete with. And this is what keeps the system healthy. We've all experienced web two where things have got more expensive and a worse service.

This is where I think if we get this right, we can change that system forever. So invisible infrastructure as you can see that success actually looks quite boring of what we can do. You've got the application layer to the infrastructure layer. The user experience they don't mind what stable coin they wear they're using. they don't mind what L2 they are on the interoperability works once we actually get scaling correct as well this will um stop the constraint of developers and they can build more innovation products as well so the stakes I've talked about a little bit if we succeed we end up with an open innovation open protocol where anyone can come out with a stable coin where anyone can compete with big player and a small player if we fail we end up with swift 2.

0 you know, we end up with a centralized function under a new wrapper. Sure, it'll be faster, but it'll turn out to be just as expensive in the long run. And this is where I think everyone is uh missing a missing a lot of the coordination effort that these stable coin companies and infrastructure companies need to be aware of. I'm looking for companies that don't want to own the whole stack. they want to own part of it as well because there's it's too tempting in web two to own the whole stack to keep pushing margins out as well.

Whereas I think this is something that as a community we're not talking enough about. So the internet has no CEO and neither should your money is my tagline. And I think if you think about what TSP over IP did for the internet, you've got many implementations across one standard. You shouldn't be looking at you should be looking at neutral infrastructure that's open and permissionless and this grows the network. So should we be thinking about who owns the rails or who's growing the network?

And that's a question I think be great for you to think about and I'm happy to talk about it more today as well. That is my last slide and I have 25 seconds if anybody has any questions. No. Okay. Find me outside if you want to talk some more.

Thanks very much.