Bankless - 93 - Crypto Payments and the DeFi Mullet | Visa's Cuy Sheffield and Anchorage's Diogo Mónica

Episode Date: November 22, 2021

The DeFi Mullet is a classic Bankless thesis that we've begun to watch play out right in front of us. This week, we bring on Cuy Sheffield from Visa and Diogo Mónica from Anchorage to explain the DeFi mullet from the Fintech side of things. This episode explores how crypto payments are extending beyond retail and into institutions, and how Fintech platforms like Visa are leveling up with the utilities provided by Anchorage to support crypto. Blurring the lines between the two worlds is shaping up to be a fascinating corner of our industry, and there's a ton of new concepts to dive into throughout this conversation. ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  ------ 📣 OPOLIS | YOUR CRYPTO CAREER https://bankless.cc/Opolis  ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum  🍵 MATCHA | DECENTRALIZED EXCHANGE AGGREGATOR https://bankless.cc/Matcha  🔐 LEDGER | SECURE YOUR ASSETS https://bankless.cc/Ledger  🧙‍♀️ ALCHEMIX | SELF-PAYING LOANS http://bankless.cc/Alchemix  ------ Topics Covered: 0:00 Intro 6:30 Visa & The DeFi Mullet 15:03 Anchorage & The DeFi Mullet 18:55 Volatility & Engagement 25:52 Crypto Rewards 34:13 How Payments Work 41:08 Settlement Layers 46:22 What Anchorage Does 50:30 Stablecoins & Bridging 1:00:09 Teaching Visa About Crypto 1:06:10 Immutable Transactions 1:13:22 Visa CryptoPunk 1:22:09 Central Bank Digital Currencies 1:28:04 Trusting Institutions? 1:31:52 Closing & Disclaimers ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

Welcome to bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. I'm Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, all about the defy mullah today, we had Kai Sheffield, and we had Diego, Monica, from Visa and Anchorage, respectively, and they know what they're talking about with respect to fintech and payments. They are from the companies that work with all of the companies in the company. these fields. What a fantastic discussion we had. I really liked the back and forths that Kai and Diogo had. Their dynamic between them as guests was phenomenal. And I think that actually lends itself to the dynamic

between their companies, right? There's a lot of back and forth between Visa and Anchorage. One really isn't complete without the other. Visa is this gargantuan payments network, whereas Anchorage does all the custody for all the things being transacted. So together, they really illustrate a very complete picture of what it looks like to do payments, to do custody in the fintech world and really have a very deep understanding of the problem set that exists with tradfai integrating crypto and crypto payments and how to solve and route around those problems and really create a new payments paradigm that's based off of these new global payment rails. Yeah, you know, one of the themes from the conversation was Diego was talking about this fork in the road where previously crypto has been thought of

is mainly a retail sort of phenomenon and retail use cases. And that has changed. It's now not just retail. Now there's a massive business to business side of things that is being tapped into. And like the value proposition of crypto within the fintech and payments industry is now, we're talking 2021, is now self-evident. So it's no longer the champion internally who's struggling to help his or her organization understand crypto. Now they all get it. And so this episode may be incredibly bullish on the next steps that FinTech is going to take in crypto. We already knew coming into this, David, that the exchanges of the world, the crypto banks, as we call them, were becoming a bit more like FinTech.

And now we're very clearly seeing, and I think this podcast illustrates how FinTech is coming closer to crypto as well. It's just a really fascinating discussion. That was a key takeaway to me. And another cool takeaway to me was actually having Kai explain how Vee's, payments work. Okay? So like when you go and you buy your Starbucks coffee, right, what's actually happening in the background? And if you buy it in Europe, how are the banks interacting and how does visa sit on top of that? And where is payment actually settled? I think we made some cool analogies between how that world works in the traditional world to how crypto works that have really

helped me understand things. So that was cool as well. Yeah, such a fantastic learning lesson right then. And one of the mental models I have for this base is that like Bitcoin Ethereum, crypto at large, it's like a mind virus, right? Is tentacles going everywhere? And the more tentacles it has, the more it can grab and pull itself in. And what is Visa other than something with the most integrations, the most bridges to almost everything in the world? And it's a huge milestone for Visa to successfully integrate to payment rails on crypto and bridge them to the entire rest of the world. And so, like, this growing Leviathan that is crypto is really, like, now reaching inside

a visa to access visas network to grow to the rest of the world, which, you know, just makes me bullish, makes me bullish. Absolutely. And I think we're going to talk about this more in the debrief, because one of the themes I want to talk to you about, David, is something I was struck with is, oh, my God, this is so inevitable. Yeah. Now you get these major fintechs and institutions on board, visas on board.

Okay. Were people concerned about regulation, okay? these guys, these institutions aren't going to let regulation happen in a negative way for their investments. They see the value proposition that they could bring. So if you guys want to tune into that full conversation that David and I are about to have, stay tuned for the debris. If that is available for premium members, and you could subscribe, there's a link in your show notes. With that, I think we should get to the interview.

But before we do, we want to thank the sponsors that made this episode possible. Alchemix is one of the coolest new defy apps on the scene. It introduces self-paying loans, allowing you to spend and save at the same time. Deposit the die stable coin into the Alchemix vault in order to get an advance on the interest it generates. Borrow up to 50% of the total amount of your deposited die in the form of Al-USD stable coin. Here's the craziest part. The loan pays itself back and you cannot be liquidated. Unlock your assets potential in the ultimate DeFi savings account.

And brand new to Alchemics is the ETH vault where you can deposit. deposit Eth into the application, borrow Al-Eth against your deposits, while having your advance gradually paid back over time. V-2 is rapidly approaching, which will allow for even more collateral types, plus a variety of yield strategies to choose from. Harness the power of Alchemics at alchemics.fI. That's A-L-C-H-E-M-I-X.F-I. Follow Alchemics on Twitter at Alchemix F-I and join the Discord in order to get involved with the Alchemics community and also Alchemics governance. Arbitrum is an Ethereum scaling solution that's going to completely change how we use defy and NFTs. And now it's live and has over 100 projects deployed. Gas fees on Ethereum L1

suck. Too many people want to use Ethereum and it doesn't have enough capacity for all of us. And that's why teams like Arbitrum have been hard at work developing layer two solutions that makes transactions on Ethereum cheap and instant. Arbitrum increases Ethereum's throughput by orders of magnitude at a fraction of the cost of what we are used to paying. When interacting with Arbitrum, you can get the performance of a centralized exchange while tapping into Ethereum's level of security and decentralization. This is why people are calling this Ethereum's broadband moment, where we get to add performance onto decentralization and security. If you're a developer and you want to save on gas costs and overall make a better user experience,

go to developers.offchainlabs.com to get started building on Arbitrum. And if you're a user, keep an eye out for your favorite Defi apps being built on Arbitrum. Many DeFi applications on the Ethereum L1 are migrating over to layer 2s like Arbitrum, and some are even skipping over the layer ones entirely and deploying directly on layer 2. There's so many apps coming online to Arbitrum. So go to bridge.arbitrum.io now and start bridging over your eth or any of the tokens listed, and start having the defy or NFT experience that you've always wanted. Bankless Nation, we are super excited about this episode. What is FinTech doing in crypto? That is the question today. It's a thread we've talked a lot about at bankless, but I feel like we

haven't pulled on quite enough. Well, today we're doing that. What are the squares, the stripes, the PayPal's, the Visa's doing? It seems like they've woken up to crypto here recently. They've got hundreds of millions of customers. They've perfected many things, user acquisition, user experience. So what are their plans? We've got to figure that out. We have Kai Sheffield, who's the head of crypto at Visa. Of course, you know Visa. They issue those plastic cards you carry around with you in your pocket. Kai is one of the biggest crypto champions, I know, certainly the biggest in Visa. We also have Diogo Monica, who is the co-founder and president of Anchorage Digital. Anchorage, it's kind of a bridge between the FinTechs I was just talking about in large

institutions. They do crypto custody, they do D5 stuff, everything that the FinTechs can't do currently. Gentlemen, it's great to have you. Welcome to Bankless. Great to be here. Thank you so much for having me. Well, fantastic. Let's start here. You know, David and I have a thesis that we talk about a lot at Bankless, and this came about like a year ago from a blog post I wrote in the bankless newsletter. This is called the Defy Mullet thesis, guys, all right? And I want to run this by you guys. So last year at about this time, we started noticing that many of the fintechs were playing a lot in the crypto space, starting to talk much more about crypto, you know, the stripes, the Robin Hoods, the plaids, the ants, the squares. Our comment at the

time was like, FinTech is kind of user experience, but it's still almost like lipstick on a pig. And the pig is the banking system, right? The fax machine. and the old legacy payment processing system that underlies this thing. And what we observed last year is, what's really interesting is the top five fintech apps at the time, they were all like supporting crypto, right? The banks were below them, but the top apps, all supporting crypto, fintech apps, were doing the crypto thing. And so we came up with this concept, this thesis, as we call it, which is what we call the

defy mullah thesis, okay? So this is fintech in the front. You got the bank in the front. Everything looks nice in the front. the parties in the back, right? You have defy in the back. And our thesis at the time, and still is, and I think it's played out over the last year a bit more, is that this is how the fintechs would come to crypto. They would sort of perfect the user acquisition, but they would slowly start to replace that old legacy, crusty banking payments layer with crypto, okay? So I want to ask both of you

because I feel like you have the front row c's here. You would know better than us what's actually going on. What are your thoughts on the Defy Mullet thesis? Are you believers? Kai, why don't we start with you? Sure. So I'm definitely a believer in the Mullet thesis and am a proud mullet myself. So I see, I think you kind of have to start with what's been happening with crypto companies where I think many years ago, crypto companies weren't really a part of the fintech conversation. It was kind of seen as this separate thing. You had these crypto wall. and exchanges. They weren't really considered fintechs in the popular sense. And then these companies, the exchanges like Coinbase and FTCS and others, were growing rapidly. And they were

acquiring customers. They were getting billions of dollars of assets on their platforms. And they started to get pretty ambitious and look to expand and to get into payments themselves. And so that's what we really saw first was when we set up our crypto product team in 2019, it was because we recognize that crypto exchanges and wallets had the potential to become major players in the FinTech and Payment ecosystem. And they were looking to start to build products like debit cards and credit cards and giving more traditional FinTech and payment features to the core customer basis that they had acquired and that they had a ton of engagement and activity on their platforms. And so we started working very closely, you know, with these crypto wallets, helping with

Fiat on ramps and Fiat off ramps and kind of giving them a path and a bridge to start to look more like, you know, crypto-native neobanks. And I think that was really the first piece that, you know, crypto companies were coming more into fintech and banking. And then you had, you know, neobanks and traditional fintechs, you know, recognizing the success that crypto companies were having, you know, with their core crypto features and saying, wait a minute, shouldn't we be incorporating crypto into our core products? So we think these two worlds are going to continue to intersect more and more. Oh, I totally agree with that, by the way. And that's something we've been saying for a long time. In fact, like two, two and a half years ago on bankless, we started calling what everyone used to

call an exchange a crypto bank, all right? We used this, you know, the small, lowercase B for crypto bank, but we started to recognize that it's not just about trading. That's what an exchange does. But these crypto banks, the coinbases and Geminize and Binances and FTCs of the world, they're going to move into all of the other money verbs, including one money verb. I know you guys are interested, Kai, which is payments. But let me ask you a question before we get to Diego's take on this. Do you and does Visa sort of see that as an opportunity or a threat with the crypto banks, you know, becoming more like fintech and, and. entering into, say, the payment scene. How do you guys view that?

We think it's a tremendous opportunity. And I think really the challenge that we see and that I think a lot of crypto companies have recognized is we're a long way from direct merchant acceptance of transactions over public blockchain networks. And there are a lot of challenges for them to do that, particularly in the brick and mortar merchant ecosystem. We know how difficult it is, to get merchants to add new acceptance points at the point of sale, and then to get consumers to change behavior where you're used to buying coffee, tapping your phone with Apple Pay,

and now you're supposed to scan a QR code, which is not particularly in the U.S., not really a form factor that most customers are familiar with. Plus, you have the challenge that crypto is increasingly becoming fragmented in multi-proticle. And so if you have many different blockchains, and now you have many different second layers, just this idea of accepting crypto, what does it mean for a merchant?

Let's say you want to accept USDC. Are you going to accept USC on Ethereum, on Solana, on Stellar, on Algaran, on Arbitram? How do you have the right QR code, the right acceptance point? Do I have to tell the merchant which network I want to pay with USDC over and they have to give me the right QR code for it? We think it's going to be a long time before most merchants have the capability and most consumers are changing behavior to the point where they would want to transact directly. And so the value that Visa provides is you can have the same familiar experience of tapping

to pay with a Visa credential, whether virtual or physical, that works at 70 million merchants across the world. You don't have to ask the merchant, do you accept crypto? Do you accept this network and have to go through extra steps? It just works. And now you can have that credential pull from a balance of a market. a stable coin, from a balance of a crypto asset. And so it gives you access to liquidity of the assets that you have, but without a merchant having to change a single thing. And so we think for the

next several years, we're going to see most major crypto wallets start to bring to market, you know, crypto-linked debit and credit card products that consumers, you know, are really excited about and are starting to use them and use them at scale. And we think that's a huge opportunity for growth in our business. So a tremendous opportunity for Kai that Visa sees in the Defi Mullet. What about you, Diego? So you've got a broader aperture. You're not just looking at Visa,

but you're working with a lot of these fintechs and institutions at Anchorage. Are you a believer in the DeFi Mollett thesis? And how do you see it playing out with other fintechs? I'm definitely a believer in the Defi Mollet. Love the analogy. I will also point out that if there are pictures of Kai with a mullet, I would love to see them. That can be arranged, sir.

We can make these. Please. Kai is such a believer that at some point in his life, you must have supported one. And so I really want to see those. That's the mental model that I have throughout this whole conversation is Kai with a mullet. So without that, let's just, you know, I generally believe that the DefiMullet works because what's happening is the following. It is for these fintechs, win, win, win.

The first win for the fintech is that regardless of the crypto products, themselves. When you add crypto as a feature to your platform, folks like Square have figured out that it increases engagement in all of the other products that they have built in into the product. So that is the first one. You just by adding crypto and by adding a feature, you increase engagement. And if you have loops, strong network effects or strong loops, every single user that comes to participate in this feature stays for the network. So that is extremely important in the first win. The second win is a square cache is proven in Love, love, to see that they're constantly still to this day,

impresses me every time they're on the app store, number one on the finance section. It makes me particularly proud. But it's really interesting that Square has proven that they can make a lot of money with this and that there's high revenue potential of adding crypto products and obviously trading and offering crypto services to consumers.

So that's the second win. The first one is obviously engagement in current products. Second win is revenue. And the last win is publicly traded companies. Companies are on the market, there's definitely a recognition of the market that is valuable for them for them to be innovative and for them to actually be on the bleeding edge. So the same way that when you add blockchain to your name, your stock rises, adding a crypto strategy that is legitimate, not just lip service, also increases the market cap of the company. So think about this, win, when, when. What is on the other side of the balance?

On the other side of the balance, it's just been that it is different. It is weird for the majority of these large players. and people believe that there was some regulatory risk or some risks of them actually adding this to their platforms. And that is proven not to be the case over and over and over again, especially as companies start becoming regulated. Anchorage is the first and only federally chartered crypto bank. So there is a bank that can actually do custody, can do staking, can do governance of all these defarred protocols. That is just the clarity that these institutions need. And so now that we have removed the potential downside, it really is just when, when, when,

and thus every single fintech will go down this path. And the ones that don't will just find themselves losing. Do you know, Diogo, I think we're starting to observe this in real time. David and I do a weekly show we call the roll-up, which is like a rundown of things happening in crypto. And we're just observing the PayPal earnings report. They just came out with their quarterly earnings, you know, 13% revenue growth, something like this. And all they could talk about was crypto.

Okay? It's just like, what else would the fintechs talk about, if not crypto these days? They're getting almost, we often say in bank, you know, crypto pays you to learn about crypto, right? We mean that literally, right? Number goes up, airdrops come in, more opportunity comes your way. Well, it's starting to pay these large fintechs to learn about it early as well. And that's why I'm sure it benefits Visa from being on the cutting edge. But of those three points, those three wins that you just mentioned Diego, I get the revenue piece and I get the last piece. Tell me a bit more about the engagement piece, because that's

kind of new to me. Why does adding crypto to a fintech platform, a Venmo or a Scro? Square, a stripe, whatever else. Why does that actually increase engagement in customer retention? Yeah, we can definitely try to guess why that is. But the reality is that it does. And so the outcome is obvious. And since the outcome is obvious, everybody's trying to follow. And I will point out that these platforms have also seen the same type of behavior

from the majority of the features that they add to the platform. The flashier of the feature or the most interesting the feature, the highest engagement they get on these other core portions. of their product. And so think about it less of a crypto-specific component, but the fact that crypto is so obviously something that people want to talk about, and so obviously something that is marketable, I think it increases further than just traditional product features that you'd add, that incremental. It feels like it's a step function. It feels like it's something that is obviously bringing in the millennials and bringing in people with connection to crypto. And thus,

this becomes your home and you're a lot likelier to use these other products that Square and PayPal and all these other players are using because now they're part of your crew. So there's this, getting ahead of the pack. A coolness factor, right? It's like coolness for the mullet. There's definitely a coolness factor of the mullet. Mullets are in. Absolutely in. And in the public markets, they're clearly in, but also for consumers they're in. And so really there's no downside to this. It is an obvious strategy at this point has been proven over and over and over and it really is win, win. One thing maybe I would add on this is that, you know, I feel like for a long time, people

in FinTech and people in banking, they looked at crypto and the volatility, and it was a bug. It was like, oh, this asset class is super volatile. And then at some point, this switch turned where a product manager who's responsible for how many daily active users can we get in our mobile app looked at crypto's volatility and it's like, this is a feature that people are opening their crypto apps to check the prices a lot more than they're opening their bank mobile apps to check the balances. It's a great take. I have not heard that take before. And I think volatility is a major driving factor of that, that it's fun and interesting and

exciting, and it's got this just repeated consumer behavior. And if you could take someone opening your app multiple times a day, each time they open the app is a touch point where you can then be able to try and push them into another product, upsell, and be able to build that loyal customer base. And I think that's something that we're starting to see. Kai, some might say another word for engagement then is addiction. Maybe some of the people listening can relate. The number of times they check their blockfolio and crypto prices during a given day. No, but I'll jump in and say that it really speaks to this competition for your home base,

right? This one app that you have to use across all of your finances. It's not just about equities. It's about equities in crypto and your cash and all of it from one place. And all these fintechs now are in competition with one another. So once somebody adds something that I want to check on my portfolio to their home screen, I have one less incentive to go open some other application that only gives me a slice of my whole exposure or my whole market exposure. And so once you start thinking about it that way and we're competing, you need to include everything. You need the super set because not including something means that the engagement will go somewhere else. And yes, guys absolutely right. The volatility is one of the aspects of how much

how much have I made today or how much have I lost today? There's both those components that we see on Wall Street bets that are human elements that are definitely up play here. And I think there's also this notion of just the consumer demand. What a lot of people don't realize is banks and fintechs, they can see that directly, even if they don't have crypto in their core products. They see how much money flows from their consumers to a Coinbase or Crypto.com or an FDX. They see the card volume, they see the ACH volume.

And so it's very clear to just say, okay, there's a trend here. My consumers are interested in these products. They're sending funds out of my core product to a third party that's offering access to crypto. And I think that there's this fear that what if they don't come back? And it was one thing when they were sending money to a third party that was providing access to crypto. And that was it. And they were only providing access to crypto. And you're always going to come back for your debit card and for your credit card and for your loans.

But now that those companies that they're sending money to that provide access to crypto are offering debit cards, are offering lending products. Like, there's the potential that they build a new relationship. And so, you know, with that data and that insight, plus the benefit that you get from engagement, it becomes a very strong business case for, you know, for thinking fintechs and banks to say this should be a part of our product roadmap. So there's the carrot, but there's also the stick of like, what if they don't need us anymore? It's absolutely right. In this fight for who's your home base, every single company is competing for it. The same way that we were saying that every tech company becomes a fintech. Now every fintech will become a crypto company.

So that is a very clear flow because all of them will have to have these types of products. And it's particularly interesting Kise Point around volatility. There's one aspect here that people are adding to their platform and also realizing that has massive advantages, which is there's a lot of different products being added. But for a moment, if you think about crypto rewards on credit card, so credit card rewards that are crypto-based, so Bitcoin, cashback equivalents, things like that, there's an interesting phenomenon that is happening here, which is people only really feel the upside. And what I mean by that is the following.

The volatility of crypto is bad because if we invest $1,000 and now it's worth $500, you have lost effectively $500. But now if somebody's giving you something for free instead of airline miles and points, if somebody's giving you crypto, the volatility means that you're incredibly excited because you got something for free. There's a lot more valuable today. And if it goes down, there's not as much of that sting of this was actually my money that was invested here.

And so the volatility for something like crypto credit card rewards only really works one direction, which is on the way up. And that is just absolutely fascinating as a phenomenon that then drives engagement, new types of products. And it can really help people with savings, exposure to an asset. class for free in a dollar cost average way just by using a fees a credential. How beautiful is that that we're helping people in a way include their savings and exposure to a very high growth potential asset class without them actually feeling the

downside because effectively from their side, they're feeling that I got it for free. So there's a lot of these like smaller phenomenons that are working on the background. They really speak to engagement. They really speak to stickiness. They really speak to the sense that this fintech that I'm engaging with is on my side and helping me with my financial goals. Yeah, no, that point right there, Dioga is like super interesting to me because we talk about tokens so much, but we don't often delineate, right?

There's like stable coins. There's also like, you know, crypto monies like Ethan Bitcoin, right? But there's also this class of tokens that are loyalty points effectively, right? These are not securities. These are the equivalent of like airline miles. Like you do something that the platform wants and the platform, the network gives you some sort of a bonus. And it feels like, man, the credit card in the payments industry has done a lot with this over the years.

What does this look like in ERC 20 form, in tokenized form, when that's unleashed inside of open finance? And I can't wait to see the experimentation there. I know some like maybe crypto.com with their card. They have some of these things like their CRO token that maybe this resembles some sort of a loyalty point. But it seems to be the case that every company that wants to reward a network of users is going to to want to have some form of loyalty point credential. Are you seeing much develop in that space? I would just say that crypto-backed rewards on card programs is becoming a major, major trend. And I think we started to see this in 2020. And I think for consumers, it's as simple as I didn't

get on a plane, you know, for a year. And so my existing airline miles just meant less to me because it wasn't something that I was using. Well, they literally expire, don't they? I don't even know because I don't know exactly how much an airline mile is worth. And it's hard to track what is the value of that mile. I highly doubt it becomes more valuable. Maybe it becomes less valuable over time and there are restrictions of where I can use it. And when you compare that to being able to earn crypto back,

and for a consumer who is either already into crypto and excited about, and they're checking the price every day and they know exactly how much their rewards are worth and they're excited that the rewards can appreciate in value or for a consumer who may be more risk averse and may say, you know, I'm not ready to invest my money, but it's still fun to have some skin in the game and have some exposure and through the purchases that you make on a card be earning Bitcoin or another, you know, crypto asset back. And so just if you look at the math of if you've been earning one and a half percent back in crypto on your purchases over the past year, you probably would have paid for many things that you bought.

And I think that that's becoming more and more of a mainstream customer value proposition. And at the same time, it's also interesting to think that crypto companies, they have a different business model than a lot of traditional fintechs and neobanks. And because of how profitable, you know, crypto trading businesses are, they're actually willing to offer even more lucrative rewards in a dollar term than most other programs would. And so I think there's a real possibility that if you read the points guy blog and, you know, if you're one of the, there are people who spent all their time figuring out how to optimize, you know, card spend to get the best rewards back, we could look at that, you know, nine months to a year from now and say the top. 10 card programs are all crypto-backed rewards because they're incentivized to pay out a higher amount to acquire customers, get them into their platform, introduce them the crypto, have them start trading where they can monetize. And because if you factor in the appreciation of the

assets that people are earning, you know, it becomes a lot more than two and a half or three percent back. And so we think this is a major, major trend that many of our clients are paying very close attention to and have, you know, plans to participate in. once again, crypto paying you to use crypto. I think there's an interesting analogy here where the airline miles model where these companies issue these credits and they use them as incentives, if you want to take the worst, most dystopian future of what a top-down central bank digital currency would look like, where it's restricted based off of like limitations because they want to control you,

it's also highly inflationary because they print it out. Like the worst case of a CBDC actually starts to look like airline miles as we know it today. and direct juxtaposition on the other side of the things you have exactly what you guys are talking about with crypto crypto reward so like one you have the most top down most controlled most restricted currency being issued and then on the other side of things you have crypto which is freedom money if you will money that appreciates money that's scarce and so the incentives were exactly what we've been saying of the incentives of crypto actually rewards and incentivizes this sort of behavior like no wonder this engagement is being tapped into by these companies they're starting to put all the patterns together and actually formulate products around these things. And I would go to, you know, to Ryan's point, it's pretty interesting to see that what is the next step? So Kai is absolutely right. We've seen a ton of demand on crypto back rewards because of this component around access to an appreciating asset versus a depreciating asset in the form of miles. But the next step is really the, at the core of this Web3 phenomenon and crypto phenomenon,

which is, and to quote Chris Dixon, right, Web 1 was about read, Web 2 was about readwrite, and Web 3 is about read write own. What's happening is that these companies are now starting to, instead of just issuing the top assets like Bitcoin and Ethereum, they're giving them rewards of a token that actually will accrue value of the network that is being created. And so it's not that you're just being rewarded with an asset like Bitcoin

that might appreciate in the future, No, you are directly being rewarded by your active participation in this ecosystem. And by participating more, you get more points that represent, at some point, value of the network that is being created. And so we really speaks to this web three. Read, write, own. You are owning the network that you're creating. And it just creates such strong bootstrapping effects of these networks, because you want to

talk about your friends about this whatever crypto neobank that is rewarding me based on the points, even though it's not Bitcoin. and it's not one of the assets, you believe that these points will actually have more value because you believe this network and this service in this particular platform will have more value. So that is the next step is really how these companies are using

these tokens that they issue to allow clients and consumers to have some of the value of the network that's being created accrue to them. There's a fascinating potential and component of governance there as well, where you can imagine a future where, you know, today, you know,

you might have a card program that has rewards that might rotate in different categories, or you might get different rewards for different merchants. Well, who decides what those categories, who those merchants are? Well, there's a product manager. And that product manager might have a focus group, and they might go out and do some partnerships, and they're the rewards that you got. And like, you can choose, then they'll look at the data of our consumers, you know, opt again.

Are they using it? Is it driving Lyft versus a community approach where, you know, why don't you ask the customers, and imagine if you're earning a token back on the card, and then that token gives you governance, where you then vote on, okay, you know, which categories should we have rewards in for next month? And, you know, the people who are the most active users of that card program who have spent more on that card have a greater say in the direction that rewards go than someone who's barely used the card. And so I think that there are these really fascinating ways that you can have more community ownership and participation in helping to design these products.

And so I think this is still very, very early, but there's a lot that these, you know, fintech in crypto-native neobanks can build on there. Oh, my God. The defy mullet is the best, isn't it? That fits right into the same themes that we've always been seeing in crypto, where once you add in a token, you actually give your community a platform to stand on. And actually it turns into a reciprocal relationship between the company and the community. rather than a top-down, like, here's what our products are.

Guys, this crypto industry is inherently a retail-driven industry. The only reason why institutions are here is because retail's here. And we're previously in the legacy world, the Tradfai world, the people, the retail, the communities are very, very separate from a lot of the companies that are like Visa itself or the companies that would be something along the lines of Anchorage, like custody. But now that we're all in the same place. But your guys' jobs, Kai, Visa and Diego, Anchorage is actually to make things pretty invisible to retail, to just do a lot of the hard work

and make it behind the scenes and just make a really good UI. But that also drives a lot of questions. And so, Kai, I have actually a ton of questions about some very basic stuff about payments and how payments work. And so I actually kind of want to start with these very, very broad questions. Kai, when Visa is coming into the space, coming into crypto, which is mostly about assets, less about payments, yet Visa is a payment provider, what do people in the crypto space generally not understand about payments. And then also vice versa. What do people in the payment space

not generally understand about crypto? Oh, my. How much time is it do we have? Trying to think where to start. I think first, it's really important to understand that the existing payments ecosystem actually exists in multiple layers. And so the core like Visa Net

that most people are familiar, familiar with today is really this instant, you know, high throughput authorization system that works at 70 million merchants across the world that can exchange, you know, messages, you know, between a merchant's bank and a customer's bank. And it enables you to go anywhere in the world that Visa is accepted. And you could be, you know, in Spain and at a local merchant and have a card issued from a bank in San Francisco. I think that's a really important thing I want to delineate just real quick right here, where Visa is not an asset transfer network.

It is a messaging network where Ethereum and roll-ups and payment channels, they actually do transfer assets. Visa just transfers messages of approval, messages of authentication. This is correct? Yes. So there's a separation between authorization and settlement in Visa's network and core payment networks that exist today. And so the core problem that it solves is how can you have a merchant that's halfway across the world that you can go to and you can pay with a card that was issued to you by a bank in San Francisco.

And that local merchant in Spain doesn't have to question who is this bank that issued this to you? Is this bank, what's their financial position? Like, are they actually going to pay me? They just know that there's a guarantee that they're going to get paid that it's going to work. And so Visa solves that global coordination, you know, between over 15,000 banks across the world, both on the consumer side and on the merchant side. And those banks represent 70 million merchants that can now, you know, accept cards. Can I ask a question here, Kai?

It's like, because this is really interesting for crypto people. Maybe if we think of each of those individual banks as like independent chains, right, and independent general ledgers, right? they're all kind of independent. Some are interconnected in different ways. But they don't really talk to one another. They can't really, you know, transact information. What you're saying is Visa is basically the bridge, the connector, the network on top of all of those disparate chains. Is that a way to think about it from a crypto lens? Exactly. That we help 15,000 banks be able to talk to each other in real time 24-7 all over the world and be able to have trust in those messages

and knowing that they're going to get paid. Now, then you actually have to move the money. And so you can authorize a transaction in real time, but then you have to settle that transaction. And so you have to get money to move from one bank to another bank. And so Visa actually uses dozens of different settlement networks across the world, you know, from Facebook. And headwire to local ACHs and RTP networks, depending on the country, to help coordinate the settlement of funds from one bank to another bank. And so that's where when we look at public blockchains today, we really see them the core use case that we think particularly stablecoins are playing is they are new settlement layers. There are new ways to move funds between two entities.

and they have properties that some existing, many existing settlement layers don't have today. And one great example that is very practical this week is public blockchains don't have bank holidays. And I got an email yesterday from a crypto company, a crypto card program. It was actually two days ago. And I think it was smart of them to send this email. They reminded me that if you'd like to add funds to your company, card, it's a bank holiday for Veterans Day, and you're not going, those funds are not going to show up on your card. They wanted to make sure, particularly crypto people, it's like, what? They were making

sure everyone's aware of that. And you don't realize that between now and the end of the year, you know, not only do banks in the U.S. only move money on weekdays, but they're actually four weekdays between now and the end of the year when banks can't actually move money. And so even though you have this global real-time authorization network that can coordinate, you know, of 24-7 between banks all across the world, we are constrained in terms of how money can actually move to settle transactions over that network based upon when banks are open and when bank wires can actually be processed. And I think that's what's really interesting about public blockchains is like I mentioned, we think it's going to be a long time before consumers completely change

the form factor and the behavior of scanning a QR code and that merchants accept it. But we think that there are real problems that public blockchains can solve, making it easier for an issuing bank to be able to settle with Visa, for Visa to be able to settle with an acquiring bank, when we can do it over these public global networks that work 24-7 and don't take holidays off. So, Kai, I was trying to, this week, I was trying to actually get funds from one bank account that we have.

By the way, you know, bankless does have a bank account, unfortunately. You said the quiet power out loud. We'd really wish, okay? So, like, we really wish we could escape the banks, but we still have to pay for, like, merch and, like, some of your subscriptions and you guys pay with banks. So we still need to do that. Anyway, I transferred the funds. This is an ACH payment on Sunday, okay?

It took until today for the. bank to actually receive those funds, the other bank on the other side, so I could, you know, pay off this credit card, basically. And it must have been because of that banker holiday. But what was going on, this is an ACH transfer payment. So what's going on behind the scenes is a lot of networks are talking to one another. But ultimately, this ACH transfer payment, it settles on something called Fedwire, which you mentioned. And this is the settlement layer for banking system. In particular, it's interesting because this settlement layer, I believe, is mono asset. So it only supports U.S. dollars, right? It is provided by, I believe, the government or some consortium, you know, but it's kind of a government-provided thing. And it is almost like the Ethereum for all of the bank chains, if you will, to settle on top of. That's kind of how I think of it. Is this, does this analogy kind of work to you? And if so, then what you guys are saying is Visa can settle to FedWire. It can also settle to other settlement networks. But now we're just saying, hey, we can settle ERC-20.

stable coins to Ethereum too. So we're basically just swapping out some of the underlying infrastructure that backs this whole thing. So you test some of these analogies. Is this roughly, am I in the ballpark here? I think it's definitely in the ballpark. And the other important distinction here is this varies based on the country. And that these tend to be domestic, very local payment rails that central banks and banks operate. And so it looks different in different countries. And the U.S. does not have a real-time payment system that is central bank, you know, operate as a. The Fed is working on Fed now, and they will in the future. There are other countries, you know, like Brazil that have, you know, real-time payment networks. And so to me that,

you know, there are these two things that are happening in parallel. One is a number of approaches to modernize existing, you know, bank-operated payment systems to move to more real-time models from some of the existing models today in the U.S. And then to figure out how do you get every country to upgrade and improve their payment infrastructure and then to connect that payment infrastructure together so that you can do cross-border payments. And then separately in the Mollett land, we have these like new open public global networks and many of them that just work everywhere.

But there's still fragmentation between them and how do you cross over, you know, from existing Fiat held in a bank account to a stable coin held on an open public network. And so we think it's great that there is competition and innovation happening where the development of public blockchains and stablecoins is providing a forcing function, saying, hey, like people are starting to think about

maybe there shouldn't be bank holidays that I can't move money on. And when you have these alternatives, it can then spur kind of more focus on how do you improve existing rails? And I think that you're going to see both of them coexist and solve different problems for different, you know, client segments. But it is incredibly complex how money moves today. And I think crypto is bringing a whole new

class of entrepreneurs and technologists into really just rethinking what does money movement look like across the world. And by the way, one point that I want to make to David's assertion that crypto is primarily a retail phenomenon, this is the fork in the road that makes it not to be the case. It was. absolutely primarily retail phenomenon, but is no longer just a retail phenomenon. And part of the reasons are because institutions benefit from the rise of stable coins, from a rise of different settlement networks. And, you know, the visa partnership with Anchorage that we have around stablecoin settlement is just a great example of that. We see so many of these large fintech

coming to Anchorage because they look at their core business and then they look at stable coins. And then they look at the traditional payment system. And they look at the T plus two, federal holiday, everything. And then they say, hey, there's something here that I can do that is not a consumer product that is highly value accrual to my company, which is I can use these settlement layers to create efficiencies in my own businesses. And we're seeing more and more of these use cases. So the road is for it. Crypto has independent utility for institutions that is not directly related to the fact that consumers want to hold these assets. And so, you know, David, you're absolutely right. That's how the phenomenon started. That's how it evolved. That is still a big

portion of it. But we're seeing this fork in the road. And I'm seeing more and more everyday use cases that are very much squarely on the B2B internal settlements, internal efficiency side versus, you know, the consumer support side. The AVE protocol is a decentralized liquidity protocol on Ethereum, which allows users to supply and borrow certain crypto assets. AVE version 2 has a ton of cool features that makes using the AVE protocol even more powerful. With AVE, you can leverage the full power of defy money Legos, yield, and composability all in one application. On AVE, there are a ton of assets that you can supply to the protocol in order to gain

yield, and all of those same assets can also be borrowed from the protocol if you have supplied collateral. Here, you can see me borrowing 200 USDC against my portfolio of a number of different defy tokens in ETH. I'll choose a variable interest rate because it's a lower rate than the stable interest rate option, but I could choose the stable interest rate option if I wanted to lock in that interest rate in permanently. V2 also features the ability for users to switch. Swap collateral without having to withdraw their assets, trade them on Unswap, and then deposit them back into AVE. With AVE, users can do this in one seamless transaction, saving you time and gas costs. Check out the power of AVE at AVE.com. That's AAVE.com. Living a bankless life requires taking

control over your own private keys. Not your keys, not your crypto. That's why so many in the bankless nation already have their ledger hardware wallet, which makes proper private key management a breeze. But the Ledger ecosystem is much more than just a secure hardware wallet. Ledger is the combination of the Ledger hardware wallet and the Ledger Live app. And if you're used to seeing all of your crypto services and favorite Defy apps all in one spot, Ledger Live is where you want to be. Not only does Ledger let you buy your crypto assets straight from the app, but it also hooks into all of the Defy apps and services that you're used to.

Using Ledger Live, you can stake your Ethan Lido, swap on dexas like Paraswap, or display your NFTs with Rainbow. You can also use Wallet Connect inside of Ledger Live to connect to all the other Defy apps that keep coming online. Defi never stops growing, and the Ledger Live app grows alongside with it. So click the link in the show notes to see all of the Defy apps that Ledger Live has and stay tuned as more apps come online. And if you don't have a Ledger hardware wallet, what are you even waiting for?

Go to Ledger.com, grab a ledger, download Ledger Live, and get all of your Defi apps all in one place. Diego, I want to pick your brain a little bit about how Anchorage fits into this conversation. Earlier, Ryan talked about how all of these different roll-up chains. You know, all a bank is is a ledger, right? That's what a bank does. It manages a ledger on behalf of his customers. What is a roll-up?

What is a blockchain itself? It's another form of a ledger. But now, especially in bull markets, we have all of these extra ledgers. We believe there's a blossoming L2 ecosystem that's coming to Ethereum. And notably, Visa is not actually a custodian. It doesn't actually hold any funds. it just messages funds around. And so what's Anchorage's role in a world

where there's many, many different ledgers all over the place and custody kind of needs to happen on every single one? What's the back end of Anchorage look like here? Yeah, at a high level to continue with these analogies, part of our role is to provide a regulated integration between public ledgers that are on the blockchain and the ability of having Fiat on RAM

from the traditional world to the crypto world. So it really is a portal. The way that I described Anchorage these days is, Yes, we started primarily as a custodian, a regulated custodian, but today we have a federal charter out of which we provide the infrastructure, the APIs, and the prime services for any institution to do custody, to do execution, buy and sell, to do staking, to do governance, to participate in defy, to lend, borrow. So it really is the access to institutions to the crypto space. We only work with institutions. We do not have a retail presence. So our clients,

are folks like Visa. And Kai and I and the team work really closely together and kind of like building products that are, you know, B2B, potentially B2B to C, where are their clients finally on the other end. But Anchorage is really the infrastructure that is regulated as a bank that has these APIs and these prime services so you can actually build these types of features on top. And at the end of the day, for us, it doesn't really matter if you're doing, you know, a credit card that is crypto-backed credit card, or if you're doing buy and sell for your consumers, or if you are trying to provide staking yields to your consumers or lending yield to your consumers or offering dollars backed by crypto collateral or just an execution play. It doesn't really matter. We have the

APIs, the platform regulated as a federally chartered bank. Guys, in the beginning of this industry, especially with Bitcoin, Bitcoin was all about, oh, eventually we'll be able to purchase coffee using Bitcoin. That clearly has not evolved in that way. And not only, even with the advent of stable coins, we are still are not actually stable coins being used to purchase coffee. I believe, Kai, I heard you say somewhere along the lines that the average stable coin transfers $10,000, meaning like, people are doing very different things than purchasing coffee if the average stable coin transfers $10,000. And so in addition to all of these various chains, all these L2s, all these various different ledgers, we also have all

these various different currencies. There's USDC, there's USDT, there's also the coming world of central bank digital currencies. So how does the combination of Anchorage and Visa, where Anchorage is the back-end custodian, visas, the payment network. How does that actually span the gap between when I pay with Apple pay at my local grocery store? Because I actually don't even know what the currency is that I'm spending at the grocery store. If I'm spending USDC on the crypto side, what currency am I spending in my normal trad-fai? Like, I actually don't know these things. How do these world of many currencies, many chains, bridging the way to the typical payments that we're used to, our consumer payments, how do you guys, as a pair of companies, help span this gap?

So maybe I'll start. I think the first, the environment kind of pre-crypto and that most people are familiar with is you have many different currencies across the world. And you could have a consumer who's spending on a card that's issued by bank and the funds that they have on that card are in one currency. And let's say they're traveling, they're going on vacation, they're spending, and the merchant that they're spending at has a bank that's in a different currency.

And so what Visa enables, is that the issuing bank of the cardholder can settle to Visa. They can send us dollars. And then Visa can send euros to the acquiring bank, the merchants bank. And so Visa manages conversions between one fiat currency and another fiat currency so that issuers can pay us with their currency of choice, acquires can get paid and their currency of choice to provide to the merchant. Now what we're seeing is not only do we have many different currencies,

we now have different form factors of existing currencies. And so when we look at stablecoin like USDC or USDP, this isn't really a new currency. You know, it's still dollars. It's just a new form factor. It's another way to represent those dollars that runs on a different payment rail in a public blockchain. And so in the first example, you know, it's a bank as an issuer that is sending funds, in dollars to Visa's bank, and we have many different banks that we work with, and then Visa

sends euros from our bank to a merchant's bank that they receive in euros. Now, as we see that this landscape of crypto-native companies that are starting to work with Visa emerge, you know, companies like crypto.com, where they're building their whole business as this kind of crypto-native card product, they're saying, wait a minute, we're holding some of our corporate treasury in USC. We pay some of our employees in USC. Consumers are spending from a balance of crypto or USDC. Why do we have to convert that back into traditional fiat and a bank account just to be able to settle the obligations that we have with Visa? And today, we can't receive USC from one of our clients to a traditional bank, because traditional.

banks don't support USC. They're not plugged into public blockchains. And so we have integrated Anchorage into Visa's treasury systems as a crypto settlement bank. And so now we have an account at Anchorage where we have a Ethereum address that we can provide to a client. And we could say, instead of having to send us a bank wire to our existing bank account and paying us in dollars, you can pay us in dollars in the form of USDC that you can send over the public Ethereum blockchain to the account that we have with Anchorage. Now, let's say it's a crypto.com cardholder, crypto.com prefers, might prefer to pay us in USC. But the merchant, their bank, doesn't know anything about USDC.

They don't know anything about crypto. They can't receive crypto. And so the same way that Visa manages conversions. and works with banks to convert dollars to euros, we think we should have the capability to help convert a digital dollar, the form of USC, into a traditional dollar that we can deliver to a bank. And so we work with Anchorage to be able to do that. And we think that this is going to be incredibly important

because there's going to be a long transitionary period. I think a lot of people think in these binaries of like, you live in a world of just traditional fiat and bank accounts, or you go completely crypto and like everything is in USC on public networks, for as long as we can see, there will be traditional fiat and there will be digital fiat. And so how do you have those two work seamlessly together and have a consumer experience where I don't have to ask and see, does that merchant, do they know what stablecoins are? Can they accept them?

I pay with my card how I normally do. And everything happens seamlessly on the back end where Visa, make sure that we accept the right form of currency that the issuing bank or the crypto card program wants to send us, and that we pay out the right form of currency that the acquirer, the merchants bank wants to receive. And so Anchorage plays a critical role as a part of our treasury infrastructure to be able to support these conversions between form factors. Do you know, I laugh, Kai, because simultaneously, like, you know, one day I'll have to actually write a physical check, like one day of the week, right?

to just run the business. And that same day, I'm just sending money through a crypto transaction. It's, like, seamless, right? So, like, even for me, this transition period is, like, you have to have a foot in both worlds. So I totally understand the value proposition there. I want to get back to you with another question, Kai.

But before I do, Diogo, do you want to add anything to that about the role that Anchorage plays or, you know, build off of what Kai was saying? Yeah. It's a perfect example of us using our platform and our regulated charter in the fact that we're a bank to really bridge traditional world and crypto world so that products like this can be built. I think one of the interesting things here is that we talk about paying with crypto,

but the reality is that the consumers don't really care about paying crypto. And they are finally, they are the ultimate decision makers of what is successful, which is not successful. It's about convenience. And so the reality is that it's incredibly convenient to use your phone with an Apple pay or to use your fees of credential in the form of a card that you just touch. And it doesn't really matter what the form factor is. At the end of the day, if what you have is a crypto wallet from which the money is spent,

then you are using crypto for payments. And so the actual technicality of the fact that there is no direct crypto transaction between the final consumer and the actual merchant that you're about to pay for your coffee is irrelevant. And in crypto, we are just very technical in nature. And so we care deeply about the N2N transaction happen on the chain. But consumers don't. Their experience is, I have a crypto wallet.

I have crypto and I spend it at a merchant. Nothing else matters. It's the experience that is the best that ends up winning. It doesn't really matter that it is actually a transaction that is directly on chain. It does matter to the merchant and clearly does not matter to the consumer. So I want to point out that this is what's happening. There is crypto being used for payments. Absolutely.

But a better proxy is not the number of on-chain transactions that are happening on Bitcoin that are directly settling between a consumer and a merchant. It is really the cards that actually have a relationship with Visa. the volume altogether of cards that actually backed by crypto on the back end. That is actually the true volume of payments that are being done with crypto. So that actually should be the shift of us. When we monitor crypto adoption for payments, it is not direct settlement is how many cards are being backed by crypto on the back end.

And that's funny. Just a data point on that, I'd say in our fiscal year, which ended end of September 30th, we saw over $3 billion of payment volume coming from crypto linked. Visa cards. Wow. And in the broad scheme of the, you know, over 10 trillion dollars that Visa does is very, very small. But that virtually didn't exist, you know, a year and a half two years ago. You know, that was not in the billions of dollars. And so we see this growing at a very, very fast pace. And as more crypto companies issue credentials, as consumers, you know, find the value prop, particularly with crypto rewards, we think that that's going to become a very

significant number. So, Kai, I want to ask this. Because, like, so for many in the crypto industry who've been a believer in what these technologies could bring, we felt sort of like profits in the wilderness for a while, right? Like just no one believes us. Yeah, there's that crazy guy, you know, whatever. And I want to hear about your story because I know you've been a believer in crypto for a while and a champion within Visa for a while. Now you're talking about the value proposition using crypto for stable coins as a settlement

network. Like, to me, the way you articulated and pointed in $3 billion in transaction volume, it couldn't be more obvious now. The value proposition couldn't be more obvious now. And I'm wondering if that's the case within Visa. I'm also wondering about the journey because that hasn't always been the case. And there has to be some resistance, I think, from like the old ways of doing things and the existing established relationships and crypto is kind of a scam and it's for drugs and criminals and it can't be used in this way. And public blockchains aren't the future. We have private blockchains. Can you talk a little bit about your journey. Do you feel like somewhat, I guess, vindicated? And are there still any,

are there still any objections, do you think? Or is like, is Visa and FinTech, are they kind of all in on this crypto journey at this point? We are definitely all in. I'd say that, you know, my journey, you know, when I came to Visa, you know, I didn't know anything about payments. And so I worked at a startup called trial pay that Visa acquired. It was my first job out of college. I was employee number 100. And I was just, what does Visa do? I was just learning about Visa as I came into the company. And I happened to go down the crypto rabbit hole with some friends that I was living with in San Francisco. And so I had this really unique opportunity to learn about Visa and payments and learn about crypto at the same time.

And that was, you know, really, this was a 2017 Mollett environment where I was the only, that was before bullets were cool. I was the only person with the wallet. They were not cool in 2017. You're the weird guy in the office. It was looking at there were people that I got to learn from at Visa who'd been at Visa for 30 years. They knew everything about payments. I'm like, I'm never going to know more about existing payment systems of Visa than they do. But they didn't know anything about crypto.

They just hadn't spent any time on it. They kind of, you know, they either just didn't care or it just wasn't that interesting to them. And then I was spending time with people in crypto who knew everything about crypto. I was never going to know as much as you do about crypto, but they didn't know anything about Visa. And so it was very clear that the future is going to be some intersection of the two. And so I decided I want to spend the next decade of my career trying to build at that intersection. And we made a little bit of progress every week for four years. And it's amazing that when you do that, how much can happen.

And I think it's also, along with the entire industry moving, Visa is very much a partner-driven company. We've got tens of thousands of partnerships. We really rely, and we coordinate between fintechs and banks and merchants. And so as our partners started to care about crypto, we start to care about crypto and said that this is important. When some of our most forward-thinking, innovative partners are deeply investing in it, it was very natural that we wanted to be alongside them and help and find ways that we can add value. And so, you know, I was just the annoying crypto person inside the company,

just talking about it, you know, every single day. And we've all been there. And I actually, one of the things I did, I created a newsletter called Visa Crypto Weekly that I started probably like, I think it was beginning of 2018. And I strategically sent it out on Sunday nights. is like, you know, people are more likely to check their email and read a few things on like Sunday night than like Monday or Tuesday. And it started with 10 people who were just curious about crypto within the company. And over time, you know, we grew it to, I think when we stopped, it was at 500 people. And so it was just trying to really focus on education. And I think the more people learn about crypto, the more that you can explain it and translate it in the context of Visa,

and the context of payment systems, the more natural that it was, that of course we should be involved. And I think also Visa as a company, we've really evolved from, you know, we used to Visa the company was VisaNet, the Card Network. But over the past few years, it's really been about how do we become

this global payment infrastructure company and participate in add value to many different payment flows. So what about the $100 trillion of B2B payment flows? That's a huge opportunity that we could start to participate and add value in. And so we see ourselves as kind of this network of network. and how can we be a connection point for clients to move value over all different networks that

emerge in the future? And so that's a much broader perspective than just the card business. And I think that's where the opportunities for crypto, particularly stable coins, if stable coins are going to become better bank wires, we would love to be able to be at the forefront of helping our clients leverage stable coins for some of those use cases. So I've had a lot of fun and I've gotten a ton of support internally. And at this point, we are all in. We are in the crypto business. We are very excited about the opportunities that it presents for us. By the way, for bankless listeners, there's probably some hidden career advice here. Anytime you can serve as a nexus and bridge two worlds together, you will do very well, particularly when one of these worlds is growing so fast.

So I know David and I are always telling you, hey, quit your job. Come join crypto. Come join us on the journey. There's also the possibility within your existing company, within your existing role, you can serve as a bridge to crypto in all aspects, whether it's finance or the Metaverse or NFTs or otherwise. Anyway, keep that in your hat, listeners. I hope you pick up on that. Kai, I want to go down a very quick, hopefully short rabbit hole, but usually these rabbit holes aren't that short. With regards to payments in the traditional world, payments are far more reversible than in crypto. So how does the immutability of these transfers on actual blockchains? Does that like ease any frictions for Visa? Does that add any problems? How does that change?

change the game when it comes to payments and visa? So when in the context that, you know, we are working with Anchorage and, you know, really focused on using USC and public blockchains as settlement layers, it's, it's not a major issue because, you know, FedWire and, you know, other large settlement rails, like they are not easily reversible and you have to be very careful when you use them. So I don't think there's a huge, distinction there. I think there is an important question for consumers about, you know, reversibility. And I think that, you know, there is a value proposition of card products to be able to know that, you know, if you sign up, you know, for a subscription, you know,

with, you know, a website online. And if you literally can't cancel that subscription and, you know, they keep charging your card, like, there's someone you can call. And you could have, you know, that charge canceled. And you could be able to. And you could be able to. to have some recourse and ability to get your money back. And I think that that solves a real problem in a number of different use cases where if you switch entirely to, you know, you're going to make payments for everything in stable coins, it'd be like you're going to use bank wires for everything. And there are certain payments where that makes sense and others where you want to be able to have some recourse. And so I think, you know, what's exciting to me is that

there's just so much innovation happening, and there'll be different products across the spectrum. And if someone wants to go entirely crypto-native, they can, but there are trade-offs. There is no clear, here's the product that you use that is better on every single metric for both consumers and merchants. And so we're excited to be able to offer products that are very easy for merchants to accept

because they already accept them today and very easy for consumers to use that provide some benefits and guarantees and recourse that consumers have, which we think will continue to be valuable, particularly for people who are scared of, you know, don't get the address wrong. Like, what if you're scanning a QR code? What if there's a new type of attack and someone,

there's a man in the middle and they put their QR code in there and you send them your stable coins? You're not getting that back. And so I think there's a long way to go to have crypto-native payments to the core of paying over a blockchain, be as convenient and consumer friendly as card payments are right now. And a lot of people in crypto, it's so focused on the tech, we don't think about an average consumer and what they care about is being able to trust that the payment's going to go through.

And if there's some issue, having someone to be able to call. And I think that's a major problem that card solved today. But David, to your point, I think your insights are absolutely right, not for the payments use case, but it is very clear that many fintechs that come to us, that have some kind of consumer funding that they are dealing with T-plus 2. They are dealing with finality problems of networks like ACH. They are dealing with these issues because it is a bad consumer experience to fund an account and then have to wait five days for it to actually be withdrawable.

And we see this constantly on exchanges where funds can might be used immediately, but they can't actually be withdrawn. And all of that has to do with a network lack of finality and with a reversibility and the fact that they can be clawed back. So there's many other types of these cases for which the fact that, you know, when the RC20 token is final, well, probabilistic in nature, but, you know, with strong probabilistic conviction from a sarcastic model of number of confirmations, we believe that it's there. It can't be clawback. It can't be taken away. This is actually a major shift.

And it's interesting because because of this issue, we have created a whole market and a whole set of complex systems that companies like Square and Stripe do around underwriting. they are dealing with a system that will only guarantee them that the money will be theirs, you know, X days from now. Yet they underwrite for that period of time using their own risk models, the ability of paying immediately, or in the case of square cash, being able to do an instant payout and actually withdraw the money immediately when in fact they're liable and they're taking on the risk there. So there's a whole complexity to risk analysis and underwriting of these types of use cases is because the systems do not have instant finality.

And there's many use cases, by the way, in the traditional financial world where people say, why is this T plus two, why can't we have a blockchain do this instantly, there's many use cases for which the financial institutions actually want those two days. They want those two days to have the time to do something in case it goes wrong. And so it's part of their built-in risk model. So they'll actually push back because they don't want the technology to be instant. But there's many use cases for which consumer experiences are just so much better when you're using something with instant finality.

because if I can guarantee that in a few minutes, all the funds are there and they're not encumbered in any way, shape, or form. And I don't actually have to run a very complex underwriting process to allow those funds to be used, then that's just a dramatically better product experience, which ultimately makes a company distinguish themselves from their competitors. I think one very practical example in use case you can think about is like paying your credit card bill, where you're paying your credit card bill with an ACH bank transfer from your bank account. Let's say someone is like right up to the limit of their credit card. They're

about to max their credit card out. And they want to be able to pay that out and get access to it. Well, there's some risk that what if that payment doesn't go through? It could take several days. And so you might have an issuer say, hey, we're going to wait to make sure that payment goes through before we're going to give you more of a credit line. And so that's where it's exciting to me to say, well, what if you could pay your credit card bill with a stable coin? And there's instant finality where that issuer can know. that they have that money. And so at any point of time, you know, if you want to create, you know, have more of a credit limit, you can pay down your credit card, you know,

instantly, you know, with a stable coin instead of having to wait, you know, a few days for a payment to post via ACH. And so I think there are like really interesting ways that that can come together. Kai, that literally just happened to me this week. Okay. I was waiting for five days and like our merch wasn't shipping because I was just trying to transfer some funds to a credit card to pay off a balance. And I would have loved to. to have just pressed a button and sent that in ERC20 stablecoin. And there's a lot of these points of friction throughout all of our daily experiences. And so the way that I think about this is just another tool in your toolbox.

If you are an institution, if you're a fintech, if you're a company trying to build some type of product where money is being moved, then you want to consider this as a tool in your toolbox. You might consider the traditional financial world. If you're directly access to Fedwire, maybe you don't actually have concerns about finality. But for everybody else, not a lot of people have direct access to FedWire, then this is a tool in your toolbox that you might actually use. Guys, we definitely want to get to the CBDC conversation, but I want to speed run us through this NFT conversation

because recently Visa purchased a crypto punk. So congratulations for owning a crypto punk. And I want to go through the story of how that process happened. Kai, why did Visa decide to actually buy a crypto punk? And what did you learn from that experience? What was the goal of that? And then also we'll fit in how Anchorage helped out in that process as well. So I think what's really exciting about NFTs for us is that,

Visa's been around for 60 years. And so, you know, we have, you know, participated in major commerce transformations, you know, over that time. And so you can think about, you know, first, you know, the origins of Visa, it's, you know, you're selling physical goods in a physical location. And we helped to move that from cash and check to an electronic payment. Then you go to, now there's this internet and you could do e-commerce. And so now, you know, you're selling, you know, with a digital storefront.

You don't have to pay rent anymore and, like, have an open location. But you're still mostly selling physical goods. You still have a factory. You're still manufacturing. You're still shipping. And the storefront is digital and the payment is digital or electronic. Now we see NFTs as this, you know, really brand new phase of commerce where it's a digital storefront and it's an entirely digital product that you're selling. And we think that the

potential that this has to just increase the velocity of commerce is tremendous. When you can sell something to someone across the world and have it minted instead of produced in a physical factory, and then have it delivered to a crypto address instead of shipped to a mailing address, and have that happen instantaneously, and then have whoever received, it, be able to own it and resell it if they'd like to someone else all across the world. The number of transactions and the amount of commerce that can happen, we think could be beyond anything that we've ever seen before. And so that's when just NFTs are a new generation of e-commerce that has tremendous potential, but we want to help make it easier. And so we want to

help merchants and brands be able to figure out how to sell NFTs. We think consumers should be able to buy them with a Visa card on file, you know, as easy as buying anything else on e-commerce. And so we are very much focused on how do we help accelerate the adoption, you know, of this category of commerce. But to do that, like, we need to deeply understand it. And so, you know, that was the goal for us is let's just learn by doing. And we've been very focused on building a crypto-native culture at Visa. You know, we like to experiment. We believe that the only way to truly understand and learn about crypto is to use it. So everyone on our team uses crypto.

That is a core part of, you just can't figure out, you know, what impact crypto is going to have in your business if you've never set up a wallet. The same way you wouldn't have been able to figure out what impact the internet's going to have in your business if you never had a dial-up connection and you never surf the web. And so recognizing that it's early, you still have to go in an experiment. And so that's what we wanted to do, you know, purchasing the Cryptopunk. We knew Cryptopunks were this historic artifact that was one of the first mainstream successful NFT projects.

And we're like, we should collect this the same way that Visa collects old first generation card processing machines and kind of cuff links that DeHoc handed out. We've got this whole archive of really cool things that we've collected. We're like, Cryptopunks deserve a spot. And so we wanted to add it to our archives. we want to display it in all of our innovation centers, you know, in our offices and have it as a part of Visa's collection. But we're like, how do we do this? How do we buy this as an institution? And so I ended up, you know, sending a message to Diogo. And I was like, hey, like, we want to buy a crypto puck. Like, can you help us with this? And we went down many different paths of, you know, it would be very, very difficult for a large institution like Visa to do it on our own. own. And so that's where, you know, Anchorage really stepped up and were an amazing partner.

And it's one of the reasons why we chose them in the first place is because of their ability to execute on new initiatives like this. So maybe Diogo, you could talk about kind of how you actually did it and, you know, the role that you played in it. I mean, starting from the receiving a text from Kai, I don't know, I think it was 2am or something. I don't know what Kai's doing it to him thinking about these initiatives. But did he have the Cryptopunk selected at that time? like just like, hey, I've got, you know, possibilities. I got a budget for one. Did you guys have your heart set on one?

It was more like we had, I had identified a buyer. I identified a seller. And so a seller that had a collection of crypto punks. So we were kind of limited to what selection they had. So us was more about we need a punk. Like, you know, at this point, any punk is like amazing to have. And so how can we work with this known seller and Anchorage to help do? And it's interesting because if you're an institution,

the types of things that you're thinking about are very different from a consumer experience, right? Obviously, where do I keep this thing in a way that it will be there in a way that is potentially regulated in a way that minimizes my risk of not just loss, but my risk of having something bad happen to it. But from another perspective, consumers don't usually care about who they're buying their art from,

and institutions kind of do. And so from a perspective of who's the buyer, do we know who they are, you know, where this is the source of funds is, you know, all of the, all of this until how do we pay for this? How do we get the Ethereum to actually pay for this? How do we execute and turn Fiat into Ethereum? And how do we settle this transaction? How do we take ownership of it?

And how do we store this for the long term? So there's quite a few things institutions need to think about, quite a few things that you have to consider from a risk perspective until you actually get this done. So from my perspective, what I did was I received a text. Kai said, hey, we want to buy a crypto punk. And we're like, I was not thinking of having an NFD product. That is not part of my roadmap.

But, you know, let's do this. This sounds fun. So I think into end, I mean, keep me honest here, but into end, it was like two weeks, a week and a half to two weeks. Into Nguend from first text of, I have an idea to we have a punk and we can announce it. And we have a specific punk and has been purchased and been settled. The interesting thing here is that the moment we announced that Visa had bought a punk and that Anchorage had helped, every single one of my clients and every single one institution out there would, would, the crypto punk because another NFT just reached out to us.

So now we actually have quite a bit of a treasure trove and a significant percentage of all the punks on the market. No way. Wow. That's fantastic. Hey, thank you for increasing the flow price of crypto punts. David says as he looks at his punk in the background. No, it's a beautiful punk, by the way.

So congratulations. Ryan said it was ugly and I took that fence to that. It was one of the most effective marketing initiatives that we've done, really just raising awareness of Visa participating in this space. And I think what we found is like the same way that it was crazy to think of the early days of Twitter and Facebook that you'd have major brands on these new platforms talking directly to consumers, we think there's a parallel of, you know, being able to have an institution or a brand collect NFTs and have an NFTs that fits with that brand's

identity and using that to build relationships authentically with these communities. that are forming around NFTs, we think is a new way to do kind of social media management and marketing. And so that was really excited, yes, but we wanted to make sure it was authentic. We didn't want to just come and say, let's do a Visa NFT drop and hey everyone, Visa selling an NFT.

We wanted to say, like, let's pay homage to the role that these historical, valuable projects have played in the communities that they build. And let's say we see you, and let's help introduce you to the role rest of the world and use that to inspire others to say, you know, build on these new technologies and these new form factors. Yeah, that's really cool. I'm glad you did it. I mean, to many in the crypto industry, to me, it was like a signal. It was basically like, hey, Visa's here. We're

crypto-native. We know what's going on, right? So that was a signal and stuff. And the second signal was like, oh my God, visa must really trust Kai and the crypto visa team, right? To be able to get the budget for a $150,000 crypto punk. So you guys have definitely earned some legitimacy and credibility internally, and that's a signal in and of itself. Guys, we don't have too much more time, but we want to touch upon this at least. And this is CBDCs, Central Bank Digital Currencies. So China has a strategy. We had a gentleman by the name of Richard Turin on.

He wrote a book called Cashless. He told us all about China strategy, and basically they're letting their tech companies eat their banking system. So like the Wii chats and the Ali Pays are doing that. And one benefit of that is they've been able to roll this out across a very broad population, mobile payments, QR codes. You mentioned that a few times. It's all QR codes. It's very easy, very accessible. Payment fees, transaction fees are down to like a fraction of a percentage for each transaction. A lot of good things. The cryptocurrency industry would say, yeah,

but the trade office complete centralized control, okay? Like you don't have the freedoms. There's no property right concept in this. And so I want to ask the question to you guys, because visas, it sort of feels like it's in the center of it, and definitely Diego, the institutions are as well. What strategy do you think the U.S. will ultimately pursue in the central bank digital currency realm? Will it go the way of China? Will it go a public-private-type relationship?

Or will it continue to do what I feel like it's doing, which is like shrug its shoulders and not really very much? Spin wheels, yeah. Spin wheels. What's your take here, Kai? So I think first, China is a very unique country and market for payments. And so it's very hard to draw direct parallels from China to every other market. And I think it's very clear CBDC is a major focus for them. Reportedly, they started in 2014. They've got a lot of engineers. They've got like 100,000 engineers building complex infrastructure. And so this is very real in China. Then you have the rest of the world looking at this. and saying, what should we do? And we think it's going to have to be more of a public, private partnership for them to be

successful. And I think first too often, one of my frustrations has been the conversation around CBDC and stablecoins and how to regulate stable coins is kind of happening in a vacuum. People are like just focused on CBDC and like, how do you design CBDC? It's very academic and abstract and like, you know, what are the monetary people? policy implications. And then it's, oh, okay, how do you regulate stablecoins? Where we think stable coins represent this really interesting environment where you can see what are the use cases, what demand do consumers and businesses have for a digitized form of their fiat currency.

And increasingly, it's not to buy their coffee. Like, I think that's been one of the challenges of CBDC is what problem does it solve for consumers? And what does CBDCs? And what does CBDC look like as a product. And that's something we're very focused on. And we're engaging with, you know, every major central bank across the world, you know, doing research and helping them think through this. But how do you position it? You know, how do you differentiate it from a bank deposit? You know, who can offer a CBDC wallet? I think that's a critical question. Is it only a bank that can offer a CBDC wallet? Like only banks can have, you know, accounts at the Fed? Or is it any fintech or developer can build a CBDC wallet?

And I think what has made stablecoins so exciting is this developer ecosystem, is the composability, is the new use cases like defy and NFTs that have really driven it forward. And so I would argue that for CBDC to be successful, it has to have many of the same properties that stablecoins have had. And there are paths and the IMF has talked about this concept of synthetic CBDC where you know, you could have a stable coin that's backed by reserves at a central bank, but still have it run across multiple different networks. And so I think that we are still very, very early. And there's a lot of work to do on what are the use cases, what does it look like as a product, what role do banks play,

what role do payment companies play? And so we're really committed to just being a partner to central banks to help them think through it. And frankly, help them learn a lot from the stable coins and the existing private sector initiatives. Diego, what's your take on the same question? How will central bank digital currencies turn out in the U.S.? I think, as we all know, there's a spectrum between decentralization and full centralization. CBDCs definitely, as we know, live on the right side of the spectrum

in terms of full centralization. I think invariably what comes out of a CBDC is going to be positive for crypto. I do agree that it needs to have the characteristics around transparency and around access that stable coins do. and if they don't, then it'll just likely look like more of a Fed wire V3 than really a cryptocurrency as we know it. And so that is the likely outcome here. And I think the regulators are talking about who has a CBDC account and can consumers have direct relationships with the banks? That's actually one of the biggest conversations that is being had, more than that and less about

the technology, less about the openness. But our role at Anchorage is going to be bridging these worlds. If there is a CBDC, then, and if there is a transparency and ability for us to have access to it, maybe we can be the ones to wrap it and actually have it be available to all of these other networks, whether it's Solana and Ethereum, et cetera, and have a central bank digital currency that is also exposed in crypto and can be used by smart contracts. So that's, I feel like, a really good outcome that is in between these two worlds. It's not a full cryptocurrency, but it gets to benefit smart contracts by having a federal reserve backed proxy and deposit but still be available on smart contracts.

And so I think that would be a great outcome for us if it does pan out. Kai, Diego, it's been an absolute pleasure to have you guys. Thank you for taking us through the defy mullet. I want to conclude with this question. So some of the crypto natives listening to this might be a bit skeptical, okay, because crypto natives come from the ethos of decentralization, right? The cypherpunk ethos. And here's Visa, which is a centralized company.

And here's Anchorage, which is serving the institutions. and they're getting in on the crypto space too. Put their mind at ease. We've talked about all of the wins for institutions and the fintechs in crypto. What are the wins for crypto natives in having some of these institutions and established fintechs come to their world?

What's your take, Kai? So first, I would highly recommend anyone who is deep into crypto, go and learn a little bit about Dihawk and learn a bit about the origins in the history of Visa. And I think what you'll find, D.Hawk predicted a lot of the things that we've seen in crypto in the 60s, in the 70s. DeHocke talked about decentralization, talked about new types of organizations and kind of precursors to Dow's. And so there are these components

that are kind of in Visa's history and core DNA that just has a lot of parallels to what crypto looks like today. Now, I think one of the major roles that we play is, is for crypto to continue to grow and to become mainstream, it needs to be convenient for consumers to be able to access. We want to be one of the best on-ramps into crypto, where you can easily buy with a Visa debit card. And so we think that's a major, major role that we can help play for the industry to move funds into crypto,

and then to let consumers be able to get back out and spend it at merchants. And so we think that we can accelerate, you know, the growth and adoption of crypto across the world in a way that very few organizations can, and we're absolutely committed to doing that. Diego, what's your take? Same question. Yeah, I think there is a common question for us, which is in a world where self-custody

and be your own bank is part of the ethos and how things were created, why would I use a platform that is centralized around a traditional Delaware C-Corp? And the answer to that is that you're focusing on the wrong aspect. It really is not about centralization, decentralization. I believe it is around the gatekeepers. In the traditional world, there are gatekeepers to access fiat and allow you to transfer fiat. In crypto world, as long as there are no gatekeepers, as long as you can integrate directly with Ethereum and Bitcoin, and Anchorage does not allow you to, this cannot stop you from doing so, then we still have the ability

of doing self-custody, and people will still be able to always do it while benefiting from the fact that Anchorage is specialized. It is not centralization, it's specialization. The reality is that very large institutions and even consumers really can't do the type of custody that is necessary for private keys that are completely irrecoverable and are storing trillions of dollars. And so I think it's a lot more about specialization than centralization. And as long as these companies can allow the permissionless innovation that has happened in crypto over the past 12 years and can't act as gatekeepers to these networks, then these things are not against the ethos. It is not self-custody or centralized custody. It is about both.

some of your assets on your own, and you can keep assets on a centralized entity that is specialized in doing the right thing. Then finally, I just want to say that institutions do have legal requirements to use third-party custodians. And Anchorage is the only unambiguous, qualified custodian in the United States because of our OCC chartered bank. And so sometimes these entities don't even have a choice. They can't really do self-custody. Not only they don't have the technical talent and the ability, but they can't, from a regulatory perspective, do it. Fantastic. Guys, thank you for guiding us through. the defy mullet. It's been an absolute pleasure. Kai Diogo, take care. Thank you for having us.

Guys, fantastic conversation. Action items for you today. We will include a link in the show notes to view Visa's Cryptopunks. You can see what that looks like. Also, Kai was mentioning Dee Hawk. That is the founder of Visa. You can read all about Dee Hawk. We will include a link we will include a link in the show notes. I want to do some reading on him myself. Maybe he has some crypto-native values as well. We'll also include a link to Visa's recent interoperability white paper. Last thing, of course, you can do is become a triple point consumer of bankless. That means you're listening to the podcast now. Also subscribe on YouTube and the newsletter.

That is the trifecta for the bankless journey. It's exactly what you need. Of course, risks and disclaimers, none of this has been financial advice, not at all. ETH is risky. Bitcoin is risky. So is crypto. All of it's risky. You could lose what you put in.

But we are headed west. This is the frontier. It's not for everyone. But we're glad you're with us on the bankless journey. a lot.