Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Sveinn Valfells: Monerium – Regulated On-Chain Euro (EURe)

Episode Date: July 7, 2023

Stablecoins represent the backbone of DeFi, allowing complex financial applications to be protected from external volatility. From fiat-backed to algorithmic, there are multiple approaches to issuing and backing stablecoins. While US regulations are looming over the crypto industry, Monerium released a fully regulated on-chain euro stablecoin, the EURe, enabling direct SEPA transfers, on- and off-ramp.We were joined by Sveinn Valfells, CEO of Monerium, to discuss the European E-Money Directive and how it set the ground for fully regulated on-chain currencies (EURe) built on top of SEPA.Topics covered in this episode:Sveinn’s background and building MoneriumRegulated on-chain EUR and seamless SEPA on- and off-rampsHow electronic money regulation differs from MiCAWhat assets back EUReMonerium’s business modelEURe’s adoption compared with other stablecoins (USDC, USDT)Issuing other currencies on-chainCBDCs and the banking sectorChallenges of building on SEPAIBAN discriminationKYC limitationsDeFi and stablecoin backingReal world assets used as on-chain collateralEpisode links: Sveinn Valfells on TwitterMonerium on TwitterThis episode is hosted by Friederike Ernst & Sebastien Couture. Show notes and listening options: epicenter.tv/503

Welcome to Epicenter, the show which talks about the technologies projects and people driving decentralization in the blockchain revolution. I'm Sibais Sankwizur, and I'm here with Fredeka Ernst. Today, we're speaking with Spain Valfels, who is one of the founders of Menarium. Manarium is an issue of EuroE, which is an authorized and regulated Euro token for Web3, and it's available on Polygon, Ethereum, and Nosis. And it's an interesting product because it allows you to very easily on. onboard and off board to any euro European bank account. And so we're really excited to talk about Monarium, how it works, the regulatory framework in which it exists,

stable coins and all kinds of other things. So Spain, thanks for joining us today. Thank you. So before we get started, maybe getting a little bit of background on yourself and how you became founder of Minerium. I was always fascinated by technology and science when I was young so ultimately I wound up doing a physics degree in experimental physics

but I also complimented that with an engineering degree at Stanford essentially and when I was in Stanford I was back in the late 90s it was the you know dot com boom and then a subsequent bust I was messing around with cryptography for various reasons. I was just really, really curious about it. So I had the foundation in cryptography, and then going back to Europe, started working for companies there in tech and starting my own companies there. I was really curious about the financial system.

And living in London in 2011, I'd been angel investing and investing in various tech companies in Europe. I came across Bitcoin accidentally. I came across Bitcoin because I went on holiday to California. I met somebody in California. I asked me what I thought about Bitcoin. And I became very curious and started looking into Bitcoin. And I immediately grasped the potential relevance of Bitcoin for the financial system. Thanks to the preparation I had in cryptography and also the fact that I'd been involved in some activism trying to rebuild Icelandic financial system after 2011.

So Iceland was the epicenter of the 2008 crisis. Almost everything that could go wrong, went wrong in the Icelandic financial system. There was a systemic crash for the backs. The British financial system almost went the same way. And so it drove me to start thinking about how to build a more resilient financial system. And one of my friends had just been appointed to the Board of Governors of the Central Bank of Iceland following the crash of 2008 to help rebuild the financial system. And we started talking about Bitcoin.

When Ethereum came out, we had been fortunate enough to meet Vitalik at one of the early Bitcoin conferences, we took note. And we started thinking about how it could asset's own chain like Vitalik anticipated and that Vitalik predicted and wanted to do in his white paper. We very, very soon came to the conclusion that the key dependency of implement, you know, the Italian's vision of putting assets on blockchains was to put a reliable form of fiat currency on chain. Now together with two other founders we joined up to start on an area based on the premise that fiat was a reliable link to fiat currency was needed to essentially

help Vitalik's vision to unfold into the mainstream economy and to build a more resilient financial services. So what year was that when you founded Monarium? So as we said, Monarium started in stages. It started as a commissioned report for a financial institution that was completed in six months starting late 2015 into early 2016. We started with by meeting with the back of England, the research department, Harvard-Bergman Center, but also consensus in New York, people who were actively hacking in the system as we were back in the day, Robert Sams in London. So we started with this by doing like a thorough research report on the implication systemic and also the implementation as it was envisioned at the time. We started mining ether. We started writing smart contracts.

Due diligence in the entire stack, as it were, from the regulation to the technology. and we came to the conclusion that Ethereum was a viable system in some way, shape, or form or some fork of Ethereum would be a viable system. But at the same time, we came to the conclusion that we needed to be a licensed, regulated institution in a major jurisdiction to be able to put fiat money on check. So in a way, I mean, you guys have been around in blockchain terms,

you know, almost since the get-go, right? So basically if you look at kind of like the stable coin system today, I mean there's kind of this clear dominance of tether in USC. And then kind of in the decentralized space, we kind of have die. So Yuri, the saber coin that you guys have launched, never really made it into the limelight so far. I mean, often that's kind of just because people are late to the party, but you weren't late, right?

You were there from the get-go. So we were there from the get-go, but we started with a very different approach. We due diligence to all the regulations, relevant regulations in the major jurisdictions. Because our fundamental premise was that Fiat money has to be regulated and will have to be regulated in major jurisdictions in some way should have. So we look at all the relevant licenses in the major jurisdictions. We came to the conclusion there was only one major jurisdiction with relevant licenses. That is Europe. And that's called the eMoney.

And that's now been enshrined with my car. So our regulation first approach took us inside the system. So we can scale now inside the system, whereas the other stable coins have come up against various regulatory walls. And in my view, I think it will be very, very difficult for them to overcome those obstacles unless they try to retrofit themselves onto regulations. or try to restart themselves as regulated entities. So the other thing that we discovered as well,

after we got a license, is that we started closed trial beta settlements on chain using various tokenized assets. Primarily Invoys is working with the Danish company back of the day and trade shift, which transacts hundreds of billions of dollars globally in supply chains. And we're thinking about always how to disintermediate. It's the same way Satoshi thought about disintermediation

in the italic as well. It's like how do we put money on chain to settle invoices so they can move and be financed all the way through the stack of the supply chains? And how do we put money on chain so we can help small companies in supply chains factor or get borrow against their invoices that they are able to issue against a much bigger, more credit worthy companies? So discovering going through these stage. and these trials were using Euro, sterling, dollar, and isolate the Corona even, we discovered also it made no sense to us that we should issue money through an exchange. Why would you ever go to an exchange to buy money, let alone unregulated proxy for money?

So we came to the conclusion that the only way for Fiat money to reach on-chain in a major way, in a scalable way, would be to link a blockchain to a major currency payment system. So when the pandemic ensued, instead of issuing a negative interest rate environment, for cryptocurrency speculators, bless them, I'm one of them, we set about to build a connection to the SEPA systems in Europe because we're licensed in Europe and we're authorized in Europe. and the main courtesy of Europe is the euro. And so we've figured out a way to essentially mint money directly from a bank account on chain and redeem directly from on chain back into a bank account.

So we're the first company arguably properly regulated in a major jurisdiction to issue fiat money on chain. And also we're the first company that essentially does away with the unwrap. Because our money is money that we issue is transferable. directly back into a bank account. There's no route. There's no idea to get to you. I think that's an important distinction that your money is regulated

and that it transfers directly into a bank account. And I think looking at Menarium, so just kind of describing the way minarium works is you have this euro stable coin. That Euro stable coin stands as a balance on essentially a,

euro sepa account and you can transfer those euro stable coins immediately into the sepa payment system and vice versa. So you can send money to this iBAN account and then, you know, euroese stable coins pop up on your Ethereum wallet. So but what's important here is that this stable coin is actually a payment instrument that is also regulated. It's not like a USDC or something like that that you're that you guys are having to do that that kind of onboarding when you use EuroE you're using a regulated payment instrument no exactly we because we discovered this secret hiding in plain sight the fact that Europe has had the stable coin regulation since 2000 it's called electronic money it's been used for prepaid cards it's been used for

mobile wallets is being used for online payments, it's been used by transfer wise, it's been used by PayPal, it's been used by Revolut to provide services. All we did is we sought a license to issue that form of regular feead money on chain. With the first company authorized to issue that type of money on chain and it's one-to-one exchangeable for bank accounts. It is intended to be fungible with CAF. It's an electronic surrogate for notes and coins. That's what it says, literally in the directive. It's just plain old dough.

That's what it is. So because we're licensed as an electronic money provider, aka Fiat stablecoin provider, then we are inside the system and we can safeguard inside the system. We can be onboarded by all the regulated financial institutions to safeguard and also to perform payments. We can link up to the system,

the SEPA system, in a way that unregulated companies will never be able to. So we issue these what we call Web3 iBans to our customers, and these Web3 iBans are beautiful. What they do is that they essentially receive funds from inside the banking system, and they route them to Web3 wallets. And then you can go the other way around. And so what we've in principle done is that we have linked the European banking system

with 11 trillion euros worth of cash to blockchain to Web3. In my view, it's almost like the biggest wallet that's out there. You can go back and forth, seamlessly. Absolutely. I've actually onboarded a few people into Monarium myself because when I started using it, I'm an avid Monarium user, when I started using it, it just basically, before Monarium, when I kind of wanted to go in and out of crypto,

you had to go via centralized exchange, right? So be it kind of like Krakken or Binance or Coinbase or whatever you want. But basically you send money there, like it takes two days to kind of appear in your account, and then you kind of buy crypto from there. And basically it's a terrible user experience, and it's also quite costly, right? So basically this magic of kind of just having this IBAN,

you send money to, and it shows up in your wallet. Basically, all the kind of crypto natives I onboarded to this, their mind was completely blown. And I think that's super beautiful because it's such, in principle, in the way it works,

it's such a simple offering for the user. And the functionality is so limited. But I can only imagine kind of other kind of parts that you needed to kind of get in a row in the backend to kind of make it such a good user experience. No, I mean, and that's part to my dev colleagues, hacking away during the middle of COVID,

making sure that, you know, double testing and triple testing, all these interfaces that you have to connect with, because we indirectly connect to SEPA. We are currently two providers in Europe inside the EurSR, and getting that straight is it was a major development achievement. Also, it's not just the concept of moving the money in and out, but also you have to build on top of the TriteFi interfaces and provide with a beautiful experience on the other end to make it easy to use in Defi.

So my hat off to my dev colleagues who were not on this call, but it was a phenomenal achievement on their behalf. I'd like to talk a little bit about this EuroStable coin, this EuroE or ERE, I don't know how you pronounce it properly, but yeah. And in this this eMoney regulation, so it's a directive that I'm not super familiar with. So maybe let's talk a little bit more about this directive and how it applies or how it can apply to stable points. Because what was striking about what you said earlier that we effectively have this regulatory framework in Europe since 2000.

And well, in the conversation about Mika and the EU crypto regulation and certainly Mika too, there's a lot of talk about stable coins. And so, you know, how is it useful to have another piece of regulation when, from your perspective, we already have the required regulatory framework for this? Electronimoire has served as a technically neutral, and I'm quoting this from the relevant directive, It's a technically neutral standard for digital cash. That's what it's supposed to be. And that's how it has served for over 20 years on pre-bit cards and mobile wallets, etc.

Now, along comes Satoshi and then Metallic and then a number of other people who start, who come up these phenomenal shared ledges where you can read and write and issue your own tokens, right? So e-money in financial terms, is the saying, whether it's on prepaid card or issued on a letter. It is always safeguarded in the same way. And it always is the same requirements, which essentially it has to be over-collateralized by 2%. It is safeguarded in segregated accounts.

So it's really the user's money, is your money on trade in the spirit of defy. And it's, it's, it's, so it's the principle is the same. It's supposed to be you can safeguard either with banks, it's your choice as an issue, or in high-quality liquid assets in AAA. We safeguard the both comfort funds in AAA short-duration instruments with a global asset management of company. So essentially, it's your money, it's on-chain, in the same way, your money on a plastic

card if you had like a prepaid card, right? So the main difference, which is the interface. It's a token on chain as opposed to a plastic card. So we think there's no need to change the eMoney regulation in any way here before just because there's a new technology. And the original legislators didn't think that either. Now, Michael comes along and micro resolves a lot of a certainty in many ways. It brings under the regulatory umbrella of traditional consumer production in financial services

like the service providers and the asset issuers, which is great, and then it recognizes the e-money as a way to issue Fiatonche. So that's one strike for my car, just recognizing e-money is the way to go instead of the European Union. Number two, however, it opposes some additional constraints on e-money, which are not in place in the original e-money directive. So it fragments the e-money standard and makes it more difficult to issue e-money or blockchain

than on other technical mediums, which in our view is wrong. It's not a big showstopper, but it is in sense anti-competitive because it requires, for example, e-money issuers that issue e-money as token or chain to safeguard at least 30% with banks, which is not a stipulation in the original drift. So it's anti-competitive because it's forced the e-money issuers to rely on the banks, and introduces them as intermediaries where they're not really necessary, which increases the cost also ultimately to the issuer because the banks take their spread. So I think there's a lot of things that need to be redone in Micah, in the second iteration of Micah, including removing the additional restrictions that are opposed on eMoney issuers by Micah. Now, this is something that the UK hopefully will, has not or will not, repeat or replicate in their digital asset rules.

I haven't been able to look at the final outcome of the UK legislation. But their intent, the HM. Her Majesty's Treasury was going to build on the robust framework of e-money. They said going into the legislative process. And America does not have to repeat that mistake. So Europe was almost, I would say, they've made an own goal, not a massive own goal, but a little bit of an own goal by imposing additional restrictions on e-money issues under my car. A lot of all the things are really great.

For example, the consumer protection clauses that are imposed on the service providers and at the same time putting like asset reference tokens into a very clear umbrella of how they should be licensed and authorized, et cetera. So I think overall, MICA is very good for Europe. But when it comes to issuing money on blockchains, it opposes restrictions which are, in my view, totally unnecessary. Why do you think Mika too and imposes these additional restrictions and effectively breaks from the technical neutrality of the e-money directive?

Is it for political reasons or are there other reasons? you think? I would want to hypothesize, but I would suspect that it's number one, it's a knee-jerk overreaction to what legislative fears and

perhaps lack of understanding of this new technology. And number two, possibly the incumbents bless them, are lobbying for their own interest, so it would be high the seats. I bank on that second assumption pretty hard. So what

What do you guys do with the money that you have to hold in custody for your customers? We safeguard in AAA funds, short duration, with a global asset management company that is Eastern Ireland and all for us to regulate it in Ireland. So if you, we issue eMoney to you and you send a. money you said there's a hundred euro from inside the system we met a hundred euro to euro on chain we sent the bulk of it to this global asset management company which has AAA short duration assets backing it and then we hold what we think we need for redemptions with a back inside the euro zone we haven't disclosed these backing

partners, but we will disclose them at some point. So I assume this is also Monarium's business model, right? So basically for the customers, kind of moving money on chain is free. There's no fee on kind of having the account. And basically, you can do separate transactions from the account for free. Basically, for the user, there's no charge. But you kind of get the yield from the assets that you put in customers. with the Irish provider?

So our customers, we have direct customers, companies, individuals, such as you yourself, but our main go-to-market is to arm the builders, is to make what we've built available to all other Web3 builders out there. We want to share it with them so they can use it to build services in DFI. We believe that DFI is this phenomenal technology that essentially enables open banking in a way, way that's never been possible before.

We think it's essentially defy is open back in your steris. That's what we call it. So our main go-to-market is to serve the builders, including builders such as, you know, the closest pay, for example, and whoever's building in closest court.

So the Monarium offering as a user is free. Yes. So basically, I sign up for an account. I don't pay a fee for that. I can do separate transactions for free. I can on and off ramp for free, which is typically points that exchanges take a major cut, right?

So basically all of that is free in Monarium. And I assume your business model is that you get the interest from the assets that you put in custody with your Irish custody provider. Is that correct? That is correct. I mean, do you pay? when you move money from Deutsche to Paripa? I mean, it just moves inside the SEPA system.

It depends. It depends. So basically, I think on most private accounts, you don't pay, but on business accounts, I think there's different years. And I think we pay something like $9.0.0. Per transfer. There you go. So our thinking or model or philosophy is the same.

Moving money on-chain and off-chain, should be as seamless as the experience inside trial. So we make money holding your money, safeguarding your money, while you move your money around our chain. So we collect the interest, just like the Baxter. We're making our offering currently free. At some point, we'll stop thinking about imposing or start charging for some of these services, but it will be in the same way as the Bax do, try to make.

make it as light and burden less for the user as possible. And I'd like to add also our main go-to-market in that sense is to arm the builders. We want to share what we've built with all the Web3 builders up there. So we want to make it as easy for them to onboard their customers and for their customers to use our services as possible. Why do you think that's not taken off so far, right? because basically in my view, kind of monarium on and off ramping is kind of definitely best in class. And in my view, kind of, it seems like a super solid offering.

But if you look at like the total Yuri on chain, it's, you know, on the order of like 10 million or so. It's not, not huge amounts compared to, say, USC or TED. What do you attribute that to? Because we're really, really early. The Web 3 is just like any technological innovation is going through waves of adoption. We went through several waves of adoption and then we hit the pandemic,

which massively distorted the monetary system and totally gave rise to a speculative bubble like we haven't seen since very long time ago, not since 2008, at least. So all the focus in Web3 building has been on supporting speculative activities, which means unregulated staple coins, which means exchanges, centralist exchanges.

We've never believed in that future. We always believed that DFI would be the way to go. And so we've always been building for the builders of DFI. Now that this last speculative bubble is over, and the technology stack is maturing, and we're seeing all kinds of services coming out there, that we're trying to remove intermediaries, then we think the time is right for our regulated,

authorized stable coin with a direct connection to a payment system to serve the builders that serve the mainstream economy, mainstream individuals, and mainstream companies. Maybe let me push back a little bit here. So let me talk about USDC, right? So basically, I don't want to talk about tether because kind of tether, redemptions are notoriety difficult and so on. let's kind of not talk about TETA.

Let's talk about USC. I understand they're not regulated, but in a way, they are an extremely serious company that is taken seriously in the space that kind of custody's

user fiat in various bank accounts and kind of then issues them on chain. I totally understand they're not regulated, but why do you think they have kind of, they have gotten so much adoption while you guys haven't when kind of your offering is similar

well we just launched officially about you know under a year ago number one as number one we didn't launch until we had the connection to set by in place in a scalable way so that's number one but two I think there's waves of adoption there's different types of

instruments that will serve the community in different ways at different stages of the adoption cycle. So USDC was, and Paxos bless them, both good enough for the speculators. But now it turns out that in over what, they're building on licenses that are being challenged by the US government. And I'm not saying that, you know, that's right or wrong. I'm just saying, but it goes to the extent that even the issuers themselves, like Jeremy O'Leare, of Circle is calling on Congress itself, the main legislative federal body in the United States to remove the regulatory uncertainty of these tokens that he's been issuing on chain.

So this does not surprise me because we did our due diligence on the regulatory stock before comes to conclusion that European e-money license was the way to go. We spoke to lawyers in the United States. we spoke to the OCC even at some stage. There is no federal license in the United States for stable coins. And it turns out that these licensed that they have been building on Paxos and the U.S.TC are not really intended for holding all people's money and reflecting all people's money in the way that the European licensing regime is. So that means that you guys have issued a euro staple coin, right? But in the interface, I also get given the option to kind of hold a crona and British pounds and USD on chain.

How does that work? We decided to focus on the euro because euro is the main currency of Europe. So we built an interface between SEPA and blockchains. and our main focus is on serving customers that want to use euro or check. But actually the first currency we issued on chain a outdoor e-money license in 2019 was the Isolatic Corona. That was in July of 2019, a month after we got no license approved by an isolated regulator. So officially, the Isolidic Corona is the first fully authorized fiat currency on chain.

We followed shortly thereafter with trials using euros and dollars and sterling. And we're able to issue both dollars and sterling at scale when we decide to focus on dollars and sterling. The European e-money directive allows the issuers to issue e-money denominated in any currency that qualifies in a way that you can save, keep it in the correct way. that's one thing that Micah also breaks is deadly because Micah essentially makes it more difficult to issue non-European currencies on chain, which we think is not really necessary at all. Cool. I'd like to talk about CBDCs. I know a lot of our listeners are probably going to

like roll their eyes at this topic, but it's an interesting topic because it I think for a lot of people, they see it as a concept that is at best useless in the face of like cryptocurrencies and other stable coins and at worst, a very sinister attempt by governments and central banks to fully control the flows of money and particularly in the hands of their citizens. And there are some fears there that CBDCs become a Chinese-like social scoring system or become integrated in a very, very pervasive system of surveillance. So your co-founder, Jan, was previously the chairman of the Icelandic central bank supervisory board.

And he's talked about the right approach for central banks as they enter this world of digital money and a world, I think, where we could qualify as having a broader diversity of money-like assets and a greater yeast to create money-like assets? What are your thoughts on central banks entering this space broadly? Back in the brick and mortar day, did you ever go to the High Street or Main Street and make a deposit withdrawal of Central Bank? No. Now.

So central banks are not set up to serve non-financial institutions or consumers. If they want to do so online, it will require major policy change. It's not really up to them to do the KYC, AML experiment, and explore with the interfaces that are needed to serve, you know, different market segments. I think CBDC is not going to happen. I think it's a really bad idea. And it's not just me who thinks this.

It's like senior economists at the IMF have actually argued for the opposite, that instead of central banks experimenting with CDC, what they really should do is to take these non-back decentralized issuers like e-money companies and give them full access to central bank facilities and issue digital currency through them. I think that's by far the best way to go. This idea is articulated in a beautiful paper by two senior IMF. economists called The Rise of Digital Money issued in 2019.

I encourage everybody in DefiFi to read this paper because coming from the opposite side from the technology stack, I think this is the canonical paper in TratFire, which explains how the Trot-Five Fiat systems should be set up to make it decentralized, resilient, robust. So, CPDC shouldn't happen and is not going to happen in money. But the ECB have announced a CBDC project, and as far as I know, people like Christine LaGalle, they're very bullish on this idea and, you know, have offered fairly bearish sentiments on private stable coins. Do you think that at the highest level of EU policymakers, there is a desire to want to control more of the monetary stack and get into doing KYC.

And is there something more sinister here that people should be concerned about? I would call it sinister. I would call it a digist in the fresh spirit. There is a tendency always in government to expand. that we're encroached on the private sector to a certain degree and vice versa. There's this cost of tension between private public in these countries that we call democracies and free market countries in the world.

I think the ECP is totally overreaching. I think it's totally misunderstanding its mandate. And I think this is just back off and instead of trying to compete with many of the companies that they're supposed to be serving and in some cases, regulating, they should instead support them. So I think they're absolutely in the wrong track and they should totally cease to experiment with CBC. So in the ECB foray into the CBC realm, the current idea is that every citizen will only be allowed to

hold a limited amount of euros with the ECB to protect the remaining banking sector, legacy and non-legacy, because basically the fears that citizens will just want to hold their assets with the central bank rather than with the retail bank. How do you see that? No, that's also what the economists have proposed. is that what you can do is you can give non-banks and banks separate reserve facilities at the ECP

or annual central bank. So you could control the influx and outflow of money in a way that's similar to how you incentivize the banks to hold or not hold money with the central bank, right? So there's ways of managing that risk of flight, as it were, away from the banks. But what is also important to understand is that I think introducing a non-back alternative for holding money and issuing money on blockchain or any other technological medium is a way to essentially put checks on the banks and make them more responsible in their behavior. So they're more mindful of the outflow risk, as it were, if they may, in the case that they may add laws. The banking system is not going to go away, and it should be a core part of the financial system, but it is highly inefficient. It is very inefficient because, number one, it transmits liquidity really, really inefficiently.

And number two, it's very expensive to set up a bank in a maintain. So it's, it's, the banks need. an alternative, as it were, to keep them competitive. But of course, you have to experiment with the alternatives in a responsible way so as to not to increase systemic risk. Now, I think the way to do this is to open access to central bike facilities, to non-bike issuers. But, of course, you have to be mindful at the same time that you want to perhaps put caps

on how much the non-bike issues could safeguard with the central bank. banks, et cetera. But that's more of a deep macro discussion that I'm prepared to do on epistrate at this stage. Let's maybe kind of go to the smaller realm of I-Bans and EU banking kind of on a practical level, right? So what have been your biggest challenges working from within and out of the SEPA system? There's a lot of challenges. Sepper system is you would think SEPA system is standard, but it isn't. And each financial service providers has different types of implementations of SEPA. So it's getting SEPA to work. The building on an interface that is stable and consistent and is supposed to follow the SEPA standard. It takes a while.

So SEPA itself. Sorry to interrupt, maybe just describing what the SEPA system is could be a good starting point here, I realize that probably a lot of our listeners are in the States or not in Europe and not really know what SEPA is. SEPA is essentially at the core. It's just a bunch of XML files. So it's what one back says, I want to credit something to your account and debit from my account or vice versa. They sent an XML file to a centralized intermediary and boom, then it clears.

So one back debits and another back credits. and your money muckus. So that's all it is. But it's a relatively new way of moving money in that sense because the euro is a very new currency. So the main payment systems for the euro got built relatively recently. So it's XML files as opposed to something even work. But all it is able to do, SEPA, is to debit from your account

and credit to somebody else's account inside this system of European Euro-supporting backs, right? So, but what we do is essentially built on top of a payment provider

inside that system. We accept, whenever there's a SEPA payment destruction that comes to us, we receive money from inside the system. It's credited to an account that we hold, on behalf of the customers, and then we issue in return a token

corresponding to the inbound on a blockchain. Now, going the other way, we receive a burn instruction essentially from a blockchain and burn 100 euros from gloses, for example. And then what we do is that we send into the SEPA system, we know where it's coming from. this is our 0x address, someone else chain,

that is linked to a customer that we support, and then we send it back to where it's supposed to go. The magic here is that you have to start that a customer that has our Web3 IB3 IBAN in their name can receive, not just from their own account, but from any account inside the system. So if you hold a Web3 eye ban

is linked to your Web3 wallet. You could receive from any of your friends, from companies that you're billing, or from any account that is inside this system, euros, and then you can send also outbound to any IPAN using our Web3 service, IPAN service as it were. You can send back to your friends and suffer whatever you want, or pay a bill

wherever you like. We actually have a customer that paid their tax bill recently in the Netherlands using our Uri Orchay. They birthed the money from the blockchain.

They set it into the SEPA with a string. SEPA has a way for you to send like a comment or a string along with the payment into the Dutch tax authorities bank account.

And then next time they had a statement of their tax debt, that payment was reflected as seven. So my monarium IBAN is a Spanish IBAN. How do you determine kind of who gets what nationality of IBAN or does everyone get Spanish? No, we're about to support more IBBs. Ibis were set up in the days, but everything was kind of regional in Europe.

So the iPad is constructed to have first a country prefix and then a institution identifier and then a bank account identifier and a bunch of other stuff. But it's really irrelevant in the modern age because we ultimately safeguard the money inside the Eurozone, a AAA in Ireland, in a bank, in Estonia. So it doesn't really have, the prefix that you use has nothing to do with how the money is safeguard. It is totally archaic and it reflects the Europe as it existed before the Four Freedoms and the European Union and its modern form came about. Well, I agree that it's archaic. I don't know if I think it does make, I think the I ban prefix I think to certain

institutions does make a difference. My feeling interacting with SEPA and like neo banks and traditional banks in Europe, at least in France, it feels like there's a multi-tier system where you have traditional national banks at the top, you know, like the Deutsche Bank or BNP or, you know, Santander or whatever, like these big national banks that effectively control most of the banking sector. And then there are sort of second tier banks and payment service providers who are the neo banks, the N26 is the Revolutions, who are operating in the SEPA system, but are very much relying on a traditional banking system. And what I've experienced is I've experienced a lot of what we call IBAN discrimination, which is either an institution like your or a company,

like it could be your cell phone provider or your electricity provider, refuse to withdraw funds from an IBAN that doesn't start with the country in which you're in. And I've actually recently encountered a situation where I tried to withdraw funds from sort of like a life insurance policy type investment account to a bank account outside of France that I own, where it was outright refused by the French financial institution. So I think a lot of people experience this IBAN discrimination, which is actually illegal in Europe. You know, Article 9 of the SEPA regulation prohibits it.

Is this something that your customers have encountered? And how do you think we should combat this? Because it's contrary to everything that I think the European Union or the sort of ethos of the European Union stands for. We intend to offer more IBANs. Let the market decide. If you want a German IPAN, we'll provide it to eventually. It's in our roadmap to support more country iPans.

IPAN is a standard that exists not only Europe, but also in some places outside of Europe. So it would be happy to support whatever country IPAN essentially that our customers would like to have. I mean, do make your own iPad is almost our philosophy in that way, shape, or form. But at the same time, I think long term, with Fiat and gradually we're going to move on chain. We will stop thinking in terms of iPads. We'll stop thinking in terms of also zero ads.

There will be something seamless. There will be some identity on top of all of that that masks all that identity. It's like we don't really care about IP numbers, do we? I mean, and they're hierarchical in another way shape of work. An iPad should not really be an issue inside the common market of Europe. And I regret that, you know, but it's still a fact that in people's heads, that Europe is not yet united enough that people think of in European terms as opposed to country terms. Do you think that this I ban discrimination is

motivated by political for political reasons or is it compliance pressures that banks have like what's the reasoning behind this? We all have our prejudices about

which our biases are built in based on our experiences and I think regrettably it's just a manifestation of the fact that Europe is not integrated enough yet that people still think in terms of country codes. There's some, I would say, perhaps there's cultural divisions that people are more comfortable dealing with people of the same type culture. So it's just a reflection of this human trait. And the way to counter it is number

one, okay, give people what they want. If you want a Spanish-Iban or Estonian Ipan or Danish-Ban, then, you know, Leslie, you could have whatever you want. But at the same time, realize that, you know, with respect to Europe, four freedoms should make it irrelevant where you vote your money. And whatever the prefix of your Iban account is. Which countries outside of Europe use the Iban? Or maybe which other countries don't use the Iban system? Well, the Europeans, for example, and it's Fourth of July,

happy Fourth of July, the Americans don't use I bans. The Americans have their own way of doing things. in many ways and they have their own routing systems, routing number, account numbers, which is more archaic than the European system because it's older, it's been built more, European systems are built more recently. I'm not aware of the banking systems.

I've not looked deeply into many banking systems outside of Europe, but I know that parts of the Middle East and I think parts of South America use IPAN, which is the European standard. So European standards in banking, actually relatively widespread, not as widespread as the European mobile standard, GSM, but which became the dominant standard in the world. But they spread, it seems naturally, to countries that are affiliated with Europe

through traditional ties or something like that. Okay. And so basically to kind of onboard as a use of Monarium to get an IBAN, you have to go through like KYC. Do you have jurisdictional constraints? So, can I say, I mean, I'm very obviously a German person and I was allowed to go through it. But say, if I were a US person or an Argentinian,

would I be allowed to get a Monarum account? The way it works in Europe is that we have common European laws that support the four freedoms, which means all the regulators are supposed to operate in the same way. We have a license in Iceland. We are passported across Europe, so we can serve anyone inside of Europe. We can onboard anybody that's inside of Europe,

but not outside, except with the permission of a regulator and except with the permission of the local regulator in a place we intend to serve. There's something called reversal solicitation in finance, which means that if you're not really seeking to serve somebody outside of your jurisdiction, they can come to you. But right now, we're still a very small company and Europe is a big marketplace

for us. We focus on European customers, meaning the European member states and the UK and Switzerland. Okay. So now we've talked about nation states for a while. Let's talk about the DFI ecosystem and stables that we've seen there. So basically there's fundamentally different saber concepts that we see, on a daily basis. So there's like the fully off-chain backed, kind of like you guys and circle and probably also tether and so on. And then there is over-collateralized on-chain, so kind of the maker dies of the world.

And then there is the algal stables, right? How do you see this landscape? A lot of what is happening on chain actually will eventually, come inside regulatory umbrellas because it seems to be new, but it really isn't new. What is really new on blockchain, for example, like Bitcoin is an asset that is truly virtual, backed by energy consumption, proof of work, and it has no representation in the fiscal world. But the qualities of Bitcoin nevertheless are similar to another traditional currency gold in a way that the European Union recognized that.

So it brought the Bitcoin under the same value-added tax umbrella as gold. So the European Union has already recognized, well, okay, we have this phenomenal virtual thing called Bitcoin, which is backed by essentially entry consumption. It's got the same properties and qualities as, That's gold. So it's a pure virtual commodity. And Bitcoin, in my view, is a beautiful construct in technical ways and all the ways as well.

Now, on the other head, you have these, coming from the other side, assets that are trying to replicate what already exists, like traditional money, theater money, like what we're doing. And there's different ways of doing that. So our view on that was to go using vehicle, and a regulatory license that was already proven and tested, battle tested over two decades

in a major jurisdiction. In a sense, you could say e-money that we built on, which is in our view of the ultimate stable coin, is algorithmic in a way that there are constraints

on how you can safeguard the assets. You must only safeguard in high quality liquid, low volatility assets. And you must over collateralize. You must have a buffer of your own capital to protect against fluctuation in the value

of the underlying assets, right? So in some sense, that's an algorithm, so to speak, which is proven and tested because eMone has been very robust over the past two decades. Coming from the other side, You look at, you know, if you want to construct the algorithmic stable coin that's supposed to reflect something, then where do you start?

Where do you start? If your premises, how do you back it and where do you back it? And when it comes to fiat, regular money and stable coins, the safest way, in my view, is always to back it up with assets, which are high quality, low volatility, highly liquid, and denominated. the same currency. So for all these other experiments for fiat stable coins, algorithmic or otherwise, less than, you know, good luck to them. But be mindful of the risk if you try to back it up with something that's denominated in another currency, something that is not even denominated in a currency like a commodity,

because it always just increases the volatility, sometimes it decreases the liquidity. So just be mindful of what you're trying to reflect and try to connect it with the way you're supposed to back. How do you see the onboarding of real world assets into kind of volatrals here? That is the big wave ahead. Real world assets on trade. That's what we're really seeing in our pipeline today.

It's not just it's equities. It's all the securities like asset-back debt. In my view, that will be the big main wave of adoption. We're seeing some of the early mainstream adopters coming to us now and starting implementing such projects ranging from carbon credit tokens to asset back debt and ETFs of equities. So it's just brilliant.

That's the big wave of adoption is coming at. That type of asset or chain needs, number one, a regulated Fiat token on chain to self against. And number two, it needs a direct connection to the payment systems of the major currencies. Because these use cases are not going to come online unless there's reliable Fiat on chain, which is directly redeemable into a backup out. We provide just that. Very cool. I'm I just onboarded Monarium like today and so I'm like really excited to start using it and I can see all kinds of use cases for this, including personal but also like business use cases. So what can people expect in the coming months and how can people start using Mineram? Well, my main go to market has always been to Arm the Builders. We have this direct consumer, direct company offering almost as a showcase.

So if you come to us and onboard as a user directly for your company, fine, we'll serve you and please tell us what we're doing because we love to, the market's still discovering what you do with money on chain. But when it comes to the builders, the Web3 builders, it's for them, we're almost like listening to what they're telling us, what can happen. And the main builders that are coming to us now are these tokenization. platforms that are bringing real-world assets on chain, and that's going to be a huge wave of

adoption. It would be much bigger than the crypto-speculative bubble, although we just went through. And unlike also the speculation, these are recurring use cases that they're not going to go away. If you shouldn't take down a crypto today, a few speculates would be out of pocket and they would be, you know, it hurt. But if you take down paypal or strike, a lot of people, message. business would cease to exist. So the challenge for DeFi is to get into the economy and start

serving the economy in a sustainable, repeatable way, which brings real value to real companies and real users. Great. Well, I think that's a great note to end on, and I think we certainly agree with. So then thanks you for coming on the podcast today. Thank you. Thank you, Sween. Thank you for joining us on this week's episode. We release new episodes every week. You can find and subscribe to the show on iTunes, Spotify, YouTube, SoundCloud, or wherever you listen to podcasts. And if you have a Google Home or Alexa device, you can tell it to listen to the latest episode

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