On The Brink with Castle Island - Jeremy Allaire (Circle) on Dollarization through Stablecoins (EP.50)

Episode Date: March 10, 2020

Jeremy Allaire, the co-founder and CEO of Circle joins the show. In this episode we discuss:  - Jeremy's entrepreneurial journey and the original vision for Circle - The geopolitical impact of US Dollars on public blockchains - The goals of USDC - Circle Platform Services, a new product launching today - The regulatory environment globally for cryptoassets and much more

Hi everyone. Today on the podcast, we had Jeremy Allaire, the co-founder and CEO of Circle. In this episode is actually the first installment of our dollarization series. If you haven't checked out Nick's article on Coin Desk, go check it out now. We're going to be rolling out about five episodes over the course of the next few weeks on the impact of U.S. dollars on blockchains. Those of you who are familiar with Jeremy know that he's a serial entrepreneur who's built some incredible businesses over his career. He's the co-founder of Aller Corp, a company that he founded

with his brother in 1995 and later took public in 1999. He went on to found Brightcove, the online video platform in 2004, and he took that company public. In 2013, he started Circle with his co-founder, Sean Neville. Circle's been a really important company in the life of public blockchains. They have played critical market infrastructure role across a number of franchises, including Poloniac, Circle Trade, and a number of others. Right now, the main focus of the company is on USDC.

which is a dollar-backed stable coin. We spent a good bit of time in this episode talking about the impact of dollar-back stable coins, talking about the regulatory environment, and talking about the path forward for companies that are looking to build products and services that incorporate U.S. dollars on a blockchain. We also talked about USDC platform services,

which is a new product that Circle will be rolling out today. This is a product that makes it easier for businesses and developers to build integrations with public blockchains and to easily move money around in a programmable manner. We had a lot of fun with this conversation. It could have gone on for a lot longer than it did. So without further ado, here's our conversation with Jeremy Miller. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated.

The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giant. that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of quantitative easing. You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called the Bitcoin.

Jeremy, thanks for joining the podcast today. Thank you. Really excited to chat with you guys. So there's a lot to dig in and you're launching a product today. So we want to talk a lot about that. But before we do, could you set the stage for the audience and maybe give your personal background, entrepreneurial journey? that led you to circle?

Yeah, sure. So I have been working on sort of internet platform, software-based businesses since the early to mid-90s. And I got into the internet space. I was studying global political economy in college and got very excited about, sort of had access to the internet in the early 90s and got really excited about what I was seeing happen, which was that there's sort of these open networks with open protocols and decentralized infrastructure that was permissionless that allowed anyone to communicate

with anyone else and anyone to share and publish information with anyone else. And I got incredibly excited about what that could mean. And so when I graduated with liberal arts degrees, I, all I wanted to do was work on the internet. So when the first web browser came out, I very quickly got excited about how you could use that as essentially like a piece of a new operating system for building interactive software where you'd write software on servers and then the browser would be the user interface layer and it would be new types of software that were more kind of content rich and dynamically composable. And so working with my brother and a number of good friends in mid-night or like 1994. 1995 helped work on creating the first web application server, something called Cold Fusion, which was like a programming language that was very easy for people to learn that allowed you to build interactive software and browsers. But we didn't know anything about building

businesses, but that was successfully adopted. It was a very developer-oriented product. And then we built a whole family of development tools, app servers, content management infrastructure, and grew that here in Boston and built a public company. And then eventually after the dot-com kind of meltdown, we merged that with another bigger Internet software company called Macromedia, where I was the CTO, and the big project there was taking something, which at the time was basically an animation tool, Flash, but it was the most widely adopted piece of software in the history of the internet,

and 98% of computers had it. And our idea when we merge our companies was how do we add a richer programming environment to it and allow it to be used for much richer forms of applications. And it was sort of predicated, this was before broadband. It was predicated that broadband would happen. Wi-Fi would get adopted. Again, Wi-Fi was relatively new. And that you could build these what we called rich Internet applications.

But part of that was we put a video runtime into a video. And so you had a kind of programmable video object that would be accessible on 98% of computers in the world. And that was sort of like when I first, you know, started playing with the very first web browsers in the fall of 1993. It was sort of like when that got into production, it was like, oh my God, like video is going to be as ubiquitous as text. Everyone's going to be able to use it. Everyone's going to be able to publish it. This is going to be really significant. And I got obsessed with that.

ended up leaving Macromedia before Macromedia merged with Adobe and then went to a venture capital firm, which was a startup VC here in Boston, general catalyst partners, and then incubated Breitkove, my second company. And there's some similar threads here, which is what I was excited about, this was in 2004, was that open protocols would now exist for video on the internet and that you'd have widely distributed, permissionless video publishing and that that would be transformative all the way down to the consumer level, certainly, which was sort of where YouTube came from, but we were a little bit more focused on the professional level, like, you know, media companies, every media company, whether you're a newspaper or a magazine or whatever, would become a television

company. Every television company would move their television to just be on the internet. Every brand would itself, like create content. And it was sort of this set of ideas. So we built a platform services business around that. So the cloud platforms, developer APIs, all the things you needed to basically weave video professionally into what you do. And then grew that business. It's a good size publicly traded company here in Boston.

But in 2012, after taking Brightcove Public, I became, shortly after taking BreitkoV public, I became obsessed with cryptocurrency. And when you, you know, each of these sort of things that I've seen like, you know, the early pre-web internet, the web itself, video on the internet, you know, when I, you know, downloaded my first Bitcoin client synchronized a blockchain, it was, you know, just an aha moment. Like, this is completely revolutionary. And so it's just one of those things where you just get obsessed with a lot of people have the same kind of story with Bitcoin and just got, you know, incredibly excited about it. And it actually was interesting because not only was it weaving together a lot of the like kind of technology themes and what I thought of as like the DNA of the internet. But it also was bringing in my long term interest in global political economy, my long term interest in international monetary policy, sort of armchair academic kind of reader, you know, post-financial crisis. found myself reading a lot about central banks and history of money. And then, you know, all that

obviously sort of converge for me and led both Sean and I, who's my co-founder, to think, you know, this is in early 2013. Like, you know, now's the time to try and imagine what the kind of future of the financial system might look like built on this technology. And our view then was, you know, the impact of this will very likely be far, far greater than the impact of the web. And, and, you know, I was, you know, just like 22, 23 when, or whatever, 24, when starting my first company built around the web. But I didn't know what the fuck I was doing. Excuse me, language.

And, and, and, and, and, but, you know, I, I'm, I understand a lot more about, you know, how to, how to, how to build things. And so I was really excited, like, to build something and knew that it would be like a 10 to 20 year journey to really realize the full impact of this. But that was totally fine. I was like, that's what I want to work on for the next 10 to 20 years. I remember in 2013, I was living on the Bitcoin subreddit. And it started to percolate that you and Sean were starting this company. It was like Jeremy Lehler's next company is in the Bitcoin space, but it was super secretive at the time. What was your original, what was your original vision there? Did you have a clear picture?

Yeah. It feels like some of the things you're building now were actually very, very tight of that. Yeah, so I mean, I was actually, I gave a talk on this thing called Founders Diaries recently, and I went back and looked at like the very first materials that we developed for Circle and like what the mission and vision was. And it's basically the same thing that we're focused on now. But the concept was that there would be, you know, open, interoperable, programmable forms of money. that could exist on a public infrastructure and that that would transform really, you know, kind of commerce. It would actually transform what happens with businesses, what people can do

and build on the internet. And early on, I think we very specifically got excited about, you know, that in late 2012, early 2013, there were technical communities that were in and around Bitcoin that were interested in things like colored coins, issuing assets on chains. There's a lot of discussion around how do we expand script to be able to do richer, you know, forms of smart contracts. And so as a technologist, you know, we looked at that and said, okay, those things are going to happen. Like whether they happen like this year or next year, we wanted those things to happen. We wanted to see Bitcoin evolve that way. Obviously, Bitcoin went a different direction.

And then a lot of really smart people who wanted to see those things happen went another direction and built other things, most notably Ethereum. So I think for us, when we started our core, one of the first core premises was that we wanted to build a kind of hybrid digital currency model where you could take central bank money and you could imbue it with the characteristics of digital currency. And so the very first thing we did is we created an infrastructure that essentially allowed the customer to have that experience. So you could go from electronic money on a debit card to a Bitcoin address instantly, which was a really amazing experience. And so we wanted to create that

kind of instant digital money experience, but with a public infrastructure that was interoperable, which was Bitcoin Network, is how we looked at that. And so we wanted to create that. And so we weren't so much focused on, hey, this is a great way to buy Bitcoin. It happened to be a great way to get Bitcoin. But we were focused on, hey, how do you use this public settlement layer as a way to move value around? And very much, you know, believed in taking reserve currencies as we know them today and sort of tunneling them through the Bitcoin network. That was a bad idea for a whole lot of different reasons. It was a good idea in terms of we, I think we made something that was really useful to people who wanted to get Bitcoin. And the early use cases of Bitcoin, people really

like that. But it didn't, it didn't solve the problem of like programmable money. It didn't solve the problem of like a scalable, affordable infrastructure to move digital dollars around. Bitcoin ended up being slow, expensive, not extensible, not professional. programmable. And so by late 2016, we kind of had, and, you know, we had been very closely tracking Ethereum. We sort of said, okay, we got to reconceive this and reconstruct this on a different architecture. A lot of the architecture was stuff of like our own, what I call transaction banking core that we built, our own risk infrastructure, all these licenses, all these banking relationships, all of that kind of stuff. That was kind of the same we needed all that but the fundamental architecture for how you express money and then and then settle transactions and so on you know needed to move it to what we back then called fiat tokens which are now called stable coins more broadly yeah do you think that the the name stablecoin kind of does them a disservice i often thought it was kind of funny because it seems like a reaction

to like you know the volatile exchange rate native tokens but maybe stable coin doesn't really really describe the concept that well. Yeah, yeah. You know, it's a really good question. And it may be that it just sticks. Like, you know, World Wide Web is a mouthful. The Web is a mouthful. Right.

So certain concepts, they just stick because they happen to be the name. I think there's obviously this, you know, Central Bank Digital Currency is this other concept, but that, maybe we'll talk about that, but that has very different meaning, I think. I think stable coin is sort of what it is and it kind of works and we're kind of running with that. But I think as we talk about things that we're doing and what we're trying to enable businesses and people to benefit from is, you know, we talk about, you know, internet dollars,

digital dollars, programmable money, higher level concepts that don't say like stablecoin, Although as a technologist who's sort of interested in building with this stuff, I think they'll understand what that is. Yeah. So you bring up, you brought up colored coins. It's funny. I remember there was a time period where I actually thought that the open assets protocol would be this protocol for attaching real world assets and dollars and transmitting them. I guess a lot of that manifested itself with the ERC20 standard eventually. You guys have had an incredible role in a number of market infrastructure.

categories over the years. And it seems like now the US dollar stable coin project is really possible and is becoming mature. So maybe talk a little bit about USC and how it works, what the positioning is and how that business is operating. Yeah, sure. So a little bit on the genesis, I mean, so a little of it I've already shared, which is sort of we were working on this problem space. And then in 2017, you know, while the, you know, crypto markets were going crazy in the speculative side of this, we started sort of R&D on, you know, work on what eventually became Center Consortium and the first stable coin in the center consortium, which is USDC. And I think one really important thing is that our view, and this was our view from very

early on, but held even deeper conviction about this in 2017 and early 2018 was that, you know, ideally if you're going to have fiat tokens, aka stable coins, that you're going to have standards for those. And, you know, the phrase that Sean and I would throw around was like, there needs to be kind of an HTTP for money. And ideally you have a set of standards that are technical standards. They have open source implementations. They have reference implementations. You could have multiple implementations on different architectures. It doesn't have to be like the RC20, right. It could have an overall reference implementation, but also like governance standards and what makes digital money, especially like these cryptocurrency types of digital

money, really different from a protocol like HTTP is it's money. So there's a whole series of societal contracts that exist around this particular type of data. And that has to do with lots of things like consumer protection, financial crime risk. It happens to be regulated activity all around the world. And so whatever kind of standard needed to be not just a standard that, created a fungible asset that you could get and use from many different companies and interoperability amongst those. It also needed to create sort of self-governance standards around what it means to issue these. What are the requirements to be able to issue these?

What are the technical audit standards, financial audit standards? You know, what happens with the assets that are reserved and backing it and how are those governed and what's the investment policy and a lot of stuff there. And so we wanted to start a model that was a consortium model. We think of it as like a mashup of like the W3C and Visa, you know, for, for this digital currency model. And so that's why instead of just doing this as just a circle thing, we wanted to get something started as an industry thing.

And, you know, we started talking with a lot of different players, but in particular, their coin base and we had a very, I think, shared set of visions around this and ideas around this. And so we collaborated together to introduce that just like 15 months ago. It wasn't that long ago when we actually launched that. And so that's a little bit of the genesis of it. Yeah. Have you in those 15 months, USDC has grown to, I think I looked last night, about 470 million in terms of the monetary base. Was that the pace that you expected?

better than you expected. You know, it was hard to exactly pinpoint. I think on the one hand, its adoption has outstripped what I expected. And on the other hand, I think there were, let's just say, when we launched and delivered this, there was a great amount of fear, uncertainty, and doubt in the market about other stable coins. And we certainly have gone into this with a belief that a, you know, a standard that actually, you know, has something that is, you know, compliant, at least in terms of there's actual financial institutions behind it,

that it has the assurances of like audits and other things, that that would be desirable, that people would prefer a model like that. And not only that, we thought, If you want to go into the mainstream adoption where this is embedded in commerce and people are actually writing financial contracts that use this, that is used in everyday payments and settlement, like it has to be above board and transparent and so on. And so I think we still very deeply believe that and we think that this category is about to, you know, it is going through an inflection point. I think this category is going to grow a lot in the coming years. you know, obviously big techs getting in and other things. So we think it's going to be a really big category, but I think we had expected USC to maybe

become as a percentage of stable coin market cap a little bit larger. And I think we've been surprised that, you know, other other stable coins that have been here before are as big as they are still. I think you could probably segment the stable coin space into a couple of categories the one represented by Tether being kind of like a shadow bank network of effectively crypto euro dollars. And then you have the the coterie of more surveilled and regulated ones of which USDCs is the market leader, I would say.

I agree with that. And obviously, I think as a crypto enthusiast, as someone who believes very much in permissionless decentralized infrastructure and really as a technologist, I think, you know, projects like Dye are really exciting as well. And I see a role for those as well. I think they serve a different function than something like USDC. Yeah. What do you, how do you segment the various use cases that you're seeing for USC? Obviously, it's very popular in the trading community. Yeah. What else are people using it for? Yeah. So this has been, you know, really interesting. And, you know, when we, when we launched it, the way that if you read the original white paper,

which I think is still up on the website, we talk about sort of broad interoperability of payments amongst digital wallets. It's everyday use in what you'd think of as sort of mainstream applications. That is absolutely where we want this to go and where it's headed. However, like the reality was there was a product market fit that existed already, which was like digital dollars, essentially market infrastructure for the crypto capital markets. And so that was like, okay, very clear product market fit for that. And very clearly, you know, whether you're a whale trader,

an institution market maker or on the retail side on an exchange venue, like the value of something like a USTC would be very high. So we looked at that crypto capital markets as what I call the bootstraps. use case. So we could bootstrap this, get into distribution. And then likewise, we looked at the broader ecosystem of companies in the crypto space as like a very natural ecosystem that would want to support this. And so we put a lot of effort into how do we get wallets, exchanges,

custodians, defy companies, lots of different companies who were experimenting in different parts of the stack and services that are offered to people in the space, to it. adopt USC. And so those were the initial focuses and that has gone well. And now what's been interesting is over the last, in particular, like six months, six to nine months, we've really started to see new use cases emerge. And that's really exciting. And that ties into new products that we're launching as well. But I think it has become, you know, a reliable payment and settlement and medium, not just for people who are trading, but for borrowers and lenders.

It's become a really popular asset in these decentralized credit markets, which is, I think, very interesting. We're starting to see when businesses on board with us, we sort of understand what their use cases are. There's like, I'm a business and I want to receive my payments in USDC, which is exciting. And then, you know, I was in Asia not too long ago

and I met with a business company that had started out as like an OTC trading organization and now their business has evolved where like 95% of their business is providing stable coin settlement payment and settlement services to small and medium enterprises in Malaysia, Indonesia, and China. And that's awesome. And they're actually one of the very largest, very largest users of USDC in the world. And what that speaks to is, you know, businesses in these markets prefer dollars. They prefer digital dollars for all the benefits that digital dollars provide, which is instant, fast, secure, no counterparty risk, you know, the ability to store it securely

and other things. They don't have to rely on their local banking system in quite the same way and it's it's sort of this is the dollarization theme but it's also a payments and settlement theme and a cross-border payments theme and a trade finance theme and like you sort of look at these different things that are happening and that's really exciting to me and that's what i am having been in the internet space for a long time you probably heard the phrase over the top there's like over-the-top communications was well Skype came out and it was like you know you can just communicate over the top of the internet you don't need telephone you don't need a phone company And then, you know, Netflix was like over the top cable TV.

You don't need to subscribe to this legacy physical infrastructure and all these centralized regional, like, you know, physically based companies. You can just access this, you know, as a service, as content type of the internet. Obviously, over the top music. We have all these things that are over the top. Now we have over the top money and we have an over the top financial system and it's just better on so many levels. levels. And so it's really cool to see use cases where businesses are organically saying, this is better. I'm going to start using this. And this is like early moves into these new use cases. And obviously we are excited about it and expect, you know, our belief is that every

internet business in the world will have a digital wallet that can use digital dollars and other, very likely other major reserve currency stable coins. And they'll have things that are like business bank accounts and they'll implement it with, you know, APIs and use it in all kinds of cool ways in their businesses. And we think that is, you know, where this heads. Have you found that some of these entities using USC for kind of cross-jurisdictional B-to-B payments or settlement, is it specifically kind of dollar-denominated risk that they want? Or is it the kind of the settlement qualities that come with the system like USDC? It's both.

So what we've heard is some of these parties to the transaction want the dollar, right? They want to hold the dollar. And they don't actually have access to dollar banking. And so they want these digital dollars for that purpose. On the other side, and this is where like a brokerage plays a role in standing. in essentially what is FX settlement, right? Those that brokerage say in that has infrastructure in Malaysia, like they can help the Malaysian businesses that are going from Malaysian currency to USC.

And so, but it's the settlement side there, right? It's that the person wants to receive digital dollars on the other end and they have the ability to make this happen like incredibly fast. So I think it's both of those. One thing that I noticed when the Libra hearings were going on was all. a lot of central bankers and policymakers outside the US found Libra to be kind of a fairly hostile thing because Libra at the time was going to be mostly dollars today. It might even be only dollars.

And they felt that it was kind of an imperialistic thing with delivering dollars directly to the citizens of these countries, which might have more inflationary currencies. Right. Is that any pushback you've received on that axis? Or is the kind of the stable coin system kind of still too small to be, you know, threatening some of these foreign states? It's a great topic. Last May, I was at an event in Zurich, a gathering of like heads of central banks from all

around the world and I was there to talk about, you know, this crazy idea of stable coins. This is before Libro was announced and I was, you know, sort of evangelizing all this and, and, you know, saying, you know, this is coming faster than you realize. Not a lot of attention to it then. However, the big topic at that discussion as all these central banks came up and there where all these sessions and panels, the big topic was actually dollarization. Had nothing to do with digital currency at the time. Totally independent. Totally independent of that.

And so all these, you know, the head of the bank of South African Central Bank or, you know, all these different central banks were talking about like how dependent they are on their dollar reserves, you know, and, you know, what does the future of the monetary system look like? You know, it is this dollar-based monetary system. And so that's obviously like, that's an issue that goes on. and the Triffin dilemma and these ideas of the sort of disproportionate or unfair advantage that comes from you know your the supremacy of a given sovereign's currency so that's like something that's very

you know that's a pervasive issue completely independent of stable coins so of course you know internet dollars like put that on steroids yeah and so this is the over-the-top thing so i mean just like in communications, if I'm an authoritarian regime in the Middle East and now everyone can use WhatsApp and everyone can use Twitter, I can have my regime fall. And so now I'm, you know, I'm a regime, whether you're Democratic or authoritarian, but you've got bad monetary policy and people can vote with their smartphones, what economic system they want to participate in, regimes will fall. And so I think this is a real issue. I think it is too small right now. now, but it's about to become much bigger. And this is, it's going to, it's going to intersect there.

And, you know, I think the way I look at this is a little bit like these other types of services that have grown on the internet. And, you know, there's these societal tradeoffs that we make. And I don't think anyone would want to go back away from a world where anyone can publish information. and we can search that from anywhere in the world in any language instantly. Like we all benefit from that so much or I don't think anyone would want to go away from free global communications. And I think the benefits of like, you know,

digital currency models like this are so profound and so positive for people and businesses. No pun intended, people vote with their dollars. They'll say, hey, we want this. And now the governments have to figure out how to manage and deal with that risk. It's a non-trivial problem. Yeah.

I mean, historically, the way that, you know, sovereigns dealt with dollarization if they didn't like it was they had control over the banking system. They could manage it that way. Yes. Here, we're talking about an entirely different way to distribute dollars to individuals, and they can hold it in a self-sovereign way. Exactly. On a smartphone.

Yes. To me, that's quite profound. I agree. And potentially destabilizing. as well. Yeah, it is. I mean, and this gets, for me, at least, back to some of the origin vision that we had with Circle. And when I talk about a 10 to 20 year view of this, my belief was that, and this is in the early materials that that we wrote about Circle, my belief was that exactly these kinds of things would happen, that it would ultimately drive the world's, economic leaders to come up with solutions where you're very likely we would end up with synthetic global digital currencies and that were you know that that could become a global units of account that would provide a way for you know all economies in the world to kind of transact

on a common unit of account and that that would that would happen over like 20 years and And I think with like center consortium, we have U.S. dollar coin. You'll see other reserve currency stable coins on the same protocols that emerge. And I think we've been of the view that there's kind of a crawl, walk run. And the crawling is where we are today. The walking might be you've got many major reserve currencies that are liquid and easily transactable and tradable. and they're used in payments and settlement and commerce. And the run would be you create synthetic tokens based on that,

that people want to hold as a store of value and as a unit of account. And my very long term, maybe Sprint, would be that in parallel, non-sovereign commodity money grows in value. The monetary base gets into the trillions of dollars of value, and it actually converts to reserve currency status, And so that synthetic unit includes allocations of non-sovereign commodity money, just like gold used to be what was backing synthetic paper money. That's fascinating. That's a very vivid vision.

Certainly the central banks have started to take note of this. And just last week, the Marshall Islands announced that they're issuing a central bank digital currency on Algarand. Obviously, China has a large campaign. How do you see central bank issued digital currencies interacting with some of these more private company issued in consortium digital currencies? And I'm curious, you know, if they coexist well or do you think they're rivalrous? How do you see this playing out? Yeah, we think about this a lot. I think there's a few questions here.

I think one question is, you know, should central banks be in the big? business of standing up technology infrastructure and operating that. And if they do decide that they're in the business of that, should they do that on a wholesale basis or a retail basis? So that's one sort of question. And that's kind of the question that most central banks are, they're mostly investigating that question. Now, in parallel, you have private sector actors that are trying to create

in some ways like standards and network schemes for central bank money backed digital currency. Center consortium is an example of that. Libra is an example of that there will be other kind of models like that. And I think the question for governments is going to be, what is the fundamental role that we want to provide? Do we want to be, we want to set monetary policy. We want to manage the fundamental balance sheet of the country. We want to set the price of money. But perhaps and provide kind of the safety and soundness, the backstop, if you will, for the money. Those are obviously really fundamental roles.

That's sort of where the Fed came from in the first place. I think payment system innovation has been something that has largely been outside of, of central banks themselves. They may have set standards or said, we are okay with this set of standards that have been developed independently by the private sector. So Swift is an example. That corresponding banking and the way that electronic money moves,

that's a nonprofit association that exists outside of central banks. Electronic money, as we know it today, the dominant form of electronic money that we know today, is card transactions. And that's a set of money IOUs that are privately managed, administered, and operated.

So it's money IOUs that exist in centralized systems right now, primarily. But that the central banks say, OK, we're OK, we're OK, with this form of electronic money, because underneath it, it's actually got member financial institutions that are still sitting inside of the supervisory and safety and soundness risk parameters of what a central bank cares about. So if you look at stable coins, for example, and the networks that can be built and so on,

I think at some level, if central banks and governments can sort of say, okay, we're comfortable with the payment system innovation coming from both a mixture of the private sector, including member financial institutions and the open source technical communities and sort of the internet community like if we're okay with that providing the market infrastructure providing the standards and it still maps to these underlying risk management and safety and soundness parameters i think that model is probably better suited to the west than uh than a you know the federal reserve should go build and run all this infrastructure so that's that's sort of a view now every country is going to look at this a little bit differently um and i do think there there is there's definitely not a

one size fits all in this. You're going to have, you know, you're going to have the Chinese digital currency is going to be run by the government, but it's also a public private sector collaboration as well. And so the primary apps probably that people are using are going to be like AliPay and WeChat. And that's like where those, those, that token based money will primarily be consumed and used. Yeah. Yeah. I certainly think the U.S. commercial banking law would have a lot to say if the U.S. tried to do something at a retail level that included direct access to Fedwire. Sure. But it raises a lot of interesting issues. I mean, I think there was this recent Powell testimony and, you know, he was being asked about, you know, should we do something like China and do this kind of thing? And I think one of the important reactions from Powell was he said, I don't think a digital currency. that was, you know, essentially fully surveilled by the government would go over very well in the United States.

Now, that's really interesting. So you have, and this is a, there's a real chasm between the parts of government that run national security and law enforcement and the parts of government that run the monetary system. And, you know, I recently came across, you know, there's a process. who works at the Federal Reserve whose title is product manager for cash. Like cash is a product. It's a big product. It's a really big product. You know, I'm product manager for cash in the United States. That's pretty cool.

It's a good product. It's a really good product, right? So the point is, is like the, you know, token-based money, digital currency, cash, like there's a real role for that. And it's very easy to sort of say, hey, we should have this centralized, you know, government-run thing. But there's obviously very deeply full of that. obviously very deeply philosophical, moral ethical, other issues that cut through it. I think a lot of what's being done in the crypto industry is an attempt to restore the transactional freedom and the privacy assurances that come with something like cash, but just in a digital context.

That's certainly something I think is very important. I think the existence of systems which preserve the freedom to transact, that's kind of a fundamental American value. which is, you know, it's encouraging to see people responding to the Chinese digital currency saying, well, we don't strictly need a system like that here in the U.S. That maybe doesn't fit with the kind of social contract that exists here. Do you see what you're doing as an attempt to restore a cash-like standard on the Internet? Well, it's a multi-dimensional thing.

And no pun intended, but there are multiple layers. to this. So I think our view is that, you know, a U.S. dollar coin should at the base layer be a bearer instrument. And that's really important. Now, at the same time, there is this social contract and there are these obligations that intermediaries have effectively as extensions of law enforcement and, you know, the, you know, there's internationally recognized standards for things like anti-money laundering and record-keeping around transactions, and those are going to be overlaid on this, on this technology. They are. Like, that is happening. There's, like, no one's, there are going to be people who resist that, but I think that, that is happening. And I think

for broad-based mainstream adoption of, you know, digital dollars and programmable money, having that overlay of record keeping and identity is it's just going to be part of what's there. But I think the, it's really critical in my view that the base layer be digital cash, right? It has that form of digital cash. And so it's an interesting interplay between,

sort of, you know, these digital currency units that are token-based that have the properties of cash and then protocol layers and policies that can be enforced in software that, you know, effectively are similar to how electronic money works today. So I think we're moving to that. There are still a lot of unresolved questions and issues in that and policy issues. And I think we're going to see probably some good policy and some bad policy. And there are many still significant open issues on that. And some of the really exciting things with, you know, with, you know, programmable, you know, programmable money in this form is, you know,

I want to have, you know, devices that can automate transactions with each other and do that in a really seamless way. You know, there's no identity. It's a device. Right, right. You buy the device. It speaks these. protocols, you can flow value into it and flow value out of it. Like, what do you do?

Right. So there's, you know, these are just simple examples. Because you can't KYC. Can't KYC a device. It's, you know, or, you know, my new Galaxy 10 phone has a, you know, a USDC capable wallet built into it. And that's just, they're just speaking in open protocol. And that's powerful and good.

Like that's a really good thing to have that. And if you try and sledgehammer that with like, you know, the, it has to be the equivalent of like, the bank has to live on the software stack of the device. That's a real problem. So you've really been a spokesman for the entire industry ever since you started Circle. And you've been fighting a lot of these battles on behalf of really the whole industry and all the startups that are trying to do things. How are we doing as a overall industry? How is the U.S. regulatory environment treating this?

Are there things that we could be doing better as a country? Yeah, of course. You know, I think there are many areas here. I mean, I think the first thing that we really focused on was just having a legitimate way for financial intermediaries to sit between the banking system and cryptocurrency more generally. That was sort of the first battle. and I think the system, the policy framework that we have for that today could be improved a lot. The patchwork, you know, all these states, all these differences, et cetera, I think that could be improved a lot. I think as this becomes a more strategic market infrastructure, that's important to the competitiveness of economies,

that national frameworks for licensing, for example, might make a lot more sense. I think there's this whole area of securities and commodities law. I think for a while I spent a lot of time focused on the securities issue. I'm less focused on that these days because we've sold an exchange that we had operated and the lack of, I think, positive movement in the U.S. securities law, at least to being open-minded about digital assets or creating safe harbors as a, as a lot. has been recently proposed that the lack of those things has very much hurt the U.S. I mean, really hurt the U.S.

You guys have heard me talk about this in the past. And there hasn't been much progress there. It's been trickles. So I still think there's a long way to go on that. And then this newer area of stable coins, I'm cautiously optimistic about it. And I think while there was initially a lot of overreaction to say the Libra proposal. It's radically elevated the awareness

and the engagement on policy topics in DC, the staff of the critical legislative committees, key individuals in the regulars. They're just very, very much more switched on on this stuff than before. And I think there's an acknowledgement that something like Stablecoins are potentially a really good thing for, say, the dollar as an example. And I think even, you know,

someone like the Treasury Secretary, you know, the idea of, you know, U.S. dollar-backed stable coins that are fully reserved, that are issued by regulated financial institutions in the United States, I think it's like, you know, I think very likely he looks at that and says, yeah, that's fine, as long as you can follow the rules, like, that's fine. There may be new rules that have to come, come along and we're expecting to see global policy coordination that emerges over the course of this spring, summer, and fall ahead of the launch of Libra. And so I think, you know, I'm cautiously optimistic about that, though, that piece of it. One specific question that I've been very curious about, a lot of, well, a few commentators have noted that USDC and others similar systems seem to

follow a model they call permission pseudonymity. I don't know if you disagree with that characterization, but effectively it means if you think about a transactional graph, the edges, you know, you have to directly interface with the center consortium to create or redeem USDC. But the internals, as you say, you know, a smartphone can't be KYC per se. The internals, you have less potentially less insight maybe into what's going on. you just need, I guess, an Ethereum address to receive USDC. And if you contrast that with something like PayPal,

if you're an individual that's active on PayPal, PayPal is probably aware of who you are. So it's kind of a potentially quite different model. One that I think is very positive, but I'm curious if you think it's kind of sustainable or if you've made kind of regulatory headwinds in terms of being able to defend that model in perpetuity. Yeah, so I think as this stuff grows, these are going to be major issues.

I think, so your characterization is correct. One small clarification, though, is center itself doesn't stand in any relationship to any user of USDA. Center is a set of governance rules and standards for members. Members are financial institutions. So a user is contracting with a member financial institution. Just like you as a user don't, you don't have a relationship with Visa. You have a relationship with Bank of America. Or, you know, when you're paying a merchant, that merchant has a relationship with a bank that's receiving that, that ultimate payment.

And there's a set of technology standards that those banks have agreed to. And there's a sort of governance and compliance rules that those banks have agreed to to facilitate that. So Center Consortium, I think, can be better conceived that way. I think the, but, but the, as an issuer, say like circle, this is a kind of permission pseudonymity model. I think the, we have a bunch of obligations. And so we as a financial institution have obligations around policing for money laundering,

enhanced due diligence, you know, full knowing our customers. customer and a customer who holds a USDC token, maybe on a Samsung Galaxy smartphone that they've gotten from someone has sent them, they don't have an underlying, they're not, they hold no claim on any reserves. They just hold an ERC 20 token. However, if they're able to meet the compliance requirements of an issuer, that issuer will offer them a service where they can redeem that token for a dollar. And so that's how, from a legal perspective, that's how that's set up. Token holders don't hold any claims. They hold ERC20 tokens. If you can enroll with an issuer, then you can redeem. But the claims are very useful, you know, or the non-claims, the IOUs. Yeah, absolutely.

Are still useful, even outside. Absolutely, yes. But just in terms of where the compliance sits. Now, we also have requirements to, you know, do a best, make a best effort to look at sorts of funds, look at downstream use of funds, to file suspicious activity reports. We ourselves, as a financial institution, have our own terms of service. And so if your intention is to use this for some criminal activity or category of activity that we don't want to support as a financial institution, we reserve the right to

reject you as a customer, etc. So those are things that are done on that level. The key issue is completely independent of USDC is the travel rule and the new FATIF, you know, virtual asset service provider regulatory guidance, which is going to roll out all around the world by later this year. And then you'll start seeing enforcement actions, and I think people will take it really seriously because they'll be fines and people go to jail. So that's the piece where effectively you have, you're going to have an incremental obligation of a circle or a Coinbase and other firms that are using this technology with Bitcoin, with USDC, with other virtual assets to, you know, effectively to do this exchange of

PII and keeping records across these different service providers. The area that I think is most open, and this gets to the heart of the issue, is, If I am taking 100,000 USDC, and I'm taking it to my own self-custodied digital wallet, what obligations does an issuer have in that case? There are no policies around that. And I think what is likely to happen is I think the U.S. Treasury Department will probably say, we're going to treat this like cash transactions. And so, you know, just like if I go to a bank and say, I want to take $100,000 of cash out,

I'm going to ask you a few more questions. Or if I walk in with $100,000 of cash and say, I want to put this in the bank, I'm going to ask you some more questions. So I think that that has not happened yet. There's been, you know, discussion I know of that inside Treasury for a long time. Like, does this stuff get, did the cash rules applied? How do we think about that? Maybe there's new rules that are specific to digital currency that aren't just the old cash rules. But that's, I think, where this probably goes.

And then you're going to have regime differences. You know, the Caymans might have a different policy than the United States, for example. Something that's interesting is those threshold-based rules of disclosure for cash. They actually become more onerous each year because of inflation, right? Yeah, yeah. They cover less and less in terms of real value in terms of transaction. That is true. So the 10,000 rule, it means something different in 2020.

It does. It does. Yeah. So this is one of the things where, you know, back to your regulatory question, I think, like, there's a long list of things that are just so radically different about how digital money like this is going to work, that it's going to require, like, maybe probably some broader new policy work that sort of looks at all this holistically. And that's a double-edged sword, right? You could lead to some, I think, unfortunate outcomes, but it could also be really helpful. Right. And I think that a lot of times

policy and regulatory changes emerge because something really bad happens as opposed to being proactive. How do we enable this? I think we all wish for, a little bit of what we saw in 1996 with, you know, the Telecommunications Act of 1996, the Communications and Decency Act and these sort of the tax safe harbor, like all these things that happened to sort of say, hey, we want this commercial internet to blossom and we want it to be this open network and we want it to allow it to a thousand flowers bloom. That mentality was really good from a policy perspective. And, you know, now there's, parts of it being challenged, but it led to enormous amount of value creation for the whole world.

And I'm hopeful that if we do want to be proactive on policy, that we'd think about it in the broader terms of how can this radically improve the global economy, how can this radically improve what's possible for people and businesses and embrace that, as opposed to being a reaction against something terrible that happens. At the same time that that innovation was happening on the regulatory front for the internet, you also had companies emerging that just made it easier for public companies to interact with the web and in the public internet. And that really hasn't to date been happening as much in the public blockchain space, but you're announcing a product line now Circle Platform Services today,

I believe. So talk a little bit about the launch of this service in what you're doing with businesses. Yeah. So I think that thanks. Yeah. I mean, there's a couple really critical things. I think the first is we believe we're going to go through this shift where things like stable coins become an everyday technology and that businesses everywhere are going to want to take advantage of this. And so there's really two pieces. So the first is evolving from what we originally created for USDC as an issuing service, creating a specific kind of account and product set for businesses, what we call circle business accounts, that allows a business to what we think of, open a new type of global financial account

where a business can enroll, they can connect banking from 85 countries, and they can convert and store digital dollars, they can use it for payments and settlement, and there's a lot of advantages that come from that. It works fast, it works cheap, it works around the world, It's got that local market convertibility to it. And we provide that a basic account is just a free service from us. But the other thing that we're doing is is very much, you know, inspired by the banking as a service, platform as a service, you know, model that has grown so popular in many sectors, including in payments banking and

other areas and, you know, rolling out a series of platform services and API products for developers. So the concept is, you know, a business wants to use this account and this infrastructure, but to really get the value out of it, we want to enable the developers and engineers and technical creators from those companies to be able to automate everything. And so there's a suite of Circle APIs, the first set of those that are rolling out, you know, starting with the developer sandbox today. And then a wave of these coming in the coming weeks is a a payments API, a wallets API, what we call a marketplaces API. And these are designed to allow businesses to accept payments in stable coins, but also critically

to sit at the intersection of the existing kind of financial and payments infrastructure and stable coins. And so one of the really cool things we've done is if you open a Circle Business account, you can actually take the payments API and take card payments. which is a little counter to do you think, well, isn't this just about accepting stable coin payments? To actually take card payments, you can implement card payment acceptance

in exactly the same way that you use something like Stripe with debit cards, credit cards from countries all around the world, and you as a merchant, instead of receiving your settlement in your merchant bank account in two or three weeks, you receive your settlement in a couple of days in USC. And so your business account and your payments API gives businesses, internet businesses, a way to do payment acceptance where they get faster settlement,

and then they get internet native money that they can use for their own purposes. And so it's an interesting thing, which I think is going to be quite popular. And then the other APIs, the wallets APIs, the marketplace APIs are really around now, if I'm using digital dollars natively, how can I automate that for my own business, my own treasury, for my own customers. How do I, if I'm a multi-sided business, how do I, you know, surface all of the value exchange amongst the parties? How do I automate both inbound and outbound payments in stable coins? So all of that is what those other API sets provide. It's fascinating because I think all of us who've been in the industry for a little while take for granted that, you know, we think

it's easy, I guess, is what I'm trying to say, to onboard. And it's really not. No, it's not. I mean, if you take your, you know, your, you're, you know, your, you're average internet business, you know, they should be able to self-serve open what's like a business bank account. And, you know, they don't know how to run Ethereum infrastructure and manage, dynamically managed gas fees and like monitor the men pool. And, you know, and there are like infrastructure as a service type companies that will help run the node infrastructure for you. But even that, like, I don't want to think about that as a, as a company. Like, I don't want to think about that just like I don't want to think about running my own data centers and managing uptime on my

web servers and stuff, I want to go to Amazon, right? So, like, I want like a really simple, composable API that I can just implement that is straightforward and just deals with all that and that I'm confident will scale. And so I think part of what we're bringing to market is also we've built up our own, you know, sort of transaction banking platform infrastructure over five years. It has sat behind everything we've done over all of these years. We've run over 500 million transactions supporting, you know, over, I think, $300 billion of transaction value. We've, you know, managed, you know, risk with 10 million plus consumers on this. So it's an infrastructure that has been, you know, used very broadly. Now we're opening that up so that other people can use it for their own

businesses, but with this very heavy, heavy focus on kind of programmable money, digital dollars and what comes with the benefits of stable coins. So that's a, that's fascinating, Jeremy. So we're just up on time here. So where can people learn more about Circle platform services and more broadly, where can they find out more about Circle? Yeah. Circle.com.

Yeah. And actually today, we, you know, we went live with a bunch of stuff you can read on our website about it and sort of read the high level content. And then if you're a developer, you know, you can self-serve sign up for our developer sandbox and start experimenting with the first set of APIs that are going into production. Well, this has been a lot of fun. Thanks for everything that you're doing for the industry. And we always love catching up with you.

Thanks, you guys.