On The Brink with Castle Island - Kim Grauer (Chainalysis) on the Geography of Crypto Adoption (EP. 481)

Episode Date: December 6, 2023

Kim Grauer, director of research at Chainalysis, joins the show to talk about their 2023 Geography of Crypto Adoption report. In this episode:  The difficulty of ascertaining reliable illicit finance data for crypto Why Chainalysis started publishing the Geography of Crypto report Why emerging markets dominate in terms of crypto adoption How Chainalysis devised their methodology What the variables in their index mean Potential sources of error or noise in the data How Chainalysis overlays internet traffic data with blockchain data to determine usage on a country by country basis Top countries on the index and changes from prior years Evidence for cryptodollarization What variables correlate with crypto adoption globally Countries with positive year/year growth in crypto adoption Content mentioned in this episode: Chainalysis, The 2023 Global Crypto Adoption Index

Hi, welcome to On the Brink. I'm Nick Carter. Today I'm sitting down with Kim Grauer, head of research at Chainalysis. We're talking about their 2023 geography of crypto adoption report, which is one of my favorite reports year after year. And I've always wondered how they come up with the data. I mean, it's really impressive stuff digging into crypto adoption on a per country basis. So we get into that in this episode. And we also talk about where crypto is being adopted at a high rate and why. I think it is very telling in terms of the actual value proposition of the industry. I strongly recommend you look at the report. I'll put in the show notes. And I think it is very really revealing to skeptics of the industry, too. So this is an important tool in my toolkit, which is why I'm so excited to sit down with Kim. That's it for me. Let's dive ready. Okay, well, I'm sitting down with Kim Grauer, head of research at Chainalysis. Kim, thank you for joining us today. Thanks for having me. The catalyst for this conversation as you guys recently published the Geography of Crypto Report, which I look forward to every single year. It's one of my favorite pieces of literature that gets produced in the industry.

It's so useful, and I cite it all the time. So I want to say thank you for doing that because it's really great. Well, yeah, thanks for appreciating it and like kind of seeing the value in what we're trying to accomplish with this report. So glad that you like it. Well, before we see, start on the report. I wanted to touch on the chain analysis topic that's been in the press recently, which of course is, you know, the extent to which crypto is used for illicit finance, and we've seen a back and forth in the media, we've seen letters written in Congress, et cetera. I guess from your perspective, can you tell us a little bit about your view of the controversy and maybe some of the caution that needs to be taken when providing these sort of concrete

estimates of illicit flows on blockchains. Well, I'm not a terrorist financing investigator or expert. And so my opinion on the source and the Hamas funding and all those things, I'm definitely not the person to ask. But what the takeaway for me has been is just how. difficult it is to put out crime numbers and how important it is to be extremely careful with what you do and what you publish. And just because the implications can be so big in the sense that you publish something and then a week, a few days later, people are testifying about it

in committees and Senate committees. And it's, it just is also a testament to, I think, how hard chain analysis has worked over the past six, seven years each year to make sure that our numbers are accurate and true and why we spend many, many months putting together our annual crime report. So I think it's more about how we need to as an industry be extremely careful with the research that we put out and the numbers that we put out just because they have massive implications for the industry and for the world. Yeah, they certainly do. And I don't think anyone's claiming that there's no illicit activity on blockchins. We know there is. Certainly the Binance settlement yesterday revealed that as well. Yeah, I think blockchain analysis has its ambiguities.

You know, it's an imprecise art. So we're too very careful with it. On to the geography of crypto report. What was the impetus to actually start creating these in the first place. I think this is maybe the third or fourth year of you publishing these. Is that fair to say? I think at least four, potentially five. I think maybe four, though, fourth year. It actually traces back to a very specific conversation in a room with our CEO, Michael Gruniger. And we had spent a really long time in the early days of research thinking about criminal activity and how to quantify it. We are, are the research team that I lead is really interested in

tackling the most important questions that the industry has and putting data, however flawed, you know, and however, you know, in, you know, it's hard to get really comprehensive sometimes with this crime, with this crime research. But we were presented to, we had been really focusing on our annual crime reports, what's happening with all these different subtypes of crime, we put out a stat that is less than 1% of all transactions can be identified with wallets that chain analysis has attributed to be illicit. And so we're all excited. We're presenting this. And Groniger, our CEO, is like, okay, this is really great. But like, what about the other 99% of activity? What, what is that

about. And so we kind of paused and we're like, oh, okay, interesting question. A lot of the other 99% of activity is on exchanges and merchant service platforms and now defy decentralized exchanges. And just saying what types of services are receiving the activity is really insufficient when you're trying to combat some of these perceptions that the industry faces that is what do people actually use crypto for? I don't understand. I don't get it. I'm sitting in New York City and I don't use it. So what could it possibly be used for? And we needed to get really, really, really a lot more rigorous in our answer of how people are using cryptocurrency around the world. And since chain analysis has the best data set, we've got all of the blockchain level

data mixed with what we call attribution. So we know the names of the services. And And we stepped up to the challenge and we said, hey, in our kind of in our own way, we can contribute to this dialogue. And so we created a methodology to start to think about this and quickly realized that the geographic component is a really big part of this. So we found that there's crypto activity in almost every single country around the world. And we identified that using web traffic data. And so we put these two data sets together, web traffic and our attribution, and we started to look at the data at the country level and we're able to see that different countries around the world are kind of optimizing for different use cases based on our data. And there's a really strong geographic answer to that. So to answer the what is the other 99% of activity, you have to have a geographic answer because it's just different from country to country. There's different use cases in different countries.

There's different social, political, economic circumstances that are impacting people's, you know, on the margins, propensity to get into crypto. Yeah, I mean, I've used and referred to the data countless times. So it's been a tremendously important tool in my own toolkit of basically just making the case for crypto and trying to get, especially skeptics or critics to sort of de-center themselves and understand that crypto is different things to different people. And there's a distinct utility that's apparent in places with weak monetary regimes, inflationary contexts, inferior property rights, let's say, poor governance. And then I think that's probably the main takeaway, which is, and so your data is on a per capita. basis. So in per capita terms, the preponderance of nations where there's a lot of crypto adoption,

these are emerging markets for the most part. Yes. When you take into consideration things like purchasing power, population size, you notice that the, I guess you could call it per capita adoption rate is the highest amongst emerging markets that are facing inflation or are having or face restrictions on capital controls or policies that are directly impacting people's ability to engage in international commerce. And so you start to see these things really popping up when you account for wealth. If you don't account for things like wealth and population, then the story is, you know, the United States is the biggest actor followed by India. So you have, you know, big countries with large GDPs leading. But when you do take into the

those, take those other things into account, you get a different picture that is, we supplement all this research with interviews. And we have a really strong network of people around the world, customers, and people really want to have this conversation. So you'll talk to someone in Pakistan. And they'll be like, let me connect you with 10 OTC brokers that are, they'll only talk to you off the record. And people really want to talk about this.

And then you kind of get a little bit more. I guess anecdotal and research that supplements the data that you see. So it's kind of a cool thing to look at. Yeah, I want to dig into the methodology very specifically, mostly because I'm curious about it. So as a consumer of this data, so just starting with the five key variables you track. So you have C5 value received, retail C5 value. received, P to P exchange volume, DFI value received and retail defy value received. I don't know how much of the sort of secret sauce you can share, but how do you segment,

for instance, retail versus non-retel value received? We look at retail based on transfer size. So every transaction that is leaving a service is, you can tell, you can see what size it is. Is it a $10 million payment or is it a $50 payment? And so we segment it based on the transfer size and retail are all transactions that are transfers that are less than $10,000. And then on the peer-to-peer market front, I also wondered about that because as far as I know,

there have been three major P2P like platforms, basically, like formal ones. So obviously historically local bitcoins, Paxil was important for a while. I think, but it's hard to know because Binance doesn't show the data. I think Binance P to P is the largest one. Are you just counting those? Or are you somehow taking into account like these kind of informal WhatsApp groups where P to P transfers are organized? Like how do you determine that people are using like a P2P platform basically?

Well, there's actually about 15 peer-to-peer platforms that we track. but the vast majority are the ones that you mentioned. And we don't look at WhatsApp groups. It's not something that we're able to do at scale. You could create some assumptions around what a peer-to-peer transaction might look like between personal wallets that are being funded by certain services. And so every peer-to-peer transaction that is through a WhatsApp group, for example, and that is vast.

So in a lot of our conversations, people would pull up their WhatsApp. We're going to say, look at this. Look at, I'm transferring this money. See on this WhatsApp group. They do have to source their funds in, in, ultimately. So we would capture kind of the sourcing of those peer-to-peer transactions originally, but we are not directly including the kind of the phone-to-phone transfer of assets in our methodology.

So peer-to-peer is we have to revisit these year-on-year. I don't think we had defy included two years ago. And then we were thinking, oh, we really need to. There's a defy market now. It's big. It's more than 50% of all transaction volume. So we revisited it and we added it to the methodology. There was a fierce debate on if we should have defy

and defy retail. And peer-to-peer is something that we will have to revisit because of the changing market dynamics in the coming years. Are you able to ascertain just from on-chain patterns that a transaction is associated with the Binance PDP platform, for instance? Or is that just there are known sort of clusters of addresses there? Or is it like a specific multi-sig type of transaction? We know the web traffic going to finance peer-to-peer,

but we don't have it broken out at the, at the kind of wallet level at this point in time. I don't know what status is on revisiting that, but right now we have the web traffic for the peer to peers, but we don't have it broken out as a peer-to-peer platform or the subset that is peer-to-peer. Okay, so this actually leads to our next and probably most important question,

which is how on earth do you, I think I have a sense of it now. I think I have a sense of it. But how do you ascribe at a country level, you know, an on-chain transaction, of course, like if you just look at the blockchain, you don't know where it's occurring. Maybe there's some sort of time zone analysis you could do, but that's not precise. So is it a matter of identifying a bunch of different platforms where these transactions are occurring and then cross-layering in on top of that web traffic broken down at the country level and then apportioning out volume for those platforms based on the, country level web traffic. Is that how you're doing it? Exactly. That's exactly what we do. We take our, and a lot of the times, it's,

it's really straightforward because a lot of services have a strong geographic footprint. So merging the value received and sent by those platforms with web traffic is, is really straightforward. So there's platforms that are 99% South Africa. And, but you do have a little bit of a problem with the international services that are not don't have a strong geographic footprint. And we've experimented with ways of getting around that. The best method so far that we've encountered is this merging of the web traffic with the on-chain value. There are some issues with this, of course, caveats and take this with a grain of salt. Don't interpret this as a flow. you know, this is not an inflow to your country from another country, which is, I think,

attempting stance to take about how to interpret this. But it's really our estimates based on web traffic and the volume of where this activity is happening. Yeah, I guess that makes sense. And that's why it's unitless, the data. I mean, that's why it's an index as opposed to you're making a very specific claim about Vietnam receiving X many billion dollars in crypto transactions. I guess a bias could be, you know, introduced into the sample if there are specific countries

where there's high VPN usage, for instance. At that point, the web traffic variable would start to break down and not be as faithful, right? So if there's, I mean, for instance, China would be the obvious one. I mean, you know, if there's meaningful Chinese usage of some of these international platforms, but all of that traffic was veiled, you wouldn't be able to capture that as easily, right? Yeah, VPNs are probably the biggest source of the biggest issue at the moment. We know that illicit activity is less likely to use a VPN, but in countries like China and even in Nigeria, we know that after the Twitter ban, the usage of VPN's like 5x overnight.

So certain countries are more prone to having kind of the VPN problem. And it's probably that is one of the biggest ones. There's also other caveats as well to interpreting this data. But the VPN problem is is pretty big. I think our web traffic provider is working on a way of maybe removing things that are detected as VPNs. And we know that there are a lot of services that say kind of barry you from using a VPN. if you're in a country using a specific platform for regulatory reasons.

So I've tried to access certain platforms with my VPN turned on and they say turn your VPN off. So there is that that happens on certain platforms, but definitely not broadly. And I guess the other key variable in this data is simply the ingress and egress from these platforms. And for that, that's sort of your bread and butter. I mean, that's what chain analysis does, right? So I presume you have hundreds of these exchanges and brokers and things like that tagged up already. Yeah, yeah, we've got tens of thousands of services identified and keeping this

web traffic data updated. So we've identified another service. Now we have to get the historical web traffic data there. I would make sure that we get all the subdomains. Should we be counting all the subdomains or should we just be looking at the app? And so it's a very, it's a very messy process. And but the only reason why we can do this is because we have the amount of value sent and received by the actual services. So we know how much Luno is is transacting.

We know how much all the major exchanges around the world, peer to peer marketplaces. And, but what this metric is not looking at are personal wallets. It's just any service that has a URL. This is not looking at dark net markets. So there's no URL for darknet markets. There's no, no hydra.com. And so that's missed. Sometimes we can hardcode a web traffic if we know something about the customer base.

But it's only, and a lot of scams are actually in this data because scams have URLs or at least formerly the biggest type of scam in the crypto industry was investment scams. Now that's changed basically this year to a different type of more of. romance scam, but that meant that we would be able to see where are the people getting scams. And you can see who, which is a really powerful data set that I've been trying to raise awareness about. You can see which scams are impacting the people within your jurisdiction really effectively and know which scams to target, which ones to take down. So that's kind of a separate point though. Yeah, I mean, there was a huge announcement, I think two days ago, maybe that there's a $225 million seizure related to, I don't know why.

they called this pig butchering scam. Who came up with that? What kind of a name is that for a romance? I think it's got to be one of these things where like someone said it and just people just, you know, started saying it without thinking. And then all of a sudden it's the industry term for, for the scam. But I don't know who coined it, but we have a section on it in the crime report. I think we are calling it featuring.

I know. It's just an extremely kind of visceral. term. It's kind of mean too, isn't it? I agree. I agree. It's not very sympathetic to the victims of the scam. Yeah. You're just a pig up for the slaughter. I know. I know. In terms of the rankings, let us go through the top countries. I think if anybody's seen this data in the past, this won't be a surprise to them. We kind of know that Southeast Asia is a big nexus. of crypto activity. We know that India is a nexus. We know the West Africa is a nexus. We know the Eastern Europe is a nexus in Latin America. I mean, it sounds like I'm naming every region of the

world now, but those are the hubs. And we know that the U.S. is a big hub of crypto as well. So what surprised you, as you look through the top 10, what's different this year as compared to prior years? I think India is the one that gets the most questions because of what happened with the tax regime in India. And the reason why India is at the top and kind of consistently at the top, I think is because it is a strong performer in every major part of our index. So we've talked about the five kind of submetrics, which separately, you know, we could have a whole conversation about why we chose specifically those five. I think the question of what is adoption is hard to, is, it's hard to answer, you know, what is, what does it mean to adopt something? Does it mean you're,

you know, retailers, retailers are adopting, commercial commerce is adopting. Does it mean, does it mean institutions are adopting? And so, anyway, we chose these five metrics because they each capture something different about the market. You have Defi, which if you go to Latin America, a lot of times people in Argentina are not interested in Defi, at least anecdotally. There is, There's a D5 footprint. It's smaller than around the world. But I say all this because India is high on almost every single submetric. And when you talk to people within India, you hear people talking about the peer-to-peer.

You hear people talking about DFI. You hear people talking about NFT cricket gaming cards. You hear people talking about finance and home offices and investments and institutional investments. So I think it's a high performer across the board, whereas usually you might have a country that is, towards the top because of maybe one major sub-metric. The United States is a good example of being really strong in centralized exchange activity. Nigeria is strong in peer-to-peer activity. So those are surprising.

Another surprising thing is if we turn this into a time series and look at the regions of the world that are reacting to the bear market over the past 12 months or however long it feels like it's been forever. And we can break it out by lower middle-income countries, upper-middle-income countries, high-income countries. And this was cool to see with data, but it didn't surprise me. So the high-income countries, their adoption was hit some of the hardest, and so were the low-income countries, but the upper middle income countries, or sorry, the lower middle income countries,

which account for about 40% of the world's population, their adoption is actually relatively, dare I say, stable, although there is kind of a dip there. And they're performing well relative to the other regions. And I think high income countries were hit hard because of what we've seen with regulation and what we saw with FTX in low income countries were hit hard. for other reasons. So we, but we see these emerging markets that you talked about that are potentially recovered if we look at the where they are now versus where they were before all of this kind of mayhem broke broke out in 2022.

I want to rewind actually very quickly to methodology. So yeah, I have more questions. So with the defy, you're capturing of the defy data presumably you would need a data set of web traffic at Defi interfaces. So like the actual specific websites, people go to interact on defy, that's how you would do that characterization, right? Yeah, like the app, the app level. And so if they're, I guess this is probably not your average user, but if they're hitting

the smart contract directly, then maybe that wouldn't be captured, right? Although I guess that's not a lot of users that are kind of interacting with a smart contract without going through an interface. Yeah, that wouldn't, they have to have that web traffic nexus and to in order for them to have, there are some arguments that maybe if your average user kind of hits the web, downloads the app, and then kind of goes off that maybe, maybe the bias is going to be, is kind of going to be generalized. So it will impact anyone from any region who kind of hits the app and then the stops interacting with the interface. But yeah, it's not going to be captured unless you get kind of one visit per time,

you hit the app or the web browser. And then the other thing I want to ask was if it is a ordinary sort of non-custodial wallet transaction where, let's say I have a group of friends and we're paying each other for dinner with stable coins. you wouldn't necessarily be capturing that because it's not going through an exchange or a service. Although I guess you could say like someone somewhere used an exchange. And so you're still kind of getting that data. Yeah.

Yeah. I mean, what you're starting to get at. So you're indirect. So we would capture the source of funds. But and that, but we wouldn't capture, you know, where the kind of all of the transactions that subsequently happened.

So, which is, in a sense, undercounting the amount of value that that source of funds actually carried out in the economy. And what you're getting at is an important caveat with this whole data set, which is how do you, a lot of times to measure economic activity, you are, it's kind of, it's hard, it's challenging to do across the board, period, the end. How many cash transactions are there? There's going to be limitations to a lot of that data set. I'm a strong advocate for kind of governments collecting survey data. I think that that would be really useful and adding a question to their quarterly surveys or their annual surveys. But that is probably not going to happen anytime soon.

You see kind of random surveys popping up here and there. They don't have kind of the oomph of a government-run survey. But this data is, yeah, not capturing kind of the stuff that happens in the once everything's left the exchange. I mean, it would also capture the cash out point when someone kind of wanted to go convert their crypto. But yeah, it's missing kind of a lot. I hope to in future years try and think more about how to meaningfully capture that. but I really just don't see a path forward because we don't, we are, our geographic data is so restricted to services based on web traffic that I just don't,

I don't know how we would do it without creating a methodology that had a lot of assumptions, you know, that are maybe pretty defensible, but, um, but ultimately assumptions that you make about the flow of funds after they leave in exchange based on transaction patterns and all of that stuff. I mean, we're looking into maybe you can look at a personal wallet as based on the services that they're interacting with. So does a personal wallet mostly interact with, you know, Nigerian services and what does that tell you about the likelihood of where that personal wallet might be? But yeah, that's kind of where we're at with that. Yeah, this actually reminds me a lot of the Cambridge mining data that they used to try and

determine where mining was occurring and they would use the mining pools as the main data collection mechanism. The pools themselves would look at the IPs of the miners contributing hashes, which had its, that data had its own problems too, because there are miners that didn't want anyone to know where they were, you know, specifically in China. So this is something that I've been puzzling over as well. One thing you could do would be not to offer you on solicited advice on this, but you could actually just go to the wallets themselves, although I guess there might be questions about the wallets collecting IP data on their users. But, you know, that might be one way to kind of fill in the gap there. Yeah, there's probably ways you could triage this using

a variety of methods and probably adopting more things like this is a direction that, you know, this index evolves. I mean, we kept it the same this year. A big question I'm going to have next year is continuing the debate around. We have defy and defy retail. But because if you look at web traffic, defy visits are one-tenth, the amount of visits to centralized exchanges, but it's half of all transaction volume. So you kind of get into a lively debate of, you know, the assumptions that you make have implications for the rankings. And no matter how we slice it, these countries do tend to appear towards the top.

But it does have implications for rankings of countries that are high in the defi, have high defy adoption. Yeah, regarding your point on survey data, I guess you're right. There have been one thing I used to follow was the Bank of Canada did a survey on, I think it was like on cash usage or something and they had crypto in there and you would see it grow.

They did it three years consecutively, I think, and you'd see it grow from kind of 4% to 7% to 8% crypto penetration and then they would slice it demographically, which was very useful. And then they stopped doing it. And I called an analyst at the Bank of Canada. I'm like, why did he stop? This is like my favorite and most credible data set of adoption. And I don't know why they stopped, but that was unfortunate. I think the Federal Bank of Boston also did a survey.

So you get them piecemeal, but then they always get very different results from, like, I think, Coinbase did a survey, and you get maybe Nideg commissioned a survey. So you get completely different results from the industry-led surveys versus the kind of central bank-led ones, which is pretty vexatious. They don't agree with each other at all. Yeah, I mean, like the best, in my opinion, the best thing to do. I'm a big fan of, especially for flows, you know, you have this data set of imports, exports. I think that crypto flows is something that when we talk to central bankers all around the world, that's the number one thing they're interested in, is what is crypto coming into my country, is crypto leaving my country, and if so, from where?

So adding that line item in that context would be, would just be, you know, drooling at the lips on that. The surveys do vary from survey to survey. I think that they tend to reflect an upward trend. The only reason I know about the Canada one is because we hired someone who, who for on my team, Eric Jardine, who worked with some of that data. But I think the best would be to just ask exchanges to give us kind of dummy data, or not dummy data, sorry, to give us kind of training data on and to and to use that more broadly, but then they're going to have the issue of faked KYC credentials, but that's probably not as big of an issue

for something like this that we're trying to accomplish. No matter what you do, there's going to be there's going to be caveats and there's going to be drawbacks and things that aren't captured. Yeah. I mean, either way, I think it's remarkable that this data is even apprehensible in the first place, you know, blaring blockchain data on top of Internet data. I mean, it gives us a level of insight that you just don't have in other contexts, you know? I totally agree.

It's really powerful to go to a central banker or to a policymaker who is, I don't think I need to regulate crypto because it just doesn't happen in my market. I don't really even understand what it is. And to say, okay, hold on a second. So if you just check this data set out, did you know that there's this many hundreds of thousands of visits to these different? platforms in your jurisdiction to these. Did you know that these are the biggest services? Did you know that this is what the average transfer size and that this is what people

are kind of trying to do with crypto? And then to see them kind of grapple with that and realize this is real data and then lean in to it, we've seen, we've talked to policymakers around the world who regularly cite our data as well. You usually have someone who's an advocate and who follows our reports and is trying to say, hey, look at this. This is happening in our jurisdiction. We have to regulate this. We have to get our hands around what's happening and step up to the challenge of making sure that this happens safely, which is what we hope people do, regulators do, with this information. But it's extremely powerful to go to regulators all around the world and to provide them with this data.

So they know. But so much of what they are a lot of, there's a wide variety of levels of expertise for policymakers around the world. But at the lower end of familiarity, people just say, I just don't think it really happens. You know, I just don't, I don't see it. And there's a lot of those assumptions that maybe you and I who have been in the industry for a long time felt like we won years ago, these, these assumptions that about the use of cryptocurrency as being exclusively used for illicit finance, we're still fighting those battles

in pockets around the world and having this data is really powerful to kind of fight those misconceptions. Yeah, I mean, that's sort of the chief way that I use the data is typically when addressing a critic or a skeptic is to point out that there is disproportionate usage in specific regions and it's not random the places where there's high crypto adoption. There is oftentimes unifying themes around the places where there's, there's very meaningful actual on-the-ground crypto adoption. And so, you know, if it were just the case that it was sort of purely a speculative thing, then you might expect maybe the wealthier nations to dominate.

But, you know, and if it were the case that it's just for crime, like you're probably seeing a different pattern of data. But here we see data that's kind of consistent with the idea of people looking from, you know, oftentimes for monetary tools that are stable. that allow free transactional flow. You know, so even I wrote a paper, I think, with NIDIG in 2020, I want to say, based on one of the analyses I ran was I looked at an index of governance stability and property rights and inflation and I compared it with the kind of top 20 ranking that you'd produced.

So I created like derivative data and basically found correlations there that when there's weaker governance, weaker property rights, weaker rule of law, crypto adoption is higher. So I think that's a very telling pattern of evidence, basically. Yeah. Yeah, that's a really cool research that you did. And we've been providing this data to the World Bank to IMF, to anyone who kind of wants to ask, dig into those, to those questions. We can see it in places like, I guess if you take Turkey, where if we also look at order

book data, which is a different type of data, where 80% of the purchases of crypto in the past, you know, period of time, I forget what period of time we studied was people were purchasing tether or, yeah, there was stable coins, tether specifically. And, you know, that's why are you, why are people in a country that have been experiencing extremely high inflation over the past few months suddenly over kind of now over more than usual going into tether rather than alts or you know long tail assets which you do see popping up in other pockets and I think it's it's pretty clear I mean you'd have to I say this a lot you'd have to you have to write like a dissertation and bring in regression modeling and account for like other variables if you wanted to do it properly but we look at the

relationship between currency depreciation and tether adoption And they're inversely related and there's things to account for. But I think our intuitions here take us a long way. If you're everyday experiencing the level of inflation in Turkey and you have easy access, which people in Turkey do have right now to onboard from the Turkish lira into crypto assets, I think that every day you might recruit another person who says, hey, you know, maybe I'll put a little bit of crypto of money into crypto and for the store of value. The other thing that I think is really worth talking about is that a lot of people around the

world don't have access to equities markets. And if you have, if you have some wealth, you know, it's, I think that crypto gets a bad wrap of being like, hey, everyone's just yoloing and financial entertainment. But what we have access to is, you know, is equities markets where we can safely and secure really grow our value that a lot of people don't have. So there's a very human desire to safely invest your funds and allow it to grow so you can provide for yourself and your family that, but with fewer options, maybe you don't have a bank account. And I think crypto gets a bad rap for when people use it in the way that we use equities for all of a sudden it's just

irresponsible financial entertainment when it's really about store value, you know, investment and seeing if you can generate some yield. Yeah, we're the largest, we're investors in the largest exchange in Indonesia. And this is actually one of the things I like about investing in these kind of domestic exchanges is the quality of data you get from them. And they told me recently that there's more people in Indonesia than own crypto than own equities because the equity market is relatively underdeveloped.

So I don't know, Maybe you can fact check that for me. But they seem pretty adamant about it. You know, I'm an Indonesia seven. Yeah, they rank highly here. I was just going to say Indonesia seven on our index. Yeah. So I think that's the case for a lot of countries actually.

I mean, frankly, the U.S. I think represents 50% of public equity market capitalization and a lot of regional equity markets basically don't exist. And so it wouldn't surprise me if that was the case in a lot of places. One thing I want to touch on is your findings about stablecoins. Of course, stable coins have had a tough year in the US and a relatively good year outside of the US. You see local US domiciled stable coin issuers having their supply decrease foreign offshore stablecoin issuers, their supply increase. What did you find that was notable in terms of geographic trends in stable coin adoption? Stablecoin is, I probably don't need to say this to your audience because you probably are aware, is one of the fastest growing types of assets that we've, when we look at blockchain transactions, it's the, if you want an up into the right chart, you should look at the share of all blockchain activity that is captured by stablecoins.

And we really wanted to focus on, we focused mostly on this in our North America section, although, So stable coin activity, we've already talked about in Turkey, is a major trading pair. And if you scrape order book data, there's stable coin activity in every place where there's a fiat on ramp. And I think that when we look at what's happening in North America, the way we kind of thought about geography is we looked at the amount of stable coin activity that's happening on U.S. license versus non-U.S. license exchanges and found that throughout this year, there's been a. There's been a, the amount of activity happening on non-US services has switched and is now being, there's mostly stablecoin activity on non-US licensed services. I think there's a regulatory component to that. So stable coin activity moving offshore, maybe USC kind of declining in activity, which was

more catering to investors in, in North America. but we we see that there's been this shift of stablecoin activity kind of moving to non-US license services and again this is there's a regulatory question there but I think that stable coin activity is is blowing up around the world and and the U.S. and the services that have U.S. licenses are kind of losing share over time. Yeah, I mean there's a couple of reasons as you say. I mean, stable coin issuers have been harassed in this country by the SEC in particular. You just saw PayPal was subpoenaed for PYUSD. The SEC sued Paxos over BUSD.

And you had the banks that provide the services to stable coins collapsed, basically. And the Federal Reserve told banks not to deal with stable coins. And the other thing is interest rates, right? I mean, rates are high and you have a significant opportunity cost to hold a stable coin. And so if you can easily go into treasuries, which is the case maybe for more for USDC holders, I think it makes sense for you to redeem and go back into fiat. Whereas for tether, I think it's, you know, it's a big mystery, USDC declining, tether increasing. I think it makes sense, you know, tether holders, maybe they don't have access to treasuries easily.

So they tolerate the sort of negative carry associated with a stable coin. But yeah, I thought that was one of the most interesting data points you had. I think that should be very compelling to U.S. policymakers. Basically, they're losing control of the industry if they continue to be so negative on it. You can't eliminate the crypto industry as just people go elsewhere. Yeah, you can see it playing out with the data. Every week you update it, the shares get changed. And I think the bigger implication is that the U.S., and we talk about this in the report,

the U.S. has had a lot of successes for mitigating illicit activity. And for the amount of illicit activity that is leaving through U.S. licensed services is just compared to non-U.S. licensed services is, you can see that over a few years ago, that really started declining and the amount of illicit activity started going through, you know, less licensed, non-US licensed services. And so our ability to stamp out and get a hold of illicit finance, there's a question there of are we losing our ability to reduce the amount of crime by pursuing this path? And so you can see all of this playing out with the data kind of in real time.

You know, every day things are changing. So I think the conclusion from the report, of course, is that overall activity is down, which you know, everybody knows every metric in crypto is down over the last two years or so. However, that's not universally the case. There's some individual nations where activity is actually up. We looked at year-on-year growth. And as you mentioned, almost everything is down. But if you look at the year-on-year growth rate by country and then kind of sort it from high to low,

there's seven, eight countries that are positive. The first one is Saudi Arabia, which grew 12 percent year-on-year, followed by Vietnam, Nigeria, Spain, Taiwan, and Indonesia, which we've talked about. These are incredibly growing in a year when everything is down and how is this possible. it's kind of a light at the end of the tunnel maybe, or it's that crypto persists. And in Saudi Arabia in particular, there's a lot of initiatives and investment and interest in growing in. Vietnam has always been at the top of our index. And these countries are showing growth in spite of the bear market, which is, I think, pretty wild.

When you create this report, who is the desired audience? I know you mentioned policymakers and things like that. Is this primarily for regulators and policy makers or just general consumption? I would say that general consumption and like I said at the top of the call, our research seems pretty awesome because we're, we don't sit down and think about, okay, which customers do we need to target? We're kind of sit down with like, what are the biggest questions that the industry faces and what data can we throw at them? I think indirectly, of course, it benefits the company and the industry to have answers to these questions that are basically holding them back.

But we choose our research based on what we think are the most important questions. And so that's how we chose to do this. now the data gets used in almost every vertical in the market. Private sector, public sector, government. And I don't even know which one finds it the most useful. And they're using it for different reasons. So policymakers, of course, the regulation feels to be one of the more important use cases. But private sector is also using it to make their own.

strategic business decisions and to understand which are the top services and why should they foster maybe homegrown services more. And then yeah, so I think that it's really for when you put out a report with just as much data and oh my gosh, our writers are so crazy. Like every report is over 100 pages and hundreds of charts and so much data, it kind of becomes like a grab bag. where you kind of can get what you need from it. And it's really, defy services use it for other reasons. So it's kind of really for anyone.

Yeah. I mean, I can say, speaking from experience, we literally use it to determine investment strategies. I mean, where regionally we should be focusing, you know,

because we have a global focus and we've used your reports in the past to determine, okay, are you looking at these regional exchanges, these ones, things like that. So yeah, it's something different to everyone. That's incredible. Yeah, yeah, I know.

So that's why I was excited to talk. Cam, I've had you on for about an hour. So I'll let you go. But I will put the report in the show notes, of course, any last views you want to share on the report? Any kind of final takeaways from you? Not really. I think we covered a lot. There's we talk, we really talk about maybe five major.

reasons why you experience adoption. We hit on inflation and we hit on inflation and we hit on generating yield and investment. But there's also one thing I've been really trying to draw out this year and I hope in the future are these informal markets. So cross-border transactions, gray markets are really hard to get a sense of using traditional fiat. It's really big with crypto as well, commercial activity happening cross-border payments. Hong Kong is a big hub. So that's another really big component that we try and draw out throughout the report as well, as well as when we can highlighting entrepreneurial activities and innovation

and new use cases. So there's a lot of different things driving adoption that we tease out throughout the report. Well, I look forward to next year's edition. Kim, thanks so much for joining us. This has been great. Thank you.