The Wolf Of All Streets - Here's Why Stablecoins Are THE KILLER APP For Crypto | Jeremy Allaire

Starting point is 00:00:00 This episode of the Wolf of All Streets podcast was recorded in person in Singapore at Token 2049 and is proudly brought to you by the Aptos Foundation. You're going to follow this up, and you casually and calmly said, I'll beatbox. Exactly. Where did your beatbox skills come from?

Starting point is 00:00:16 These things take time, right? I think that's a world we're moving into. There's been a huge amount of work done. There's a lot behind the scenes. So that's good, right? There's not like, you know, friendly fire going off. Mainstream financial media is finally catching up to what we've known in this industry for years, that stablecoins are arguably the killer app for crypto. But that comes with a lot of obstacles and pitfalls, trying to be compliant with regulation and

Starting point is 00:00:44 legislation across the world. Luckily we have people like Jeremy Allaire, the CEO of Circle, and of course leading the charge with USDC to help navigate that environment and make sure that stablecoins are compliant and being used all over the world. So yesterday you did a panel and we were standing backstage and Vitalik Buterin was singing angelic voice. And I said to you, you're going to have to sing. That's right. You're going to follow this up. And you casually and calmly said, I'll beatbox. I said I could.

Starting point is 00:01:36 You could. I could. I did not. You did not beatbox. I was a little bit disappointed. But it's good to know that you have the skill. Exactly. Where did your beatbox skills come from?

Starting point is 00:01:46 I grew up in Philly, and I lived in the inner city. And so in the late 1970s, beatbox was sort of happening, and everyone was trying to do it. And so I picked it up. I lived in Philly from 1995 to 2003. I went to Penn, and then I stuck around for a few years. So I know the city well, although it changed a lot, I would imagine, from the late 70s. So you started in Philly and now we're here in Singapore. Quite a journey for two guys from Philadelphia to come over here and have a conversation

Starting point is 00:02:20 about crypto, but clearly it's important what's happening in Asia. Absolutely. Yeah. Asia has been deeply central to what we do for a really long time. So how do you navigate the multiple regulatory environments and having your product exist everywhere in the world when the laws are obviously different in every country where you try to... Yeah. So I think the first is like, you know, USDC, you know, as we launched it, is regulated as a US issued product. So we're regulated under electronic money rules in the United States. But it's different because it's a digital currency and it exists on the internet. And so it sort of has internet scale, internet reach.

Starting point is 00:03:08 That's part of the huge power that comes with a blockchain-based digital dollar. Now in a lot of jurisdictions, we're not directly regulated, but the intermediaries that provide digital asset services are. So if you're a exchange, a brokerage, a custodial wallet in wherever, you know, Brazil or the Philippines or Germany or wherever you are, there are regulations around. Customer identity and anyoney laundering. And so, you know, it's sort of the distributors and people who provide support for USDC and their products

Starting point is 00:03:55 have direct regulatory obligations. Now, we also, you know, designed USDC so that we could be compliant with, you know, all of like with all of US sanctions, things like that. And so we've always done that. But now more and more jurisdictions are actually coming up with specific laws on stablecoins. The EU is a major jurisdiction, probably the largest jurisdiction to have very clear stablecoin laws. And then July 1st of this year, we became the only global stablecoin issuer to be issuing our USDC product compliantly in the European Union. And that's very significant.

Starting point is 00:04:39 So as these regimes, whether it's Japan that has a stable coin law, the EU that has a stable coin law, there's stable coin laws that are coming online in Hong Kong, Singapore, UAE, UK, Switzerland, and many other markets. As those laws come online, then in many cases, Circle does have a kind of regulatory obligation in those markets. And we have to figure that out. And so that's what we've been doing. And so we like the legal clarity that comes with that because in every market where you have stablecoin laws, you effectively have the treatment of digital dollar stablecoins like USDC as a legal form of electronic money. And when you establish that, then the range of market

Starting point is 00:05:27 participants and just generally in society that will be able to use it grows very significantly. It's one thing for early adopters trading crypto to say, I'm comfortable with this. It's another thing for households, firms, corporations, financial institutions to use it. That only happens when you have legal clarity in all of these markets. You talked about being the first to be compliant in Europe, July 1st. I'm assuming that's with Mika. Yes. What were the challenges of becoming compliant?

Starting point is 00:05:56 And what was that process like? Because kind of a first of its kind to some degree. Yeah. And I know that there were probably a lot of hurdles into actually getting there. It's a huge undertaking. It took years. And it took years because the actual supervisory frameworks for stablecoins were being developed during that time. We needed to obviously go through a registration process with the Central Bank of France, the markets regulator in France. But importantly, the sort of technical standards for how stablecoins would operate, the European Commission, the European Banking Authority, these large, large policy and regulatory bodies were doing that work. So we obviously had to consult along the way.

Starting point is 00:06:47 And I think the biggest thing really was, you know, the Mika framework did not contemplate this concept of a global stablecoin that's issued out of the U.S., but also could be issued out of Europe and to provide a way for that stablecoin to be fungible. And so this dual issuance model that we were able to develop and get kind of sign off from the regulators was really critical, very difficult to do. And I think it really it was pioneering in terms of international regulatory structures on stablecoins. I think a firm like Circle was sort of uniquely able to do that. So that was a lot of work to get there and to try and do all that in time for the effectiveness date of July 1st. Why do you think we've only seen dollar stablecoins be exceptionally popular and not stablecoins yet for the euro and other currencies? I know they obviously exist and they're gaining a bit of market share.

Starting point is 00:07:52 Yeah. But it seems like the killer app has been United States dollar. Think about, you know, you know, capital markets in general, like global capital markets are almost entirely denominated in dollars. Whatever you're trading, wherever you are, there's a huge amount of predominance in dollars. And so that's not, I'm not talking about crypto, I'm just talking about broadly capital markets. International transactions between counterparties in business, in corporations, overwhelmingly denominated in dollars. So the dollar has the most network effects. The dollar is considered the most sort of durable, stable unit of account.

Starting point is 00:08:35 And it has the most liquidity, right? Like the liquidity that exists for the dollar is profound and global. So all of those things are sort of strengths of the dollar is profound and global. So all of those things are sort of strengths of the dollar. And then the underlying dollar assets like the treasury market is incredibly deep. And so it all sort of supports the dollar's strength. So if you take stablecoins today or for you know, for the past, you know, let's say five, six years as stablecoins have really grown, their primary initial role was in capital markets, in participation in digital asset markets. And so all of those markets are principally denominated in dollars. And so it's quite natural that the 24-7 fiat digital currency that would be

Starting point is 00:09:28 most common would be that. We've also seen this growth in the use of stablecoins in emerging and developing economies as a store of value, as a cross-border settlement asset. And again, it makes sense that the participants in those markets would want to store dollars, would want to handle cross-border settlements in dollars, as long as there's good liquidity with local banking or local currencies. Again, most of the use cases driving this

Starting point is 00:09:56 sort of tend towards dollars. We're gonna start to see that change. And there are critical things that are gonna to drive that. The first is having legal certainty over electronic money of a stablecoin variety in a market means that that, you know, a euro stablecoin. So we issue EURC. It's now, I think, the most used Eurostablecoin and it's growing quite fast. That couldn't have happened until we had MICA. And now that you have MICA, a Eurostablecoin is legal electronic money in Europe. And that means that whether it be for payments or finance or commerce, like you could now use it. And so a corporation or a financial institution

Starting point is 00:10:46 that predominantly denominates their domestic transactions in euro can now get the benefits of blockchain based payments and settlement, blockchain based smart contracts. So I think that as you get these sort of legal regimes in different geographies, that will encourage the development of local stable points in those markets. Now, will those be used as like a quote currency in crypto capital markets? Probably not. But will they be used in local transactions, whether in finance or commerce? Yes, I think they will be. And so I do think that will grow going forward.

Starting point is 00:11:27 With USDC itself, then obviously the dollar denominated point, do you see the use cases also broadening and seeing more adoption beyond the speculative markets? Absolutely. Yeah. I mean, that's been steady. And, you know, we highlight a lot of these a lot publicly as things launch. There's tons happening in international transactions, international payments, peer-to-peer payments. We're seeing more and more happen in areas like payment financing, trade financing, working capital models. We're starting to see kind of treasury management where people are managing their treasury flows using USDC and stablecoins. Remote worker payments is another use case that we're seeing develop. And we're starting to see consumer payment applications develop with it as well in certain verticals and certain markets that are kind of digital asset native, like gaming or content or other things, right?

Starting point is 00:12:27 So we're starting to see those use cases emerge. And again, I think there have been a lot of impediments to mass market adoption, the simplicity of onboarding into digital wallets, the kind of user experience of transacting over a blockchain, making it more invisible to the user, like not worrying about what chain you're on or gas fees. They just want to send money. They want that to go away. And so you're now seeing more and more, and I highlight these a lot on my X account, like you're just seeing more and more products launching with these great user experiences.

Starting point is 00:13:01 Sort of the global Venmo, as people like to say, like these kinds of products are coming online. And that's really great infrastructure, scalability and efficiency, so that it's actually basically nearly free to transact. That's a big deal. And then the legal certainty, right? When you have legal certainty, then people know, oh, this is in fact, a digital dollar. This is in fact, a regulated digital dollar. If I'm a financial institution or corporation, I know what this is. I know how this sits on my financial statements. I know how I can treat this as collateral, like all these things. You're not going to have that until you get that legal certainty. We're talking about navigating multiple jurisdictions. Yeah. We also have a proliferation of new chains. It seems like, every single day with

Starting point is 00:13:46 increasing or decreasing demand at any given moment. How do you choose which chains to issue on? And how do you figure out which are compliant or not? And again, in which jurisdictions? Yeah. So there is this incredible growth in in block space right so there's just more more and more um infrastructures that are launching um i think um we're going to see that continue for a while and there are a lot of drivers for that i think as large-scale consumer applications come online for example like any large-scale consumer application would basically destroy the the the the availability on on a on any of the you know most of the chains that are out there right so um if you want to have like a consumer scale company

Starting point is 00:14:38 that's doing something on a blockchain and doing it with digital tokens and and things like you need these layering models, you need these sort of app chain models or layer threes, and you're going to have a lot of this kind of stuff happening. And so we've focused on what we consider to be chains that have significant technical innovation. We look at developer traction, the attractiveness of that community.

Starting point is 00:15:02 We look at, is this tied to a broader ecosystem that is potentially a valuable and growing ecosystem? But also, you know, we've begun to focus a lot on how can we create a pathway for these blockchains to implement USDC in a compliant manner with our technical protocols so that even if it starts out as a bridged USDC, that there's a seamless upgrade path to a native USDC. So we have, you know, this week, for example, Sony launched and their big sponsor here at the conference, Sonium, which is a layer two blockchain. It's being rolled out across the Sony ecosystem. It's really exciting to see that they launched with a bridged USDC, this bridge to native standard.

Starting point is 00:15:53 And so we can kind of track and see like, okay, how is that ecosystem doing? What kind of applications is both Sony, but others deploying? And then we could bring that into a native implementation. And so you'll see some of the layer twos that have launched USDC using our bridge to native standard will be upgraded to native. You'll see that starting in the near future. But so we look at a lot of these factors when we consider it. And our view internally is that there's going to be more, not less. And, you know, there's, for sure, if you think about like the way the Internet works today, you've got like, you know, five major cloud providers. You've got Google, you've got Microsoft, you've got Amazon, you've got Ali, you've got Tencent.

Starting point is 00:16:38 Like these are like these big clouds where people deploy on. And so imagine clouds as like big layer one ecosystems. And then when you go into a cloud, if I'm a specific enterprise, I want like a private cloud. I want my own security. I want my own data integrity. I want to be able to do that. And so you spin up a virtual private cloud.

Starting point is 00:17:00 And so it's like almost like a layer two on a cloud, right? So conceptual model here is like major players, major enterprise, major consumer scale players, they may all have their own layered chains for security, for economic, for other reasons. But as long as there's really good chain abstraction models and interoperability models, then that can work. And so a lot of attention now is being focused on chain abstraction layers, cross-chain mechanisms like CCTP that we run, things like that. So now that the Wall Street Journal and Bloomberg, everyone is saying the things that we've been

Starting point is 00:17:40 saying for years, that this is the killer app. We're actually seeing those words now in the mainstream media and anyone who's in... It's gratifying. Yeah. Gratifying, but it also means you're going to get a lot of competitors or stable coins launching. Absolutely. Are you worried at all that, I don't want to say it would be tarnished, but that less serious players will come into the market and have a negative impact?

Starting point is 00:18:09 I believe if you have sound regulation, that it should be an open and competitive market. And that's the benefit of clear regulation is it tells everyone, here's the rules. Yeah. Now we can go play. Compete. Yeah. So, I mean, that is what we want to see.

Starting point is 00:18:20 We want to see a robust, fair, open, competitive market. And I think, you know, if there's no competition, there's no market, right? If you don't, you know, meaning like the sign of a healthy market is that a lot of people want to build products for it. So we're seeing that just in the past few days, just seeing like different fintechs, different crypto companies, others like making plans for stablecoins. So at that level, I'm sort of encouraged, right? It means this is absolutely a huge total addressable market. It's a huge opportunity.

Starting point is 00:18:49 A lot of people are going to go after it. I think for us, as you know, we've been very focused on solving this problem ultimately for about 11 years. And you know, what we really think about is from a durable perspective is we're building a general purpose internet scale utility and it's a network and it has developers that build on it and integrate to it there's applications that integrate to it there's you know end user products there's like a liquidity network

Starting point is 00:19:18 that's built out and so circle stablecoin network is a highly global network with powerful network effects powerful developer adoption powerful liquidity flywheels and we're just going to Circle's stablecoin network is a highly global network with powerful network effects, powerful developer adoption, powerful liquidity flywheels. And we're just going to keep focusing on those things, making the infrastructure better, making sure that we've got the best global liquidity, the most availability in all these new markets, and working with the best companies to help grow that and grow the use cases for that. That's what we've got to focus on. And I think if we

Starting point is 00:19:46 can just keep focusing on that, we'll manage to hopefully be a meaningful participant in the market. Speaking of clarity or lack thereof, I think a lot of people are frustrated with the lack of clarity in the United States, although we've seen stablecoin legislation floated, right? Obviously, Lummis Gillibrand have been talking about it for quite a while, and there's Congress people in the House who have been talking about it. We really, at least in my opinion, have not gotten the clarity in the United States that we've had elsewhere. Do you think that that's coming? Why is the United States lagging? And do you think that it will actually be crafted in a way that's favorable to the industry? So I absolutely think it's coming. There's

Starting point is 00:20:31 been a huge amount of work done. There's a lot behind the scenes. I think there's a broad consensus about what it looks like. I think really the heavy lifting has been McHenry and Waters and that bill, the Payment Stablecoin Act. I think there's a chance of even seeing that passed into law before the end of the year. So I'm a cautious optimist. And I think, you know, from what I've seen, you know, that bill really balances a lot of different needs, banks and non-banks, state and federal, good framework around kind of supervision, an important role for the Fed, but also an important role for states. So I think it's a very good piece of legislation. And there are obviously going to be some final

Starting point is 00:21:18 things that people have to negotiate. But the interesting thing about this is, this is a totally nonpartisan issue. And and everyone seems to agree, like the U.S. needs to do this, needs to act on this. It's it's absolutely a big industry opportunity. It's one of these things where when you look at the industry, the payment networks want to see it get done. The banks want to see it get done. The crypto firms want to see it get done. The asset managers want to see it get done. The crypto firms want to see it get done. The asset managers want to see it get done. The entirety, you know, the fintechs, like everybody wants to see this

Starting point is 00:21:49 get done. So that's good, right? There's not like, you know, friendly fire going off in any material way. But the payment networks want it done. The banks want it done. Isn't this disrupting their business? Well, I think it has the potential to disrupt their business. But at the same time, like if it's gonna be a technology and an approach that's innovative, they wanna play in it too, right?

Starting point is 00:22:14 So I think, you know, the more that you have federal clarity, the more that they can, you know, build on that technology themselves. And so I think they wanna make sure that there's clear rules of the road for that so that if they are going to do things themselves, that they feel comfortable that there's a good federal legal framework for it. Is there a worst case scenario where they make a law that says only a few banks can issue stable coins and the incumbents like yourself could effectively be pushed out?

Starting point is 00:22:47 I think there's very, very low chance of something like that happening. We feared it, I think, maybe in the past, you know, before we even saw it. Yeah, well, when the first proposals came out from the presidential working group, it was sort of, you know, a kind of view, like only, you know, FDDIC insured companies could do this.

Starting point is 00:23:08 And I think that just reflected a fairly fundamental misunderstanding of what stablecoins even were. They're not taking investment risk. They're not lending. Why do you need FDIC insurance? You're going to need capital requirements. You're going to need capital buffers in some cases. You're going to need to deal with some of the inherent risk in using blockchains from an operational or security perspective. And so it needs to be tailored, right? And so I think the stablecoin laws ultimately provide the regulatory supervisors the ability to kind of tailor to those risks and then have very strict defined reserve requirements, which is like really most fundamentally how you manage the risk.

Starting point is 00:23:54 I have to imagine that your team is spending quite a lot of time in Washington. Well, we have an excellent policy team. It's a global policy team and certainly the leadership we have in Washington are working very hard. In terms of stablecoins, I think a lot of people have questions about what would happen to the industry depending on the results of the presidential election. But in your mind, as you've said, it's seemingly bipartisan at this point. Do you think that stablecoins are somewhat of a foregone conclusion regardless? I think that's right. Do you think

Starting point is 00:24:25 that there's meaningful risk to the industry still in the United States or do you think that we're getting it right? I mean, look, I think, you know, broadly, I just, I've said this publicly recently, like, I think that the United States is going to lead in this industry. I think it has a huge opportunity. I think many of the best technologies, projects, companies are in the U.S. And I think, you know, we've seen the policymaking environment really evolve, become more bipartisan and clearly a desire from the leadership of both parties to get this done and get it done promptly. And I think once that gets done, that's going to unleash a huge amount of entrepreneurship, a huge amount of capital. And that's going to be a very, very positive thing for the United States. And so I

Starting point is 00:25:14 think that'll get done. It'll get done in the near future. We're going to get through the presidential cycle and so on. But I think that'll get done. And I think just like the US leads in technology, leads in capital markets, leads in a lot of financial infrastructure, I think it'll lead in crypto as well. You're always building obviously with the future in mind, and I would imagine the distant future. Best case scenario, what does this look like in five years or 10 years as we've seen conjectured? Could this be 10% of the money supply is stablecoins? Yeah.

Starting point is 00:25:49 So, I mean, it's hard to know, obviously. I think my own view is that we're approaching the point where through open protocols that run on public blockchains, things like USDC and the improvements in blockchain infrastructure where both the marginal cost of storing and moving value is effectively approaching zero. The user experience is going to more resemble the seamlessness of the user experience we have for all of our other types of internet software utilities. And so I think that creates a foundation for very significant growth. That's not even, you know, bearing in mind the innovation that comes from smart contracts and programmability

Starting point is 00:26:30 and, you know, AI interactions with this. So I think there's a lot of very, very significant growth ahead. And I think as the base layer of money on the internet, you know, stable coins are the safest form of money as opposed to bank lending money. And so I think the demand for that will grow. And so the total addressable market of legal electronic money is over $100 trillion today. And so I think over five or 10 years, I'd be very excited if stablecoins could take a few percentage points of that or more. But you know, these things take time, right? You know, I remember even 10 years after, you know, YouTube and Netflix and all these

Starting point is 00:27:19 things were considered like everyone has this, right? Only like 10% of viewing hours were online versus terrestrial broadcasting this, right? Only like 10% of viewing hours were online versus terrestrial broadcasting cable, right? Right. So like these things take time. E-commerce, which we just say, it's like everything. It's still, I think like 25% of retail or something. It's still after 30 years, right?

Starting point is 00:27:39 Or whatever it is, right? So it takes decades for these shifts to happen. And it's not a zero sum game. It's not like everything else gets destroyed. It's just sort of you see these improvements and more and more society moves towards those. And I think that's what we're going to see with blockchain finance, stable coins, all this stuff. Given perfect legal clarity and the best case scenario there, what would you love to see built? What maybe would we not expect that stable coins could be used for that you're seeing?

Starting point is 00:28:06 Yeah, we're approaching artificial general intelligence. And I think artificial general intelligence is going to lead to a world where AIs are producing code at increasing velocity. And AI agents are going to be daisy-chained and connected and orchestrated. And those AI agents are going to be increasingly participating in economic transactions.

Starting point is 00:28:33 They're increasingly going to be participating in structuring of relationships, economic contracts. And so I think you're going to see a world in a few years where AIs are kind of code-gener generating smart contracts, manifesting economic transactions, facilitating those transactions. That is all going to be done on blockchains. That is all going to be done using stable coins. And that's going to be a very, very different world. Lots of issues with that, of course.

Starting point is 00:29:00 But I think that's a world we're moving into. And I think it relates in general to sort of the pace with which AI will consume more and more productive work in the economy. But I think that's happening at a far, far more accelerated pace than people are anticipating right now, at least the general public. And so I think that's the most significant unknown. But I think from my perspective, when I look out a few years, we're not going to be talking about like, oh, we made B2B payments faster and cheaper. We're going to be talking about a complete restructuring

Starting point is 00:29:33 of how economic intermediation works in the world and the role that AI plays in that. Exciting and scary. I guess they won't be sending swift transactions or repaying you covering cash. They will not be. They will not be. It's going to be all on chain.

Starting point is 00:29:45 Is there anything I may have missed worth discussing before I let you go? Yeah, great discussion. Thank you so much. I love the work that you're doing. Thank you so much. Keep us updated. Absolutely. Let's go.

The Wolf Of All Streets - Here's Why Stablecoins Are THE KILLER APP For Crypto | Jeremy Allaire

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