This Week in Startups - Circle CEO Jeremy Allaire on USDC, Tether & more + Jason reacts to Apple’s new M1 chips & MacBooks | E1307

Episode Date: October 19, 2021

First, Jason reacts to the most recent Apple event announcing new M1 chips & Macbooks (1:26). Then, Circle CEO Jeremy Allaire (23:85) joins to discuss how USDC, what makes Circle different from Tether, regulation, and more.

All right, we've got an amazing show for you today, everybody. Circle, CEO and co-founder Jeremy Aller joins us to talk Circle, USDC Tether, the entire stablecoin landscape, and much more. But first, I'm going to break down Apple's event from yesterday. We're going to talk all about the new M1 chips and the new MacBook pros, the demise of the touchbar, and the return of all of our ports. Dongle life is over. Stick with us. This week in Startups is brought to you by Fiver Business

is a modern workplace for the digital world. Their team of dedicated business success managers help match you with the best freelancers for your team. Right now, you can sign up for Fivera business free for the first year and save 10% on your purchase with promo code, Jason. That's F-I-V-E-R-R dot com slash business and use promo code Jason. In Broker's Startup Insurance Program helps startups secure the most important types of insurance at a lower cost and with less hassle. Save up to 20% off traditional insurance today at imbroker.com slash twist. While you're there, get an extra 10% off using offer code, twist. And Drata.

Don't let requests for SOC2 compliance reports slow down your business. Use Drata to stay ahead of the curve. Go to drata.com slash twist for 15% off. Apple yesterday announced two M1 chips. and a superpowered, like massively superpowered, 16-inch MacBook Pro at their unleashed event. Apple announced two new chips. You know they came out with the M1 about 11 months ago in November 2020. And that chip performed twice as fast as the latest PC laptop chips while using less power.

And that is the key for a laptop, isn't it? You want more power, but less power consumption. So you want to be able to process more graphics while not training your battery. specialized chips will do better at this task as opposed to general chips. And we are very far into the silicon race here. We're in the fifth or sixth decade of making these chips, 70s, 80s, 90s. So, you know, we're now into the sixth decade of making these kind of chips for PCs. And everybody knows that the key issue is battery life that we all contend with. And because Apple was building off of over a billion iOS devices, they really got to optimize chips and they went full stack.

If Apple is not dependent on Intel or AMD or other chip manufacturers, it makes it a stronger and more valuable company. And that's what you see over time. Companies build full stack. Tesla, one of the greatest examples of this. They make their own battery packs. They don't take them from Panasonic or whoever anymore. I think in the beginning they were using actually Panasonic batteries in the Roadster.

And so if you want to have a company that is less dependent on third parties and you want to capture more of the margin in your product, why give that margin to other players in the space? Because they have to make their $100 or $200 off of a chip. That's why PCs, if you had an Intel chip versus an AMD versus some generic chip, they could have a difference of $100, $200,000, so there is a financial incentive here. But there's also, how do we make the best possible experience for our consumer base? What does their consumer base do? Well, they're not gamers as much as they are video editors and creators and creatives.

That's always been who the Mac ecosystem goes after. Why? Because if you're a creator, you appreciate something beautiful. It was Steve Jobs' passion. And those people who are creatives are price insensitive. They're price insensitive. If you are making content on your computer, your video editor, your screen playwriter, an author, you're making money making content. This is the content creation device.

So that's part of the secret. You're not just using it for email. If you're using it for email, yeah, buy a Chromebook. You're going to be able to spend 500 bucks and there's no difference between doing email on a $3,000 machine or a 500. Big difference doing video editing, big difference doing photography, et cetera. And so let's talk a little bit about these two new chips. One's called the M1 Pro. One's called the M1 Max. Confusing branding here, but you see where they're going. They're going to have three chips. The chips will have different profiles in terms of power. Here you can see, I guess that's the physical representation in terms of size,

and that is indicative of what they're capable of doing. And here's a 40-second clip explaining the specs of the M1 Max chip, specifically 309 seconds. I'll see you on-the-side. M1Max starts with a much higher bandwidth on-chip fabric and doubles the memory interface once again. This delivers up to 400 gigabytes per second of memory bandwidth. That's twice M1 Pro and 6 times M1. This wider memory interface lets the M1 custom package support up to 64 gigabytes of unified memory. And its die has a staggering 57 billion transistors.

That's 1.7 times M1 Pro and 3.5 times M1. It's the largest chip we've ever built by far. M1 Max has the same powerful 10-core CPU complex of M1 Pro and doubles the GPU to a massive 32 cores, giving M1 max up to 4 times faster GPU performance than M1. All right, so as you can see, it's massively, massively faster and more powerful. And they are using less power than like these 8-core PC chips. So to get the same amount of PC graphics, you can do it, but it's going to have a higher power profile,

which means your machine is going to have the battery die very quickly. And in an April earnings call, Tim Cook warned that the global chip shortage would impact Apple's M1 chips and the products associated with them, according to Apple Rumors, all Apple chips, including the new M1s are manufactured at TSM. If you're wondering what the T stands for, it's Taiwan. And if you've been listening to All In or this podcast, we had Jacob on recently to talk about Taiwan. Been watching the news, you know, that Taiwan has a bunch of Chinese airplanes flying around in the South China Sea. you have military maneuvers with the big six, New Zealand, Australia, Japan, the UK, the United States, and South Korea. I think those are the big six in the South Pacific. And they are, of course, now trying to at least let China know that we're not going to let you roll Taiwan. And I think the Taiwan semiconductor manufacturing company, TSMC, is a big part of this. If you just think about that one company, $500 billion, Our company produces a lot of the world, Silicon. It is, if you want to talk about supply chain interruption,

if China takes over TSM and they take over Taiwan by, you know, they take over Taiwan and by extension, they might just seize TSMC. And you're saying to yourself, that's crazy. Governments don't just seize companies. Isn't that what they just did in China? So a lot of what's happening here in terms of the independence of Taiwan could have something to do with TSM. As part of that, Japan is subsidizing a $7 billion plant that TSMC is building.

Sony is an investor in as well in Japan. And TSMC is also building a plant, I believe, in Arizona here in the United States. And so what we're going to see is different governments spending money with TSM to move their factories to secure locations. This would be a great thing for Australia, New Zealand, Korea, other countries to do. If we can make TSM a global company with a global footprint of factories, that would make the supply chain much more resilient and everybody has a horse in that race, including China. Where's Apple in all this? Apple has $250 billion in cash last time I checked, well over $200 billion.

Why does it Apple just buy TSMC? I guess that would be considered a real hostile act by the Chinese government. And why does an Apple give $7 billion to TSM to build a plant, you know, in Vietnam or Korea or somewhere else? Again, the Chinese philosophy of war and interactions is just saying that Taiwan is its own sovereign country, that would be considered, according to the doctrines in China, an act of war based on what I've read. If you want to watch the Jacob Hellberg episode, it was episode 13. three just last week and a great new book from him. Totally worth watching. When you're trying to nail an important project, you're going to need some extra help, right? You're trying to move fast.

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Taiwan if you weren't already aware of that or you couldn't guess so as part of these new chips being announced they're obviously going to go in computers we didn't get a new mac mini i was kind of disappointed in that because that's become the standard that I use with a lot of folks on my team. We'll have Dell computers for the business side. Some of the creatives have Mac minis. And then we use Dell monitors. I find that combination is quite nice. I'm using it right now because a lot of the software I use, I need the MacOS operating

system. And let's take a look at these new models. Here's a quick 27 second clip of the new MacBook Pro models. This is the all-new, completely redesigned MacBook Pro. And it comes in two sizes. A 16-inch model. And for the first time, a compact yet immensely powerful 14-inch model. Let's start with the keyboard.

Users value the full-height function row on the standalone magic keyboard. And we've brought it to the MacBook Pro. The physical keys replaced the touchbar, bringing back the familiar tactile feel of mechanical keys that pro users love. I mean, it's so hysterical. Literally, the touchbar, which was in truth, was back in 2016, has been absolutely hated universally by Mac users, especially the more advanced users.

It's kind of a silly, gimmicky concept. The idea that the keyboard would change based on the app you're using is clever. The problem is, in practice, it doesn't work. There are keyboards out there that are specialized for different. different uses. So there is an avid keyboard. As many of you who are in the video editing space, know, if you're using an avid workstation, you might have an avid. It, you know, it just shows you what the quick keys are without you having to look at them or memorize them. But here's the, here's the rub. If you're an expert user, it's supposed to appeal to you, you already know that.

You already know the keys. You're an expert. You're working 10 hours a day in avid or Premiere or in Notion or in Slack or in superhuman. You've memorized. You've memorized it. It's your job to memorize the quick keys. So it's really like for beginners to train them what the quick keys are. And then anybody who's good at typing doesn't look at their keyboard. I don't look at my keyboard when I'm typing. I'm an expert. I'm a writer. I should know these things. So this is a, I think, a concession by Apple who when Steve Jobs said, hey, listen, trust me, you don't need a keyboard on the iPhone. You'll get used to it. The software will get better. He literally said that to me because he saw I was using a BlackBerry at one of the code events or back then it was called the D event.

Wall Street Journal was running it. And I was like, what about the keyboard? He's like, just trust it, Jason. I know I'm name dropping here, but he said, just trust it. You know, it's tiny things, but it will know what word you're typing. And if you hit the wrong key, it's going to fix it automatically. He was basically explaining autocorrect before autocorrect had a name. And that's pretty true, isn't it?

I mean, you do get some auto correct problems. But this is Apple saying, we're going to listen to our pro customers. And the pro customers have felt for close to a decade that Apple was ignoring them. Everybody wants a tower. Everybody wants giant monitors. Everybody wants ports who's a pro. And Apple is just like, no, you want simple. And they basically, this is the problem when a founder leaves a company or tragically

dies and passes away like Steve Jobs did. Tim Cook is incredible as a CEO in terms of ringing the register, the supply chain, you know, and many facets of the job, right? You can't deny on that. But when it comes to innovation, the two most innovative products out of Apple have been the watch and the AirPods. The watch took them six versions to make something that I would consider okay. Like I'm actually using it. I gave up my FitBet after 10 years.

And I would say it's okay. You know, I don't think it's like incredible. I'm not like impressed with my watch the same way I went with my phone or iPad. And then the AirPods, I think were pretty much the best product they've created since Steve Jobs passed away. and that means they haven't built another franchise. The iPhone has a percentage of revenue has gone down. Services have gone up. So Apple money printing machine, but no innovative, you know, game changing.

Let's just say put a dent in the universe, as Jobs would say. There's no put a dent in the universe product. What would those products be? Well, a car would put a dent in the universe if they made a great one. Pretty hard to do. We'll see. And the other thing would obviously be VR or AR glasses. That would really put a dent in the universe.

or building an actual television set, which many people know Apple did work on, not an Apple TV box, but imagine like a Sony replacement TV, and I think they realized what, it was really not a great business to be in. So looking at this, the touch bar was hated,

so they got rid of it. And there's a lot of interesting commentary on Twitter over this. They've also put back all the ports. So this dongle life that we've all had to live, where USBC to USB2, I guess was the old one, USBC to your memory card reader, USBC to Ethernet, USBC to HDMI, USBC to whatever feature you wanted to have.

And also, remember, everybody loved MacSafe. When you're at a conference, when you're working in the library or in a co-working space, somebody trips on your cable, the computer goes flying. Apple made a big deal of that. We have MacSafe. your computer, your $3,000 computers never going flying across the library. Amazing.

Then they took it away. Why'd you take it away? Oh, we wanted to go to USBC. Well, that's great. But we just spent all this money on MagSaves. And then anybody who has apples at their house knows if you have five old MacBook laptops, you've got five different power adapters. Just really, really terrible job on standardization, but then taking away a loved feature.

We had the same thing happen with the iPhone when they took away the headphones. Here's Ryan Block, a friend of mine. essentially co-founder of Engadget with Peter Rojas and the rest of the weblogs and team. 2015. We removed your computer's connectivity. Courage. 2020. We completely ruined your computer's main output.

Our latest keyboard is better than ever. 2021. We restored your computer's connectivity. That's what pros need. Apple. Profiles encourage. Phil Baker says only Apple can take features away and call it progress. Then years later add those same features back and call it progress. That would be the reality.

Distortion field. A Twitter user named Team Nogis Tom had an interesting reply to Baker. The touchbar was obviously not intended to take features away. It was intended to provide more utility. Sometimes big bets don't pan out. As the saying goes, no one to hold them, no one to fold them. Many companies don't know how to fold them due to ego or inertia. And the ports is the most polarizing piece of this. And here is Apple explaining what they've done. I'll see on the other side of this 58-second clip. Having a wide range of ports can make life a lot easier for pros.

So I'm excited to share that we're adding ports to the new MathBook Pro. On one side, there's an HDI port for conveniently connecting to displays and TVs, a Thunderbolt 4 port, which connects to high-speed peripherals, and an SD card slot enabling fast access to media. On the other side, the headphone jack now has advanced support for high-impedance headphones, and there are two more Thunderbolt 4 ports for a total of three in the system. And yes, MagSafe is coming back to the MacBook Pro. MagSafe 3 has a new design that supports more power into the system,

and you can still charge via the Thunderbolt ports. Display support is better than ever as well. With M1 Pro, you can connect up to two Pro Display XDRs. And with M1 Max, you can connect up to three Pro Display XDRs and a 4K TV, all at the same time. So this is critically important. Right now, I have a three monitor setup, two beautiful Dell's turned horizontal.

That's why you see you look on the left. I look at Slack. Over here, I'm looking at Restream in your comments. And then here's my teleprompter with a camera, Sony digital SLR. And then over here is like one of those nice little thin, you know, laptop monitors. And, you know, the ability to have,

this Mac can only support two monitors. So I had to get an extra box and some software called DisplayLink Manager in order to manage a third monitor. So a lot of people have been complaining about this. Why can't I have three hours on my Mac? And it was because of some issues with the chips and the video processing to do high-res monitors. Apparently, now they fix those.

And they've brought back all the jacks, which are, you know, amazing. So they're claiming this M1 Mac 16-inch MacBook Pro has up to 21 hours of battery life while watching videos in up to 14 hours while browsing the web. Directionally correct in my experience when I was in Italy and I went to the beach to write the book for a week. I'll give an update on that at some point. It's going really well. Publisher loves the book. Agent loves the book concept.

It looks like we'll work on a deal in the next two weeks and then pick a date. So I'm going to go at my same publisher, I think. I just love Harper Collins business. I don't even know if I'm going to auction it out again this time. I think I'll just go with the, if they make a reasonable offer, I'll go with the folks who did that. the last book because they were great to work with. And when I went to the beach and I was typing and doing stuff, yeah, it would last all day, basically.

And if your monitor is a little bit brighter, it might last half as long. So I think they do take into this bringing the battery down to 60 or 70% when they make those. It's not full brightness of your monitor. If you don't have business insurance, you failed one of the first steps in being a great entrepreneur. Startups should look no further than imbroker, E-M-B-R-O-K-E-R. M-B-R-M-B-R-E-R-M-B-R-E-R-M-B-R-E-R-M-ROWs.

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This is something that all Macs should have. They should lead, and there's other companies that are leading, and you can buy third-party cameras. That's what I do when I'm doing the show on the road. I'll bring, I have like a Zoom camera or something, and then I just bought another little camera. So I've been testing a bunch of these different cameras. Sometimes I've even brought a digital SLR with me and a road kit. It's a lot of work to set that up.

But sometimes worth it. If I go somewhere for a week, like if I go to Tahoe for the week, I'll bring my road kit. If I'm just going for two days, I'll bring my laptop and a headset. So how much are these going to cost? They're going to be ridiculous. I mean, if you really want to go for it with a 16-inch MacBook Pro, you're looking at three grand or so. And then if you want to put a lot of memory in it, like 64 gigs of memory, which, you know, is reasonable for a video editor, 32 gigs, also reasonable for video editor, 16 gigs for me, the minimum you need on any laptop to use a multi-monitor setup with a lot of tabs open.

And then you can put two terabytes of storage in this, one terabyte of SSD storage, four terabytes or up to eight terabytes. And the max is $6,000. Now that seems crazy, but, you know, if you are a developer and this machine's going to last you two years, three years, you're going to trade it in for half as much,

you know, the way I look at this is what is your computing costs per day? So I keep my computers for typically two years. and then I will give them to somebody who doesn't need as much of a power computer, or I'll trade them in. I do my phone every year or every other year. And I just take the total cost of the device. So here are $6,000 and, you know, 700 days, right? 365 times two, 730 days.

You're looking at whatever that is, eight, nine bucks a day. Okay, that's a lot of money. But you're going to give the computer back and you're going to get a $3,000 trade in, let's say, 50% trade in. So now you're down to $4 a day. I think that's the way to look at these devices. Four bucks a day, if you're getting paid 20, 30, 40, 50, $60 an hour, whatever our creative gets paid, $100 an hour, $500, who knows, if you're a high end?

Isn't it worth it? And so that's what I would encourage you to do is just take your number of work days, number of days you use the computer. If you only use it five days a week, fine. You know, then it's 500 days into $3,000 or $5,000. And I think a cup of coffee is a pretty good price to pay for your phone and maybe, you know, two cups of coffee or one cup. of fills is a one cup of blue bottle is probably the right price. So I'm definitely going to buy it.

I'm definitely going to buy the maximum one, not with storage and memory, but I'll buy the 16 inch and see how it goes and I'll let you know what I think. I'm going to order it probably today. And I'll do the 32 gigs and one terabyte. I really don't need that much storage. What I do is I have a one terabyte external if I ever need it and I've never needed it. So I'm not storing giant video files. But congratulations to Apple on listening to their customers and giving their customers what they want. Here's another great idea for Apple. Your customers would also like a tower where they can change everything and change the memory in the MacBook Pro. They would also like more monitors. So just listen to your customers. I mean, and I don't know. I'm guessing the new iPhone 14 next year

or the year after is going to have the headphone jackback. Is that what you're going to do to us? So congratulations to Mac on listening to their customers. It does take a little bit of to say, we were wrong. We're going to give you reports back. We were wrong about the keyboard. We were wrong about the touch bar. We're just going to give you what you want. So, yeah, you could buy a bottle of Pappy Van Winkle from Sacks for four or five or six grand, or you could buy a new laptop. I've always my whole career invested in technology, much to my wife's chagrin of the amount of electronics I have sitting around. But man, if you can make yourself one percent more effective with a device and you can buy six or seven devices and become six or seven percent more

effective, that's really worth it. That's really worth it. Man, it is so frustrating for me as the tech support person in the house when my wife doesn't upgrade her phone because I'm responsible for tech support and I'm just buy the newest one with the most memory, with the fastest chip, with the biggest screen, and let's just 90% of the problems you're going to have are going to be solved. So, great job to Apple. Congratulations. And give us the new Mac Mini. I think Mac minis are one of the great sleeper hits over there at Mac. If you've ever had a Mac Mini, it's just a great. It's just a great device and you can put them under like I have right now this desk is a

desk that goes up and down standing desk and I'm standing it's a standing desk yeah the ones that go up and down I got the little controls over here and my Mac Mini is bolted in a little tray underneath it all the cables are nice cable managed and it's just a great aesthetic right I love it all right next up on the program

is the much questioned and the interview that many people thought would never happen I knew it would happen and just take a little time. People are busy. But Jeremy Allaire from Circlos on the program, you're going to love this interview. As I predicted, he would be super upfront. As I predicted, he's doing everything by the books.

As I predicted, I think USDC is going to become the winner in the stable coin business. And that tether, as we've seen with their fines, they now have another second major, bigger fine that they've gotten from the government here in the United States. I think Tether is going to get absolutely run over by USDC. So I don't have a horse in the race. I don't own either of them and I don't have investments in either. Enjoy the interview. In today's startup landscape, committing to security and appliance is vital for growth.

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Twist listeners can get 15% off and waived implementation fees at drada.com slash twist. Dr.a.com slash twist. All right, next up on the program is serial entrepreneur. Jeremy Aller. I've met Jeremy. God, when did I meet Jeremy? Probably in the Colfusion days. Definitely caught up with him when he was doing Breiko for just over a decade. And he, of course, was the CTO of Macromedia. Back in the 2001 to 2003 era, he's been working in the tech industry for over two decades like myself. And he's currently running a company called Circle. You can visit them at Circle.com. They've got a collection of businesses which we'll get into today.

And they raised $711 million pre-spac. And in July of 2021, they announced that they would be spacking a deal that put the value of circle at $4.5 billion. And they raised $450 million in a pipe, yada, yada, yada. And I'm not sure when the SPAC actually goes out. Is that like, is there, so welcome to the program, Jeremy.

When you do a spag like this, is there a specific date when it comes out? I mean, basically, it's sort of like the opposite of an IPO. In an IPO, you like, you file your S1 and you go through however, like six months or whatever of review. And then once it's done, then you do your deal and you raise your money and you become public with a SPAC, you actually like you do your deal and you raise your money and then you file and you go through that process. And so, you know, crypto SPACs, which is a genre.

there's like E.V. Tolstfax and everything else, right, crypto specs are taking around, you know, typically like five or six months. So, you know, we had sort of said end in this year, early next year, but it's sort of just going through the kind of registration process, basically. And as I, from the outside look at Circle, I know you have the Stablecoin USDC, which is obviously very much in the news in relation to tether and regulation. We'll get into that. You have treasury services and payment services and APIs in the crypto space, and you bought Ryan's company Seed Invest, which does equity crowdfunding. So looking at this collection of products, what is the master plan here? Because when I saw you had invested in Seed Invest and USDC, I think, speaks for itself. What is your master plan for these three assets and how they come together?

Yeah. I mean, look, I think, you know, what, first of all, you know, what drew me into working on. on internet finance, as I like to call it, you know, nine years ago or eight years ago, eight and a half years ago when we got started working on Circle was sort of a belief that, you know, there was this new infrastructure layer being built that was internet native money, internet native financial infrastructure, economic infrastructure. And we got very excited about that and what that would look like in the future.

And I think at a high level, believe that over time, you know, the representation of money, the storage of value, the transmission of value would just become digital currency base. And that, you know, secondarily, this bigger idea of programmable money, which was, you know, really ideas on napkins back in early 2013, smart contracts, things like that. But as a technologist, I looked at that. So I can see how that's going to happen. And I can see how you're going to have ubiquitous value exchange happening the same way, you know, HTTP brought ubiquitous information exchange or SMTP and SMS and other things

brought ubiquitous text, you know, message exchange. These protocols would allow for value exchange. And if you have the ability to kind of create financial contracts and have those financial contracts intermediate capital and have that intermediation kind of done by machines on the internet, that you could really begin to rethink the fundamental delivery of financial services. So, you know, what I broadly call the time value of money, the allocation of capital. So that might be someone wants to save money, someone wants to borrow money. You can intermediate those things on these networks and these blockchain network.

And also, you know, ultimately, capital formation itself would become more internet native and the ability for people to invest from around the world in an open, democratic, easy-to-access way. and the ability for firms and households to kind of form capital would become easier as well as more and more financial infrastructure moved to an internet native kind of model. And so big picture, we've always been interested in that kind of transformation. And so when you look at what we're doing now, there's a couple of really big pieces which are entirely based around cryptographic money and blockchain networks. So, USC very clearly, it's cryptographic dollars, and we can come back to talk more about

that, but really with this goal of establishing a protocol layer for seamless and expensive, instant global value exchange with dollars and eventually other fiat currencies as well. But then building around it are these other things, which is, what if I'm a business that wants to store it and I want to connect existing financial networks? to it and take traditional payment instruments, but have it all kind of ultimately be based in digital currency where I want to lend it and generate interest from it. These transaction and treasury services, as we call them, are all built up around that kind of digital currency core. Seed Invest today is really separate. It stands entirely separate. It is internet-based finance

because it is a way for startups and investors to participate in investing behavior entirely on the internet. And you know a lot about that and have me, you know, we can talk more about it. But I think eventually those models of crowdfunding will become more fully digital and it will be intervened. And crypto based. I mean, crypto based. Yeah. So you and I invest in, I don't know, the next Uber and you decide, hey, I need some liquidity. I want to sell half my shares to JCal at this investment. You and I can do just a straight private transaction between each other. and our shares get transferred like any other crypto would. Yeah, like tokenized securities in a sense.

And I think the other thing, there's a lot of exciting ideas out there, which are, you know, NFTs, you know, we mostly think about digital collectibles and things and crypto art or whatever, you know, all the different applications of NFTs. But equity is a non-functionable token. There's a fixed number of shares. You can have share in the share register. You've got zero or whatever share one through. share whatever, and they're non-fundable tokens. And you can imagine a representation of equity

as a non-fungible token. And you can imagine an equity holder that's got proof of their ownership in an NFT in their digital wallet that could provide them other perks, other ways to interact with a brand, to interact with a startup, to be a stakeholder in a slightly different way or a way that extends beyond just I own shares or I have dividend rights or whatever. See, this is a fascinating, and I thought we would start with the stable coins, but this is even more fascinating to me personally. Because if you think about it, you have Kickstarter giving rewards, right? And, oh, you buy the product in advance as a thank you. Maybe we give you early access.

Maybe we give you a number on the side of it. This is the seventh one ever made, and it becomes a little more collectible. Maybe we let you come to some events, et cetera, you get a T-shirt. And what you're saying is, hey, you get your NFT, and you, you're, you're, you're, you. you call it a share, you call it an NFT, whatever, you paid a dollar for it. We made a million of them. That seed funded the idea for Airbnb. Okay, now Airbnb is worth a billion dollars, and those million one dollar shares are worth a thousand dollars each, but they also came with the ability to get priority, get a 20% discount on any booking, and you get priority for

the holidays and Christmas. Right, right. And it's cryptographically provable, and that's really the power here is that I possess this token. It's in a digital wallet. And I can, I can use it as a proof. I can use it as a proof to a commerce application that's interacting with me. That commerce application can say, oh, okay, you're a token holder. And you're this particular type of token holder and so on and so forth. So these are mostly just, you know, these are ideas that are floating around right now. But I think you're seeing experimentation like this happening. you know, and I think there's definitely work to do on the regulatory side here. Yeah, you're coming off on the pass on that one because people are buying NFTs now for $100,000, $500,000 a million.

And I think civilians are looking at that and saying, what? And then, you know, people in the industry are looking at it and saying like, huh? how does it make sense that an NFT of a board ape is worth two or three hundred thousand dollars? What would your response be to a civilian or just somebody who's in the business, but not in the crypto business or in the business world? They don't understand why are people paying that? What's the answer to that? Why are they paying that?

Yeah, you know, I think it's, you know, art and basically creative intellectual property. you know, there's so much creative intellectual property, you know, music tracks, performances, media, icons, you know, poems, whatever, you know, there's lots of creative intellectual property. And I mean, my high level perspective here is that, you know, NFTs represent, for the first time, a way to represent digital intellectual property in a, in a, in a, in a scarce manner and to have a monetization model around digital intellectual property. We used to have like DRM, you surely remember. Yeah, digital rights management, right?

Which was so annoying. It was really awful. But like a cryptographically provable kind of ownership over some digital item is actually really powerful. It could be used in a lot of different ways. Now, why are a specific, you know, a collection of apes as an example? Why are those worth so much? I mean, I think this is, you know, why did a series of pieces of art by a particular artist in a particular city become extraordinarily valuable over time?

Because they were cultural memes. There was influence of adorning it, of owning it. And I think that's what you're seeing here. You're basically seeing an enormous amount of crypto wealth. There's $2.3 trillion of crypto wealth in the world right now. And you're seeing an enormous amount of crypto wealth. and it's a moment in time where the crypto wealthy

can be patrons of what they believe to be powerful memes of the moment and they can own those memes and own them forever. And they actually are speculative and they're tradable and all the other things that come along with it. Unlike that painting on the wall,

there is a liquid market, but it's a really difficult liquid market to deal with. So you have both the frictionlessness of these markets, as well as I think, you know, these are, these are, you know, ways to value memes. It's crazy. And trade them and the like.

And so it's, you know, again, it's technically, it's just only recently become possible that you can do these kinds of things. Yeah. There's going to have to be a reframing of the accredited investor laws and who gets to buy shares in companies. the SECs will have been slowly evolving this. There'll be a test at some point you can take,

it seems, to become an accredited investor. I don't know if you have any updated information on that, but my understanding is that they've been charged with figuring it out

this year or next year. Yeah, maybe you could speak to, yeah, maybe you could speak to accreditation laws and if they did change what the world would look like

and how much of this hand-wringing would go away. Yeah, I mean, it's a huge topic, right? And I think there was progress made on this, you know, last year when the updates to the exemptions in terms of Reg CF, Reggae Plus kind of came along. There were some, you know, a commitment to work on the accreditation definitions. I don't have specific information

around what might come and what it will be and when. But yeah, the concept of a test you can take, you know, you know, it's something that I think. think it needs a bigger overhaul than that, clearly. You know, the internet has been so powerful at, you know, dealing with risk and reputation, right? I mean, I think, and the internet's done it through platforms that empower everyday people to make a risk-based decision based on the kind of the wisdom of the crowd, if you will. I mean, why would I trust someone who's selling something on eBay? Well, eventually there were ways to deal with the kind of risk through both community policing as well as ultimately things like machine learning and other data.

You know, the concept that you would just get into a stranger's car and like or allow strangers to just come stay in your house or whatever. These are absurd ideas. And, you know, historically you would have thought, well, you know, that's like, that's why we have like a formal hospitality industry. or that's why we have, you know, certified taxi drivers because we need to have background checks. We need to have all these things.

Well, it turns out that you can do these things very, very efficiently over the internet with the data that we have. And I think the same thing kind of applies in this realm of investing. And I think it's quite reasonable that people who have the ability to spend the time to learn something and be educated. can make really informed decisions, and it doesn't have to do with how wealthy they are. It clearly doesn't have to do with how wealthy wealth.

Absolutely not. I mean, if we use wealth as the example, a person with a trust fund who won the lottery, who did really good at the track, could suddenly become accredited. And that's not what we want either. We would want that person who stumbled into money to also be educated, right?

If you have anybody who was giving their kid a trust fund, is like, their number one concern is, what are they going to do with this? How educated are they? I'm going to put them through some education. So even the rich are thinking that way, we have a driver's license test. We have a gun licensing test. Why would we have a licensing test for cutting hair? Why not have a licensing test that would take you two to ten hours, two to ten days?

We could pick any reasonable number and let people go through it. And, you know, I've been teaching this angel university. course now. I've done it 20 times. And I do it every quarter. 500 people come and I teach people, you know, what I've learned about angel investing and it's five hours. And I can tell you, they come out of it with a really good understanding of how risky startup investing is and how to mitigate that risk. And other countries don't have accreditation laws. And almost every discussion we have in crypto and the problems people have with it, in fact, my main problem with it is that crypto folks get a pass. And I'm interested on your feeling on it. Crypto people,

get a pass on selling shares, calling them tokens, funding companies with them. And then if we try to do the same thing as an angel investor or a syndicate or seed invest does it, we are saddled with regulations, saddled with rules. But you can create Solana or you could create Cordano, whatever it is, and just sell a bunch of shares, pay your taxes on it. And now your company's funded through the sale of tokens, which nobody is buying to utilize, they're buying them for speculation, which is why people by company shares as well. What are your thoughts on that sort of what I consider unfairness? I don't know what you would consider it, but that's sort of cognitive distanceance in the market right now. Yeah. I mean, there are a lot of, a lot of thoughts on this. And actually,

today's an interesting day because, you know, Coinbase just put out a policy proposal for effectively a new registration regime, a new exchange regulation framework. framework that specifically speaks to people who would issue and sell tokens, how they decisions get made about the markets where those get traded. And I think the high level argument is this is sufficiently different from traditional equity securities or other securities that it needs a specific policy framework, which I happen to agree with that. But I think to get into more of the weeds on this, digital assets,

are very different. And they exist on a spectrum. And what was fascinating about digital assets is that they defy clear classification relative to other financial instruments. So you may have a digital asset that in one context very much looks like a security. In another context, very much looks like a commodity.

And in another context, very much looks like a commodity. And in another context, very much looks like a currency. You may have bought it because someone was selling it to you. You may have bought it because you believe it may go up in value and that an engineering team that's working on technology behind it is conducting work to improve it, that looks like security. But the token itself has utility. It's something that you state.

It's something that you have to have in order to utilize an infrastructure service. and that is very commodity-like, and it actually performs as a commodity, and it's utilized as a commodity, and it may be used as a payment mechanism. So the gas fees is the classic concept, right? You're paying the use of a crypto asset in order. It's a payment token, and it's like a commodity at the same time.

So it's like oil you can pay with. Yeah. So the definitions are, hard. And so my view has always been that we ought to come up with new statutory definitions for digital assets and recognize the reality that they may have attributes of all three. And you may need to have, at some part of the life cycle, disclosures, risk disclosures. Other issuers should have background checks. There should be security order requirements. All kinds of different things that are, I think, are specific to this new type of, of

instrument. And so I think it's, you're correct in that it sort of doesn't seem fair, right, that the digital assets sort of are going, going on and it's sort of these gray areas and so on. And while over here, if you're like, you know, sticking to plain old fashioned, you know, preferred stock or whatever it is, then it's like this whole other universe. You know, the two should come together in my mind as well. I think that's, that's, a vision in the future, which I'm pretty excited about. I'm super excited about, you know, adults who have had education, who have a license to partake in, let's call them, you know,

new, risky, avant-garde, untested, whatever, high-risk assets, just having some education, and then being able to deploy their capital as they see fit like they do in Vegas. Nobody in Vegas is stopping you from putting $10,000 on a, roulette wheel. And they don't know your net worth. They don't, they might know who you are if you bought over $10,000 in chips. They might not, you know. Yeah, but you don't need a license to walk into the corner store and spend money on a lottery system, which, you know, the state knows is completely rigged and is basically taking money from the poor. You know, and, you know, so we have to look at, look at this

in a broader context. So let's dive into, um, let's dive into, um, let's into the stable coin stuff. There was a stable coin called tether. I think you know the story as well as anybody created with a certain promise. Dollars would this would be one for one stable to a dollar. And then they decided it wouldn't be. The New York Attorney General said they lied about that and banned them from using tethers in the global capital of finance, at least for now,

in New York City, New York State and New York City. They paid some fines, and there's been this underlying worry that, oh, my God, they own a bunch of commercial paper, loans to companies, and they only have a certain amount of cash, low, single digits. You come out with your own, USDC. I've been talking about these things on the podcast, because when we see something like Tether that people are concerned about, we kind of drill down and double click on it. USDC comes out and it seems like it's a lot cleaner and you decide at some point, you know what, we're not going to have any commercial paper. We're only going to have assets in there dollar for dollar. So maybe take me through your, maybe you could explain to the audience what the point of a stable coin is and then why you took the opposite approach of Tether or even more accurately took their original promise, which was dollar for dollar.

Yeah, I mean, I think the first thing is just to explain kind of. what the goals are with the technology like this. I think, you know, in the founding of Circle and our vision, we envisioned that there could be, you know, an HTTP for money, meaning that there could be a protocol that anyone could connect to, that anyone could transact with that was, you know, open and accessible. So if you built a website, anyone who had an HTTP compatible device, could get to your content,

this sort of idea of open internet protocols. But what if you could have a protocol like that for dollars on the internet? And blockchain technology made that possible. So four years ago, we started working on this. And then three years ago, we launched USDC. And I think, you know, the ultimate goal is that you have a transaction medium for dollar digital currency that can just work on the open internet the same way that we can exchange data and information and communications,

instantly, globally, frictionlessly, nearly free, point-to-point person-to-person, business, business, any scenario that you've wanted. And we're really making progress towards that. There's a lot more you can do with it. But at a high level, it's just how do we establish that? So when we built this and launched this, we wanted to do it under a clear regulatory framework.

And we had built up over several, years, a position as a regulated crypto company. We became one of the most licensed and regulated companies in the entire industry. The first to have all these money transmission licenses, the first company to have what's called a New York bit license, an e-money license in Europe, which is quite similar. And so we built out all this licensing, which is basically the ability to store funds for users and facilitate payments. So the, you know, PayPal, Square, Strikes.

these are the kinds of companies that are regulated under this same kind of regime. And USC has been issued and operated in this way since it launched. So we're regulated by banking regulators throughout the United States. Those banking regulators supervise us. They examine us. The examiners come out all the time. They look at everything that we're doing from our risk management, our operational controls, our money laundry controls, consumer protection.

and where are the funds held? Are they meeting the application? Are they like up in everything? It's very thorough. I mean, you get these many multi-day exams that come through. So that's one, that's a key piece. And we're held to legal standards. And in particular, money transmission is specifically designed around the consumer protection

mandate of a dollar being held by a PayPal or a Western Union. or a square should always be transactable, redeemable for a dollar. That is a fundamental tenant of the consumer protection rules. And so all of the laws that apply to us and have, since we've done this, have a very, very tight boundary on what you're permitted to do with the dollar reserves that back an electronic money instrument, similar to like a prepaid card or other things. And so those are super tight constraints. So we've always had to operate within those constraints.

We've always been more conservative than those even allow because stable coins are this new thing and there is this overall kind of concern. There was always this concern with tether as well. And so we've always operated inside of that. Now, this has grown incredibly fast. So the use of dollar digital currencies like USDC, it grew 10x last year on track to grow, another 10x this year. Why is it growing so far?

best. What are people using it for? Are these like, the analogy I hear is there like casino chips, instead of moving dollars from bank accounts, you just move a billion dollars in tethers, and then they get burned, or you move a billion dollars in USDC, and that's how you settle up between players? Well, so the first piece is, you know, a digital currency dollar on the internet is just a far superior dollar payment settlement infrastructure to anything that we've seen before. there is no equivalent to being able to directly transact with a counterparty, me to you, with no reversibility. So I can, final transaction settlement that can happen in seconds or less even directly on the internet without an intermediary. That's a really powerful thing.

And so the speed of the internet, the reach of the internet, the efficiency of effectively moving data, and that's just a huge improvement. So to move a million dollars in cash would require involving a bank or two, wires, fees, and... Absolutely. I mean, it's like, you know, we used to, like, worry about, like, long-distance telephone calls,

like routing between ILEX and different countries and all the, you know, regulations and treaties to make that all work. And then you can just do a pure-to-peer voice thing and it's free. It's the internet. So I really view this as like, we're just upgrading monetary infrastructure to an internet-native way of being. So that's just like a general concept. Now, the initial growth in this very much has been a capital markets phenomenon. So you have, you know, growing digital asset markets all around the world.

And as they grow, once you start operating in digital currency, whether that's Bitcoin or anything else, you realize that when you have a digital currency, it's just way more efficient than legacy electronic money or legacy banking and so on. And so there's just a preference to be native in that. And then, you know, so people use it for investing, trading. Increasingly, you know, digital currencies like USTC are used in borrowing and lending that are done through protocols on the internet as well, what we call D5.

And then what's been most fascinating for us is that there's sort of like these internal network effects, the more people who have it, the more useful it is. And so people say, hey, can you pay me with USC? Or I'm going to pay my contractors with USC. Or I'm going to make an investment in this company using USC. It's just more efficient. I want to hold my funds this way. I have more control. And so it has these network effects that are internal to it. And that person who gets the USDC can choose to sell it back to circle and get cash? Yeah. So the way USDC works is, you know, Through Circle, through Coinbase, in fact, through many other exchanges as well, people can redeem USDC and get a bank transfer, a ACH, a wire, all these kinds of methods. And we only, as Circle, we only directly deal with businesses.

So we don't, like, as an individual, you can't come to Circle. You can certainly go to Coinbase or FTX or, you know, one of these other. And so to get out of USDC or a stable coin cost one? You were trying to clear a hundred bucks. Yeah, we don't charge any fees to

mint or burn, as one would say, USDC. And that's If I was the consumer who got the million dollar investment and I want Coinbase to pay me back, what would I expect to pay them? They don't charge a fee for that either. So just whatever your bank wire fees

would be. Yeah, exactly. Exactly. It's essentially the legacy transfer is the fee, basically, yeah. So with Tether, and, you know, listen, it's not your company, but Tether is running their business dramatically different than yours, and you guys are side by side. They have 70 billion or so. You've got, I don't know, 30 or 40 billion. I don't know what the last count was. Yeah.

Yeah. So, and you've basically went from, I don't know, to three billion last year to 30 billion this year. Is that right? Yeah. I mean, so our growth, we've grown. much faster than anything else out there. So at the beginning of last year,

I think we were like maybe 5 or 8% of what Tether was at like 400 million in circulation. And we grew that to 4 billion in circulation by January 1st, and now it's like 33 billion in circulation. And so we're approaching like 50% of Tether circulation. And so our growth rate, if you just look at it, is much higher. You'll blow past them. I expect that will be the largest,

I don't want to pick a timeframe. But, you know, I think part of it is that we see this as a technology that's going to be used by mainstream, you know, banks, financial institutions, commerce firms, e-commerce companies, neobanks, payment apps, like, all kinds of different folks are going to use it. And, you know, you have to have something that is trusted, transparent, regulated to be a critical, you know, payment market infrastructure. So, like, you know, mainstream corporations or financial institutions are not going to, you know, build on something that is opaque, offshore, unregulated, et cetera. So Tether is offshore. Management is not available to do interviews, certainly not available to do proper attestations or, what I would consider proper attestations or proper auditing. So I guess, knowing your customer. and knowing who's using these

becomes the next thing that people have been debating. Okay, you, somebody buys a hundred million of these. You hate to bring up the terrorist example, but that's the one that always comes up, the worst case scenario, or human trafficking. How do we know that people aren't using

tethers, USDA, or poker chips from the aria? Yeah. To do bad things in the world, like pay for a terrorist to blow up a building. Yeah. I mean, I think, one of the safeguards.

Yeah, I mean, I think there are a couple things on this that are really important. I think the first is, you know, the, the innovation of digital currency, just like the innovation of digital communications or,

or open internet publishing, definitely create new challenges for law enforcement, right? Parish groups can form, you know, peer-to-peer communications networks, over-encrypted messaging apps, and they can go post-recruitment videos

on YouTube and, you know, and have. And do all the time, right? And so all of these digital technologies create new challenges for law enforcement. And in each of those cases, you know, there's a, there's a given, there's a get. And I think broadly, society, most societies around the world, and their exceptions, you know, harsh authoritarian regimes being a very clear exception where they want back doors and everything. They want to have, you know, these, you know, firewalls that basically allow them to kind of see what every person in their country is doing, they monitor everything,

that kind of thing. But in most free societies, society has elected for the openness of the internet because it's made their lives better. It's made their businesses better. And that's been really powerful. And so I think the advent of digital currency and of economic infrastructure, structure that's kind of native to the internet, which we're starting to see built out around these things, I think, you know, it introduces new economic freedom. It introduces more efficient ways for counterparties, whether it's a person or a business to start operating with each other. And that's really powerful. And I think that society is going to want to keep that openness in the same way that we've kept that openness in the world of information and communications.

But, you know, money is a little different, right? Money is a little bit different. The stakes are higher. And, you know, the stakes are higher because financial intermediaries enter into a, they're licensed, right? So back to licenses. They're licensed because the risks to society are higher. There are, you know, the risks of fraud are real. The risks of money laundering and criminal abuse are real.

and frankly, you know, there's sort of infrastructure risk and other things, right? So these are very real risk. Terrorist financing risks is obviously, and sanctions issues. Those are all very, very real. And so there's been huge advancements in how any money laundering, countering terrorism financing, dealing with, you know, sanctions risk. There's been huge advancements in how regulated digital. currency firms have to deal with that. There's been international laws or, you know, international

rules that have been established that now almost every country in the world is enforcing. They're saying if you're what in international parlance, a VASP, which is a virtual asset service provider, it's like an internet service provider, you're a virtual asset service provider. VAS have to register with the financial crime and money laundering authorities. They have to demonstrate that they have comprehensive programs to know that. customers to police for transactions, and actually they have an obligation to report suspicious activity to the government. So that exists.

That's pretty much the case now in most countries in the world. That's a common framework. And I think the sort of next level is blockchain transactions actually pose some interesting privacy risks for people as well, which is that unlike the banking system, certainly unlike cash, but unlike the banking system itself, you know, there is no visibility into what's sitting inside of one bank's database or another bank's database or the movement between those databases, which is all that money really is, is just moving records between databases. There's no visibility.

It's all self-policing. It's all self-reporting. Blockchains, you know, there are super advanced forensics tools now. TRM labs, elliptic, chain analysis. These are all, you know, unicorn companies. And they're all heavily used by spooks, law enforcement, government agencies, financial institutions, and every firm, every one of these vases these. And you can actually follow the money in real time. And you can see movement in clusters.

You can see clusters of funds that look like suspicious behaviors and so on. So there's an enormous amount there. And the real risk is that regulations may create a situation where actually there's, there's two. much PII floating around and actually creates these even greater kind of privacy risk for society. So I think one of the vexing issues in this space is exactly what you're talking about, which is the downstream counterparties that you interact with on these open rails, on these open internet connections.

And it really leads to, I think, the need for solving a problem that is vexed of the internet for a very long time, which is that on the internet, no one knows that you're a dog. Yeah. And that still exists. And so crypto as a technology actually creates the basis for using cryptographic proof of identity, of claims about identities. And there are technology standards that are emerging around this.

And crypto wallets, crypto blockchains actually are a new infrastructure layer. that allows for solving some of these digital identity problems, which I think can address those more severe crime risk issues, but also can open up new capabilities for how people participate in the financial system. Let me ask you about the business of running a stable coin. You made $40 million in interest, I think, in 2021, or you have made in my notes, I see. And you've been a bit of a moving target, so I'm not sure when that number came from. But is the idea of owning a stable coin is that, hey, you get to a billion dollars, you get to $10 billion, $30 billion, you get to get the float, the interest on all that cash shitting in a bank, and that's the business model that allows you to provide this service to the world?

So, I mean, there are kind of multiple pillars to how we think about our revenue and our monetization. I think one is operating this market infrastructure is a major investment. The regulatory compliance risk operations, treasury, all the things that we have to do, making it work on all these blockchains. It's a huge undertaking. But we want it to be a general open infrastructure that lots and lots of people can connect to and build on. And yes, by operating that market infrastructure and managing the asset backing that digital currency, we do generate interest income from it. And obviously in an environment where we're in cash, kind of cash equivalent short-term treasury type instruments, that's pretty limited.

And in some ways, our business is a cyclical business like other financial services. Businesses in a rising interest rate environment will do better in a low interest rate environment on that particular part of the business will not do as much. But it's, you know, we're at 33 billion. We expect it to be hundreds of billions in the coming years. And so that could become a pretty significant business for sure. Yeah, I mean, it's, and I think it's one that you should get paid for. And so because you're providing a service and it's very difficult to do and it takes a lot of expertise and infrastructure and support and regulation, as you mentioned. The incentive, however, would be for you to make more interest.

I mean, there's two ways to grow that business. one, have more people use it, seems like the one you're going after. The second is, okay, let's take higher risk bets with the money and try to generate, you know, what are you modeling? You're modeling 1% a return on this money, 2%? I mean, cash is very hard to make money off of credit. Yeah, yeah. So, you know, what we had implicitly, it's like, it's like definitely

like single digits, right? So today, right? Now, there are regulatory boundaries, like, by law. Like, we have to stay inside of what we're allowed to do under the same rules that govern the $35 billion that PayPal has and balances in its system. And you don't look at your PayPal balance and think, is this really a dollar? But they're bound in the same way, right? So now, this is all changing really fast. And so we're just, we're bound by. that. We're bound by that. We can't go and like, you know, trade Bitcoin or take the funds and lend it to someone against the law. Like we, it's criminal violation, right? So that's one thing, just to be very, very clear. And everything we do is in the U.S. regulated financial

system. And all of the assets are in the U.S. regulated financial system. Now, so you're taking a very conservative, very intense, absolutely, very thoughtful approach to it. Absolutely. Now, it's, I think it's getting more intense, though, because, you know, there's, There's this work that's being done by the what's called presidential working group on stablecoins, which is Chairman Powell, Secretary Yellen, Chair Gensler, and other agency heads and their staff, and they're coming forward with a set of policy recommendations for large stablecoin issuers in the United States. And, you know, there's sort of rumors, there's been reporting on this, et cetera, but, you know, what it seems to be is that they're essentially saying,

hey, these are becoming so big, so fast, and potentially could be even 10x bigger than they are today, this needs to be supervised by the Federal Reserve. This needs to be supervised by the U.S. Treasury Department. Because of the scale of it. Because of the scale. It becomes systemic. It becomes something that if it's an infrastructure that tons of people are going to depend on,

this is no longer just your PayPal account. actually something more foundational. And so we have made a decision and we have communicated to the market that we're in the process of filing for a national bank charter, but as a full reserve digital currency bank where we're not. What does it mean? Well, so when you think about a bank, the bank's business model is taking deposits and then creating loans on a leveraged basis against those deposits. For every million dollars of deposits, they might create $10 million of loans. That is money creation.

So banks create money, and they do that in the form of loans that then become themselves deposits. And it's fractional reserve lending is sort of the kind of defined model. A full reserve digital currency bank would take those funds and hold them fully in reserve and not lend them. Not lend them. And so it's a much more conservative approach to this. And it's, I think, appropriate if you're trying to build something that could be a

generalized payment utility that could be used all around the world and be known to be, you know, very safe. And that might eventually become the reserves are in fact what's called M1, which is electronic records at the Federal Reserve. It could ultimately be that. That may be where the regulations go. But, and, you know, we'll see. Is that a good thing for you?

Then you seem to be preemptively just doing it anyway. So you're making a very strategic decision to say, hey, there's this bad actor tether out there. I'm saying that, not you, but there is this questionable actor out there. Everybody knows them. They're under all kinds of investigations allegedly, and they have settled all kinds of things. They got banned in from working with the Canadian. exchanges and they're offshore and nobody knows where the CEOs, yada yada.

So you're saying, hey, we're just going to go fully to where the puck is going. Even if the puck doesn't go there, we're just going to be over-the-top safe. That means that you are strategy? I think, you know, our strategy has very little to do with what other players in the market are or aren't doing. Our strategy is we believe that this payment and market infrastructure is going to be internet scale, it's eventually going to be trillions of value and that every business in the world and every individual of the world is going to transact with this as a medium of exchange

on the internet. And it ought to be, if it's that important, it ought to be supervised by the biggest national governments. So, I mean, that's at a high level. So no more commercial paper is basically the idea because commercial paper, explaining to people what commercial paper is and why it's considered a red flag in some instances. Yeah, I mean, I think, you know, all of this has to do with like liquidity and solvency risk and things like that, right? So a bank, the thing that most people forget is that, you know, a bank, when you put your money in your chase account or whatever bank you use, and it says you have a thousand

dollars or a million dollars or whatever it says, you don't actually have dollars. You have an IOU, and it's an IOU that you could redeem for that much money, but the IOU is effectively you are lending to the bank. That's the business money. You are lending your money to the bank. And then the bank is investing it. And they're investing it multiple times over by creating loans. And in fact, they can do a lot of other things.

Banks can buy commercial paper and they can buy sovereign debt, and they can buy stock in companies. They can do a lot of stuff. They have a huge amount of capability in terms of what they do. And you are sort of trusting that because there are regulations on what banks can do. There's a ratio of the kind of, you know, outstanding liabilities that they have versus the number of deposits. And that's that leverage ratio. Right.

And after the financial crisis, that came down. Your banks do it 30 to 1. And then it's like, okay, no, no. No, no, no, this is going to be eight to one, right? So you have these leverage ratios. And then you have liquidity covenants, which have to do with what are called the liquidity coverage ratios or LCRs and what are called high quality liquid assets where basically a regulator can go and say, okay, let me look at all the stuff that you got. Let me see what kind of commercial paper you have, stock and companies, debt from corporations, sovereign debt. Oh, you got a bunch of U.S. sovereign debt.

You have cash. You have all these things. And then there's a score on each of those types of investments. Some of it scored really low. Some of it scored really high. And so you have to have a coverage ratio where in a stress scenario, which is a heavy, consistent, persistent, persistent set of outflows, demands to remove money from the institution over a 30-day period.

You need to be able to cover that. And so there's a whole bunch of regulation around. You've got to be able to withstand the storm. the quintessential run on the bank. And if you're somebody like Tether who owns a bunch of Chinese paper, allegedly, which they sort of admitted they own paper in China, that could be just absolutely result in insolvency and then there'd be some contagion.

So let me ask this outright. You're cleaning all this up. You're making sure that you're buttoned up. And I would, from the outside seems like the most conservative version of it. Do you feel there's a contagion risk in the economy right now due to crypto? Yeah. It's interesting. One of the top central bankers in the world, Sir John Conliff from the UK, yesterday made comments.

Like, you know, this could be like the NASDAQ in 2000, right? Okay. You had seven, you remember all this, right? Yes. You had seven and a half trillion dollars of value in the NASDAQ going into 2000 and 2001. And 75% of it got wiped away. $5 trillion of value got wiped away. And that had a shock effect on the real economy.

It was a tech bubble, right, that then in fact caused a recession, because a lot of people lose jobs. It cascaded into other sectors of society. And so crypto is $2.3 trillion. If crypto was $7 trillion or $5 trillion, and it had bubble characteristics and, you know, there's this massive. And it was spread into house. It certainly has bubble characteristics.

You have the, you know, the, it's in household balance sheets. It's in pension balance sheets. It's in, you know, all these places. Corporates, you know, are experimenting. So I think a close look at it right now would say that the actual systemic exposure is pretty limited because of the concentration of ownership is actually much, much narrower than. It's millions of people participating. Yeah.

Yeah. Right. Low millions are, probably there's a million people are 90% of the ownership. Yes. If you look at the wallet concentration, things like that, right? So it doesn't have quite the same,

but it has characteristics like that. Now, you can make an argument about where are we on the growth of this new economic infrastructure? Where are we in the growth of digital assets as a new phenomenon and so on? Just like the tech,

era, which was, you know, 2000. We were really early then. All the innovation hadn't even happened. It was too much. All the innovation hadn't happened. No customers. I think, you know, 2017, 2018, and crypto was a huge, it was a big bubble. And there wasn't a lot behind it.

Now there's dramatically more technology and maturity and infrastructure. And so I don't, you know, I think we're in a very real sustainable growth curve. Are there going to be corrections as the value right? I have no idea. Yeah. When you look at something like Bitcoin, you know, we've seen Solana race up the charts,

become a huge market cap. And I've always thought that, you know, some of these technologies will look like CompuServe or AOL, you know, Netscape, etc. or, you know,

macro media flash, which was the future of everything until it wasn't. Right. And, you know, in other words, transitional technology, transitional companies. So does that mean if you and I are students of this and we spent our careers in tech, that a Bitcoin or an Ethereum could be a stepping stone on the way to something much

better or something more complete. And if that does happen, unlike those technologies, it had shareholders, sure, it didn't have the buy-in of a large group of people in a massive market cap. Right. So, you know, this idea that Bitcoin could be hacked seems to, it hasn't happened in a decade. So I don't know when it would happen. But there is some chance that people would fall out of love with it and maybe move on to the next one. So what are your thoughts on, you know, this sort of overall ranking of participants and how quickly they change? And the possibility that, you know what, it's, I know I'm going to sound like OK, Boomer, but some equivalent of a denial of service attack takes down a major cryptocurrency. It could be a 0.1% chance. It could be a 1% chance.

I don't know what it is. But these are systemic risks when you have a decentralized system, correct? There's a lot in that question. Yes. So I think I also being a sort of student of internet platforms and technologies and their evolution over the past 25 years, right? I do believe that we will go through multiple generations of change in terms of the infrastructure that is utilized to build on.

And Bitcoin is a little bit in its own place compared to Ethereum and other blockchains, because Bitcoin has remained very narrowly focused on kind of doing one thing and being this non-sovereign, fixed supply, digital commodity money instrument. That's what it does. And one can sort of argue about whether that's a good thing or bad thing or whether the world wants a non-sovereign digital commodity money. Clearly it does, but how big can that be? That's like one thing.

For so much of the other stuff here where you're really talking about infrastructures, I look at these blockchains as operating systems. They provide compute, data, transactions, and they're competing. for developers, they're competing for people to build apps and protocols and services on top of them. And there's a platform war. It's classic kind of platform wars that happened. You know, everyone was building on WAP and Smbian and no one's building on WAP and Simeon, right? I mean, we know all of these, you know, right now a bunch of millennials are on Wikipedia. Yeah, yeah. Yeah. Like what was that? The Sibian operating system. What's that?

It's like the most ubiquitous mobile operating system in the world. It was in all these handsets. It was going to be everything, right? We built flat. That's not there for Simeon, right? Flash itself, another example, right? So these platform evolutions happen, and I think there's super intense competition right now for these third-generation blockchain platforms, and that's why you've seen the rise of things like Solana or Avalanche,

or many, many others. I think you see a lot of that. And that's competition for the operating system. This is like a new, Web 3 is a new infrastructure layer of the Internet. And these are operating system competitions. And some people say, well, Ethereum has all these network effects. It has all these developers. But I think it's important to point out, like, if you look at the top 100 programming

languages on GitHub, Solidity, which is the programming language of Ethereum, it's not in the top 100 programming. There aren't that many developers. It is a vibrant developer community in this space. But, you know. It's nascent. It's still nascent. It is very nascent.

And so I'm actually a huge bull on Ethereum. Don't get me wrong. I really do. But I certainly, from the perspective of history, I have no idea what are going to be the preeminent blockchains 10 years from now. No idea. It probably doesn't exist right now. What about Bitcoin?

Everybody says Bitcoin is forever. You know, I've said like a handful of times. Like, well, you know, we had plenty of things that were supposed to be forever, like Usenad and gopher and send commands and everything on the internet. And they didn't make it. But we did have Gmail. I'm sorry, email, which has continues to persist as an open standard or HTTP. So where do you put Bitcoin in all of this, the OG, you know, store of value?

Yeah. My own view at this point, and my views evolved on this over the years is, you know, when we first got started, we actually thought Bitcoin would, you know, evolved to be a smart contract platform and it would evolve to where you could issue other tokens on it, we've seen out of things like Ethereum and then other platforms. And that didn't happen. But, you know, it sort of stuck to its guns, you know, or stuck to its knitting or the right metaphor is. Yeah, both. And I think that has served it really well. And so I think it actually is, in some ways, the most trusted infrastructure in this space. And it has a very specific design center,

which is to be a non-sovereign, scarce digital store of value, non-government money that is censorship-resistant and secure. I think that position is a strong position and will continue to grow. So my own view is that many, many governments around the world will hold Bitcoin on their balance sheets. I think it will be much more widely held as an asset by asset management. managers and holders. Which would mean, due to the scarcity, if 50 times as many people wanted to use this thing,

you would appreciate in value considerably in a million dollar Bitcoin does not seem out of the... I do not think that's out of question at all. The question, you know, you see the Ray Gallios of the world talk about this and others, which is, but, like, boy, if it got that big, right, governments would really want to kill it, right? Because then it actually is... Well, China did. You know, I mean, yeah, China, China did not ban people from owning Bitcoin. Right.

They very clearly didn't. Because guess what? A lot of rich and influential people in China own Bitcoin. Of course they do. They're trying to get the money out of China. They don't, when the digital REM&B comes out and they can have their money seized with one click by Xi Jinping, or they can just have every transaction or they can have their dollars cut in half. Or you could be told, imagine you get told, you have a million dollars in your account.

You've got to spend 250,000 of it in the next year or else it goes away because we have to stimulate the economy. Yeah, I mean, I think there are going to be a lot of face-to-music moments for governments around the world in the coming decade on this. The China thing is interesting, too. I didn't realize they were up to like 75% of the hash rate. And they turned it off in, you know, under 30 days. So fast. and it didn't skip a beat, did it? No, no.

What does that tell you as a technologist about the architecture? I mean, it's super resilient. I mean, and there's been a huge amount of capital investment into diversifying, you know, the security infrastructure for Bitcoin around the world. It's been a massive. And it's sort of the ultimate arbitrage. And I have other thoughts on this that are, that are, you know, I think potentially controversial, but. My own view is that, you know, Bitcoin will lead to some of the most significant breakthroughs in energy efficiency. That can then be utilized more broadly beyond.

How so? This is the controversial stuff. I want to hear it. Yeah. Yeah. I mean, I think, you know, the incentive system is to have the marginal cost of the compute and be as low as possible. So the security of the network, so long as it exists and is even static in value, but say growing in value, there is an incentive to always get to the lowest unit cost possible.

And the lowest unit cost possible is the least amount of energy costs. And so you want to get to the efficiency frontier of energy. That is actually the natural course of Bitcoin mining. is to find the efficiency frontier of energy. You make more money, the incentive is aligned. And so the question is, is the efficiency in nuclear, you know, extra coal, gas, or hydro, solar? If you ask yourself, the efficiency frontier of energy is the efficiency frontier of thermodynamics. And if you look at thermodynamics, that's, you know, cold fusion.

To come back to that. And Huff fusion, right? It's nuclear as we know it. And my belief is that, you know, maybe even sooner as soon as the next, you know, a couple of years, you're going to see significant efforts around nuclear energy security for these networks. Wow. That's mind-blowing. So you're saying somebody takes a nuclear reactor because France is going all in on nuclear.

The United States is starting to change its tune. France is all in has been Germany shut it down and now they're turning it back on because they realize they made such a stupid decision. And you just place the servers at the nuclear power plant. And you'll see states, you'll see governments operating their own nuclear power mining infrastructure. I think you'll ultimately see international treaties on this because of some of the both energy and oligopoly kind of considerations. That is some science fiction. I've said this for, you know, for eight years. So it's a belief I've had for a very long time.

It does make sense that in the long term, your position would be true. In the short term, yeah, people might burn oil or coal or whatever they get their hands on legally, illegally. Which is what we saw, I think, in China was just people were like, okay, who can I hand an envelope to every month? Right. That would let me rack my servers here. Coal plan, great. Yeah. We're now seeing, you know, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the,

sort of good actors in North America who are going way out of their way to do energy efficient carbon neutral forms of operations in this space. And so there's actually a huge amount of progress happening there. All right, here's a question from the audience. Why can't USDA show their assets like Fidelity, Spacks, and how does USDC handle KYC AML? I know your customer, anti-money laundering. When people trade USDC in the secondhand market, would somebody on the Office a foreign asset control list be prohibited from using USDA when they can just create a new private key and buy and sell to third parties. I don't know if I even understand the question.

You explain to me what that means. Yeah. My guess is this means like can I take poker chips from the aria and trade them in the parking lot? And then how does the aria stop me from doing that? Yeah. So a couple things. So the first is, you know, we're providing, you know, under money transmission law, which

is how we're regulated. We're providing more disclosure than anyone else. You can go read the T's and Cs of PayPal and Square and Stripe and, you know, they're not telling you anything. So we're already going above and beyond. We are on a monthly basis laying out the categories of, you know, cash, treasuries, et cetera, that are there. And that's an ongoing commitment. Now, we'll, you know, under bank supervision, will that be different? Banks don't tell you what's on their balance sheet either. You can't go say, hey, what's my JP? What's my JP Morgan Chase dollar? Because they're regulated. And because the presumption is that the supervision of the balance sheets is a job of the regulator. So they don't have to when the regulators do it. So,

yeah. So, I mean, this is an evolving thing, like disclosure around reserves on stable coins. That's going to evolve. I think there's going to be new policy on it. We're probably going to learn more about what that looks like. You're starting to see that emerge. We'll do whatever is the the right thing to do there. So you're committed to doing whatever the standard is, and if the standard is show us everything, what's the downside to you? It'd be like somebody showing their portfolio construction.

There's not a lot of downside there. There may be, there may be, you know, proprietary commercial relationships in terms of what's there, but that's manageable. I think the other question is related to what we talked about earlier, which is USDC behaves like other digital currencies. It exists on public blockchains. So Circle, Coinbase, we have obligations as what I call before a virtual asset service provider.

We are supervised by, you know, U.S. Treasury around Bank Secrecy Act, money laundering. And we have obligations for knowing our customers. We have obligations to monitor their activity. If they're sending funds in patterns or destinations or other things that are suspicious, We can analyze that downstream from us. And we will pursue investigations and we can obviously, you know, as appropriate file what are called suspicious activity reports. If there are, you know, addresses on a network that the Office of Foreign Asset Control has determined are associated with, say, terrorist organizations, we actually have the ability to block list those so that no one could consent to those. And we've done that and that's public information.

That was kind of my next question on this was, you know, at some point, it feels to me like the noose is tightening around offshore casino slash exchanges, because people can create their own exchange anytime they want with some software. I'm not saying it's easy, but it's certainly not impossible. Is there going to be a time where you're going to just have to say, listen, USDC, we were told not to allow it on these exchanges and we're just not going to make it available for those exchanges in the same way, CoinBased. I think took down XRP. Am I correct in that one? I think they took it down when they had the SEC investigation. Yeah.

I mean, I think there absolutely are ways. For example, you know, within circle systems, we have the ability to block list destinations on the internet

that, that per se are, you know, known to be, you know, high risk or whatever high risk exchanges,

et cetera. This is definitely an area that is evolving now. There's a lot more work to do. here. And it ties back to what I talked about earlier about how do you marry, you know, privacy preserving digital identity technologies, crypto, blockchain, and these new forms of open finance. Well, listen, Jeremy, this was an incredible explainer. You answered every

question. You had no fear coming on the podcast. Quite the opposite of the Tether group, which started personally attacking me. And full disclosure, like Jeremy and I are not like besties, but we're friendly, obviously, like we've known each other in the industry. We're colleagues, right? I consider us colleagues. I don't know if we ever. Absolutely. We're colleagues, but we're industry colleagues.

I would like to be friends with you. I'd like to go have dinner with you some night and talk about our families or whatever. But just so people don't know, you and I are not like hanging out going skiing or anything, but we've known each other for over 20 years. That's why I said, you know, I give Jeremy the benefit of the doubt because he's been at this for, you know, over 20 years like me and he's built real companies and he seems to want to do everything in the book. this person want to do anything other than do it by the books.

And so really appreciate you coming on. Yeah, absolutely. Great conversation, Jason. And we'll run it back because I'm going to be speaking at your internal, I guess, event. And you're going to interview me about investing in startups and syndicates and good stuff. I can't wait. Can't wait. So I'll see you next week, my friend, and we'll see you all next time on this week in startups.

Bye-bye.