Unchained - The Chopping Block: Why Circle CEO Jeremy Allaire Is So Optimistic About Stablecoins' Future - Ep. 541

Episode Date: September 7, 2023

Welcome to The Chopping Block – where crypto insiders Haseeb Qureshi, Tarun Chitra, and Robert Leshner chop it up about the latest news. This week, the group sits down with Circle CEO Jeremy Allaire to discuss how the USDC stablecoin issuer responded to the banking crisis that started at the end of 2022, what PayPal’s new stablecoin offering means for Circle and the rest of the industry, and whether central bank digital currencies (CBDCs) represent real competition for stablecoins.  Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Stitcher, Castbox, Google Podcasts, TuneIn, Amazon Music, or on your favorite podcast platform. Show highlights:  how the collapse of FTX and other companies led to a de-banking crisis for the industry what the Circle Reserve Fund is how the banking crisis in early 2023 caused a "flight from safety" how regulatory clarity has improved in the aftermath of the banking crisis why Jeremy actually hopes PayPal's recently launched PYUSD is successful why Tarun believes Central Bank Digital Currencies (CBDCs) are one of the most "boring concepts" within the industry whether CBDCs pose a threat to businesses that issue stablecoins such as Circle Whether the status quo on stablecoins in the U.S. of knowing-your-customer on redemption and minting, but not on holding, is likely to continue.  Hosts: Haseeb Qureshi, managing partner at Dragonfly  Robert Leshner, founder of Compound Tarun Chitra, managing partner at Robot Ventures Guest: Jeremy Allaire, CEO of Circle Disclosures Links The Chopping Block: Was Crypto Just Debanked? Will PayPal's PYUSD Steal Market Share From Tether and Circle? The Fall of SVB: What Happened and How It Affects Crypto Learn more about your ad choices. Visit megaphone.fm/adchoices

There's going to be a new law in the United States for payment stable coins. And payment stable coins are going to be legally defined as cash equivalent digital cash instruments in the U.S. financial system. And when that happens, that's a great thing. And it will create a consistent, clear way for a very vibrant competitive market to emerge. Not a dividend. It's a tale of two pawn. Now, your losses are on someone else's balance.

Generally speaking, air drops are kind of pointless anyways. Unnamed trading firms who are very involved. D5 protocols are the antidote. D5 protocols are the antidote to this problem. Hello, everybody. Welcome to the chopping block. Every couple weeks, the four of us get together and give the industry insider's perspective

on the crypto topics of the day. So first quick intros, we got Robert, the Cryptoconuconist and Tsar of Super State. Then we've got Turun, the Gigabrain, and Grand Puba at Gotlet. Today, we've got a special guest, Jeremy Aller, stable coin steward and CEO at Circle.

And finally, you got myself, I'm a seed the head hype man at Dragonfly. So we are early stage investors in crypto, but I want to caveat. Nothing we say here is investment advice, legal advice, or even life advice. Please see Chopping Block that XYZ for more disclosures. Jeremy, we've been trying to get you on the show for a while. Great to finally have you here. How are you doing?

How's life in Crypto land? It's great. It's exciting. It's never dull. No, it's really good. It's really good. There's a lot. There's just, I mean, there's a lot going on.

Obviously, we'll talk to on a lot of different things. but like I've been working in this for 10, 11 years, and I've never been more optimistic about where we're at on so many levels. So I think it's a super exciting time. The last time I saw you must have been, it must have been over six months ago, I think last time I saw you. And so I haven't seen you since the banking crisis, which I think, you know,

everybody in this industry has had their kind of near-death experience. And I think for you guys, that was probably the closest that you've had to having one of those. obviously wasn't literally near death, but I think from the perspective of the market, everybody was terrified about what was happening. For those of us who maybe weren't paying attention at that time, give us a bit of a recap of like what happened and what you learned personally from going through that experience. Yeah, absolutely.

You know, actually, we've had multiple near-death experiences as a company over 10 years. So it's, you know, sort of life in crypto land. But in all seriousness, I mean, look, I think there's a few. like, first of all, important backdrops, which is that, you know, as an industry, obviously, access to the banking system has been a challenge for, for virtually every company that's been in this industry for a long time. And there are lots of different reasons for that. You know, in some ways, actually, Circle's been really fortunate because we, you know, set out to be regulated and licensed and operate with a high level of compliance, you know, I think a company like Circle has

historically had really good access to the banking infrastructure that's out there. And that's a big part of what sort of the promise of USDC, obviously. And that comes from both, you know, what Circle does and also what Coinbase does and basically being, like always having great, both retail and institutional tradfai rails that connect the existing traditional financial system to stable coins and to digital dollars and what that is. So that's been that's been a huge part of what's there. And I think, you know, coming as a company, right, we've always tried to sort of always uplevel the infrastructure that sort of sits behind USDC. And so that's like a constant for us and we'll never be done, right? And we talk about the future and what that looks like.

But like, we for a very long time, we've been trying to, you know, up level like, who are the kinds of custodians that will hold cash? What is the transparency and rigor and protections of like the underlying market infrastructure that sits behind USC? And what's the redundancy basically of they're sort of like where money is held and then there's sort of the transactional layer, which is basically how can people who have access to the banking system, whether it's in the US or internationally, how can they really easily create and redeem USDC? And so we've always been trying to basically up-level that and may have more and more redundancy. And, you know, as you kind of go back to the end of 2022 in particular, some pretty dramatic things took place, which were,

have been talked about a lot, a lot of places. But it was really the end of 2022 that began many aspects of what became a broader sort of, not just U.S. domestic banking crisis, but also a broader, what I'll call debanking crisis for the entire crypto industry. And so that, a huge starting point was basically the collapse of that TX. And essentially the fears that existed that Silvergate Bank had some kind of like huge exposure to FTX. And that actually caused the first sort of runs on Silvergate. And it caused a lot of companies to say, wow, well, we really feel exposed to just this hyper concentration risk with a bank like Silvergate. And so you started to see people try and, you know, have more.

And we had already launched like redundancy. You had Silbergate. You had signature. These were like popular U.S. banks for providing kind of interoperability. At the same time, right, we had also been, so we've been adding redundancies. At the same time also we're basically trying to uplevel the reserve infrastructure. So we made a huge partnership last year with BlackRock.

And as part of that partnership, we created something with them called the Circle Reserve Fund. And basically, that is, it's operational today. It's been operational since basically late last year, but it was kind of fully operational of coming into Q1, which is basically that there's an SEC registered and supervised fund that holds, you know, historically it was holding about 80% of the reserves of USDC. Right now, it's about 95% of the reserves. of USC. And so it's registered and supervised with an independent board, an independent audit, and it has protections that come from being an SEC supervised vehicle. Does that fund only hold

the treasuries, or does it also hold some of the cash? So I'll walk you through kind of where it is today. But effectively, initially, it was basically all holding treasuries. So that was sort of, we had 20% in cash, 80% in treasuries. But the power of it is that basically not only is this sort of registered structure, it has daily transparency. And so unlike any other dollar stable, at least in the world, you can go to the USDX ticker, the search in your search engine, and you can actually see down to every single instrument exactly what is there, exactly the duration, exactly any kind of counterparties that are embedded in that. And you can just see that. So very, very high level of transparency and the fund itself and the underlying security instruments are custodied with basically the safest

custodian in the world, a globally systemically important bank, the custody is over 25 trillion assets. So really, really strong market infrastructure that's there. So we had been moving to that. The area that always had the most risk, though, was exposure to the traditional banking system. And, you know, it's not like a company like Circle or pick any of your portfolio companies can like call, you know, JPMorgan Chase and say, will you, you know, hold cash reserve accounts for me? My business is this, you know, open blockchain crypto thing. And that doesn't really happen.

And so, you know, sort of the up-leveling of bank that hold assets has been something we've been constantly pursuing. And so for, you know, for us on the cash side, we largely had, because of the industry we were in, the cash piece, we either held limited amounts in what we call. these transaction banks, which are basically dealing with settlement, the in and out every day of things. And then another limited amount spread across where mostly like mid-sized regional banks that would hold these reserves, right? So in some ways, we were constrained by the capacity of the banking sector to do business with companies like us and the like. And we're like at the top of the list in terms of like compliance and rigor and all this sort of stuff. And so, you

We have that high threshold. Now, if you walk into early 2023, you had a couple other things happen. So in January, the federal regulators, banking regulators, basically came out with new guidance that essentially said, you know, banks are basically forbidden from doing anything that directly touches blockbains. And it was like a huge spook. And then all of a sudden, a lot of banking institutions started to, you know, kind of throw up you know, more, more challenges, right? And, and so that was like signaling. And then another set of

things started to happen, which is basically there was, you know, wave after wave of SEC enforcement actions that started getting launched, starting in January, and then in February, and then the very beginning of March. And there were big scares around a lot of things, but you started to see all this happened. And then you effectively, all at once, in one week period, you had, basically three bank failures. And these are three banks that, you know, two of which were like the pipes that were like transaction settlement for for USC, you know, insurance separate eight. And one of them, which was a mid-sized bank, which was Silicon Valley Bank. Now, I think for us, it's a fascinating story, which is that there was a sudden news that came out, which everyone

probably remembers well, which is like that SVB had failed to raise capital with Goldman Sachs. And so people started to get very concerned. We had actually just previous to that, like literally like a week or two before that had actually successfully onboarded the ability to hold cash with a giant GSD for USDC, but limited to like a couple billion dollars. Like it was sort of like, okay, the appetite's this, but like that's a big deal. So Wednesday comes and then basically by Thursday morning, there's like a credit rating. issue. Silvergate was actually literally being closed on that Wednesday, and there were rumblings about exposure for on the on bounty risk, on on, on signature. I mean, it was like, it was like very, very stressful kind of moment. And so we took a decision to sweep everything that we had

into this G-sib. They don't like me using their name. So, um, uh, into this. I see. But, but I thought they limited you to only two billion. By that Thursday. there was a full-on U.S. banking crisis going on. And basically all the regional banks were getting drawn down. And so the G-SIDS were basically getting huge amounts of deposits coming and people basically saying, I want to move X, X, X, X, X, X, X, X. And if you go back and you look over the course of that, that end of week and into early the following week, there was like this giant exodus of regional bank

capital into G-subs. And that was sort of... By the way, just for those who are not familiar, G-Sub stands for globally systemically important bank. So they're basically the biggest banks in the world. Right. They're big to fail. Too big to fail. Right.

So there was this sort of rotation. And so effectively, like, it was like, okay, hey guys, there's a banking crisis. We need to move $9 billion, you know, kind of thing. So we basically undertook all the instructions to do that. And we were effective in that with the exception of one wire or roughly one wire, so to speak, that didn't land on Thursday. And that was Silicon Valley Bank. And so, you know, the context is, is, you know, we're dealing with constraints of being a company in this industry. We're dealing with multiple transactional infrastructure failures and we're dealing with a regional banking crisis and all of this.

And I think the really unfortunate thing is that because essentially, you know, signature bank was being seized, our ability to kind of maintain 24-7 minting redemption was closed on that weekend. But it had never been closed before, I mean, basically. And it was closed on that weekend. You couldn't do it through Coinbase. You couldn't do it through Circle. And so the combination of that and then concern about, like, are these reserves going to be, you know, moved, et cetera, like, caused panic selling, which a lot of people profited from, obviously. But then the, you know, the interesting thing is that because of the work that we had been doing to up-level our infrastructure, we literally were able to open on Monday with new trend. transactional banking infrastructure with new banks and with actually the reserve infrastructure,

actually the strongest it had ever been, like with the best reserve infrastructure with the most transparency. And that's Jeremy, just to paint the picture like all this whole weekend. So everybody, I think here remembers that weekend as being one of the most harrowing weekends in not just crypto, but in finance period. Where were you? Were you like at home? Did you sleep at all that weekend? Like, paint us the picture of you personally. Where were you? And what was that like? Yeah.

So I was actually in Dubai. You were in Dubai. Okay. And actually, I was actually going to be spending the weekend with my son who was on break. And then I was going on to Europe for work. And so it was like this really great thing. And he had flown in.

And I remember he came in. And I was like, you know, there's this thing. And I don't know what's going to happen. And the weekend is kind of gone. And it was really difficult because I was not. nine hours ahead of the East Coast and 12 hours ahead of the West Coast. So that was, that just made. So all the news broke like at evening time for you, basically.

Yeah. Yeah. I mean, I sound like at this point. But yeah, it was a pretty busy weekend. And, you know, I think there was a lot of things about it. They were fascinating. I think one was like, we can, we communicated on the Saturday. Like, we have this.

And part of that was that over the weekend, a market did. developed. Literally, over the weekend, a market developed to purchase what would essentially be receivables from the FDIC in the event that the bank were to fail. And so these were basically, like people were basically bit like large capital markets companies, like huge Wall Street companies, were basically bidding or dealing in terms around like you could get 85 cents on the dollar or whatever it was. And so, you know, the combination of our balance sheet and that, we're like, we're good. We're going to be able to do this. But the third, fascinating thing was we opened a Monday and we were able to be up in an operational, even though

we had seen all these other pipes fail, all these things go off. But it was a pretty, pretty intense week. So now on the other side of that, like I just said earlier, right, USDC is, you know, reserved in like probably the single best lowest credit risk cash custodian for dollars in the world. And it had 95% transparency on every single instrument. And we've actually been able to improve it by being able to use what are called, you know, essentially tri-party repo overnight collateralized treasury repos as well. And you can see if you go into USDX, exactly what it is. And those are counterparties are also all G-Sids. So like the strength is actually, we're stronger now than we were. We have greater transparency than we were. And actually,

the fascinating thing is that we now are pretty dramatically expanding the, you know, banking infrastructure globally that sits behind USC, bringing online more banks in more markets. The idea basically is we're building this global liquidity network. And what that means is that if you bank in Singapore or you bank in Hong Kong or you bank in Brazil or you back wherever, that you, within the domestic banking system, will be able to directly create and redeem USDC locally facing circle. And so that relates to a, you know, facing circle. And so that relates to a another thing that happened. And I think all of you probably can relate to this, which is essentially over the course of that week, 5,000 plus companies were just debanked. I mean,

effectively. So they were literally debanked. And so there's been, there's this giant debanking. And when you look at that all combined, you had this debanking. You had wave after wave after wave of enforcement action and other things. And it created an environment where basically the narrative was get the hell out of the U.S. get your money out of the U.S. get your money out. of the U.S. the U.S. financial systems fucked. The, you know, the, any, any exposure here, like, anything that has anything to do with the U.S. is like, like, you're screwed.

And so that kind of created what I like to call a flight from safety. It was literally a flight from safety. Like, what would typically be thought of as, like, you're compliant, you're, you're embedded in some of the biggest market infrastructure companies in the U.S. You have, like, this good sound footing. You've got the best auditors. You've got all of this. fiduciary stuff wrapped around you like what would typically be considered like oh that's safe was

somehow all of a sudden perceived as like completely exposed to total risk and you could you're now going to go to something where you don't even know where the banks are you don't even know if there are banks and there's no supervision at all and there's no proper audits at all and you're like that's that feels safer are you referring to tether i mean there's lots of offshore stables uh but you know There's some. Lots of them. So many. Well, I think if you made a movie or a podcast on this, you clearly have to call it escape from safety or whatever. Flight from safety. Flight from safety. That is a great name for a documentary. Yeah. I mean, it's fascinating, right? It's fascinating. But, you know, I think where we are today

is not just like circle and stuff, but like that has moderated, right? I think that has moderated. Like people have actually seen, no, actually there's more and more banking infrastructure. It is maybe there's a level of risk management around that that's different now. And so it is probably more challenging for some companies and probably fine for others. And, you know, the progression here, and this gets into a little bit of regulatory stuff, is the other big story of 2023 is that basically everywhere in the world, there are now laws around stable coins. that are coming on the books. So there's like clear stable coin laws in Japan, emerging Singapore, about to come in Hong Kong, in UAE, in the entire EU, about to be issued in the UK.

And there's like a bill that's actually moved into the House of Congress, in the House of Representatives in the U.S. And so like the question of like, are stable coins here to stay? Are they going to be treated as like a part of the global financial system? That has been answered. And so I think in some ways, right, that clarity has been really, really helpful. And that's why we're actually seeing, you know, more and more traditional financial companies that are moving in.

And they're plugging in. And I think that's a really positive backdrop. Because you wouldn't have thought that, right? But that is the fact what can happen. It's another story of 2023 is regulatory clarity for stable coins is arriving. And so that's, to me, that's a huge unlock. on the future, like a huge online. So speaking of other financial companies getting into stable coins, you know,

one of the big stories from the, I think it was about a month ago, is PayPal. Actually, we have a running bet on the show as to what the eventual market cap of the PayPal U.S.D. stable coin is going to be. I believe I am the largest, I'm the highest bidder at $500 million at the end of the year. Robert is the most bearish. It was just announced today, I believe, that PayPal USD is getting listed on Coinbase. So it looks like there will be a significant.

an experimental aspect. I don't know if it was, I don't know what that means, but I appreciate you pointed that out, Jeremy. So I, I'm curious to get your take. I know that you have to be very diplomatic about it because they are a competitor and whatever,

but like I would love to hear you talk shit about PayPal USD and why you think it's going to fail miserably. Well, I mean, look, like there's a lot of different things that I would say. I think the first is that, you know, today for dollar stable coins, right, there are two that have a pretty significant and entrenched position. And, you know, some that intranced position is concentrated in certain emerging markets or Asian markets or certain centralized exchange platforms. And that's, you know, slow to shift.

And then I think, you know, for USC, like, we're pretty entrenched in defy and I think more broadly in, in, kind of payment applications where, you know, traditional firms are comfortable, you know, adopting that and using that. And actually, just as a note, like, I think at the heart of this, when we think about this from a circle perspective, is we really think about what we do as providing market-neutral infrastructure. It's really important to how we think about what we do. We think about USC as a network utility, as like an internet network utility. And it's a market neutral network utility, market neutral network infrastructure. We're like a platform and utility company. We are not competing for end users. We are not competing for merchants. We are not,

we're not competing at that level. And so that's been really interesting for us. We've been able to build partnerships with Visa and MasterCard, with Stripe and Block, with Robin Hood and Coinbase and, you know, MoneyGram and others. So we've been able to build partnerships with a huge array of companies, many of whom would view each other as like direct arch competitors. And that's because we're a market neutral infrastructure company. And it's really important. So I think the question I would be asking is, is that important for stable coins? Does the kind of the digital dollar dial tone that people want to build on and compose with and integrate and use, does market neutrality matter or or not? And I think it does. I think it matters a lot.

And I think user preference, developer preference, ecosystem preference, that's a really important component to it. And so while it is true that PayPal as a company has a lot of users of different products and services that they offer, they also, they're in the business of competing for eyeballs. And they're in the business of competing for payment processing. And so when I think about all the different retail companies in the world and all the different payments companies in the world and the like, I believe that we're going to be really effective in being that market neutral company. And so literally yesterday, it was yesterday the day before, we announced a partnership with Mercado Libre and Mercado Pago, which is, you know, Mercado Pago is the largest fintech in all Latin America. and they have a huge number of users.

They're part of the broader Mercado Libre, which is like a $60 billion market cat company, the Amazon of Latin America. And they're rolling out USDC. And they just started in one market. And obviously, we'll see that expand. And would Mercado Libre do that with PayPal when they're direct competitors?

I mean, that's an interesting question. So I just, I think like the market marketing for infrastructure at peace is really important. And then look, I think there's like, there's been a lot of attempts by lots of different companies to kind of get into the crypto market. For example, like several years ago when, actually when PayPal that we're going to launch Bitcoin buy, sell hold, we're going to launch this. I know the crypto community was like, this was like over the moon.

This is incredible. This is like 400 million people are going to. to start buying Bitcoin and it was like this huge thing and there was actually a bid that came from that. And and so, but like the reality was like if I'm a person in the United States and I would like do like, how do I buy Bitcoin? Like it's not hard to buy Bitcoin. I think there's a little bit of the same thing with the ETFs, which is like if you want to own, you get exposure to Bitcoin. It's not hard. You don't need an ETF. Like you can just go open up an account with a number of very credible companies and like get Bitcoin. Actual Bitcoin. And. And so.

So I think there was a little bit of like the fact that there's a large user base must equal usage. It's just it's a fallacy. It's like when Facebook launched payments in WhatsApp and Messenger, people are like, they're going to take over the world. They have two great users. I totally agree with this. Does anyone use Facebook for payments? Does any person other than someone on Facebook marketplace where you're forced into?

I have one friend who pays me on Facebook and I'm always annoyed by it because I have to. It's the only, it's the only money I have in my. There are subsidization. two goods and they're really good. And so that's the thing is like, what are the substitute goods and are they really good? And then it gets into like, what is the position of that company or that infrastructure and the light? And so look, I mean, at the same time, right, I hope that they're successful. I hope that they make stable coins a more important part of the way that their ecosystem interacts with the rest of the world. Because our vision is that stable coins become the interoperability layer for

the entire financial system and every payment wallet and every payment wallet and every single. in the world and we want interoperability and we want everything happening on chain and we want to do it we want to see that like that's good we want to see that i'm sure that like you know a lot of people were excited when their aOL account could send email on the internet but did everyone become an a iol user did they would it was a so paypal is a well PayPal is what you're saying that's saying companies with large user bases that connect to open networks like That's a good thing. It does contribute to the growth of those open networks. But the open networks grow with entrepreneurship and builders and new companies and,

and, and, and, and, it's, I want to see open networks grow. And I think, PayPal saying,

we're, we're making a bet on open networks with dollars is a really good thing. It says a lot. And I, and I, and I do want to see success from that because I think that a vibrant, a vibrant, you know,

competitive market, um, is a, is a very, positive thing. So to round this out, Jeremy, you are probably the best equipped to make a prediction in the chopping block prediction market. What do you think the market cap of PayPal USD will be on December 31st of this year? Just a benchmark. Right now, it's sitting at $43 million. It's USDC by comparison sitting at $26 billion. It's sitting at $5 million issued.

according to five million issued yeah the rest of it is oh i see i see i think cornmark cap is given me a different number okay coin back five million issues okay i don't make predictions like come on i don't think it from your pan hypothetically if you were to make a prediction that's a bizarre world jeremy makes a prediction not you somebody else you can imagine making a bet we're not betting we're not betting people we don't do that come on not going to do that nothing okay refuses all right fine What I am hearing from you, Jeremy, is bring it on. Is that a good encapsulation of what you just said?

So I'll say a couple things. Yes. But what I'll also say is that there's going to be a new law in the United States for payment stable coins. And payment stable coins are going to be legally defined as cash equivalent digital cash instruments in the U.S. financial system. And when that happens, that's a great thing. and it will create a consistent, clear way for a very vibrant competitive market to emerge.

And I expect many big companies to be in that market. And that is what we want to see. You want to see open competitive markets. And in fact, we make the argument Congress all the time, which is that how do you compete in the digital currency space race? Do you try to out China China by doing a nationalized government-run infrastructure? or do you create open roads, open rules, open markets, and allow the market and open technology innovation to be the basis for how you compete? And that's clearly the answer for the United States.

It historically has been the answer for the United States. It will be the answer for the United States. And there'll be a lot more competition. But I'm very, you know, I'm very, very comfortable competing in that market. I feel very, very good about what we're building and how we're building and the opportunity. And the total addressable market for electronic dollars today is 25 trillion. It's a big total addressable market

of electronic dollars that exist in the world. And if in 10 years, there's 5 trillion that are in these fully reserved dollar stable coins, digital dollars, etc., that's a huge space to grow into

as well. Yeah. So, okay. Let me, I want to shift topics a little bit and let's talk a little bit more abstractly, less about kind of the nuts and bolts of circle and USC and so on. But I want to talk a little about the kind of philosophical contrast between central bank digital currencies and stable coins. So it's a topic that comes

up again and again. It's one of the oldest debates in crypto. It seems like more or less there's, at least within the U.S., there's a convergence that, hey, we don't want to have a centralized, you know, Fed-backed central bank digital currency. We wanted, said, to have private innovation to do it. Nevertheless, I was just chatting with somebody at Visa who works on, you know, central bank digital currency stuff. And it's the meme that never quite goes away. And of course, China was one of the very first to push central bank digital currency through

the digital yuan. Tarun, I want to get your take. The only thing I really, I mean, I find CBDC is to be one of the most utterly boring concepts that exist within this industry. Like you have all the stuff where you have to think about like a lot more math and instead CBDCs are just like how does McKinsey increase its revenue this year? Like literally. Explain that.

When I think a lot of people in our audience will not know what the hell you're talking about when you say that. What do you mean that it's when I think about CBDCs, I just think about really fancy consultant decks that say like, hey, here's what a government can do. and they they build they take the same deck they change the flag on the on the front slide and then they go to 20 different governments and they say hey here's this deck we made for you about what you can do to innovate with your currency and it always gets like people who like going to davos you know very excited but unfortunately those people couldn't tell you what a hash function is so i don't really like it's just like it's like i just feel like cbDCs don't feel like this thing that There's an entire class of people who love making money off of it because the thing never will exist. And it's just kind of this perpetual football. Robert, okay, your take.

Do you agree with Tarun? I mean, I see where Tarun is coming from in that it's an idea that can be shopped to pretty much any nation with a currency. Right? Totally. I do think the CBDCs will arrive in various countries. I do think it's going to be competitive with other digital implementations of a currency, whether it's stable coins, whether it's legacy systems. I think it will going to exist? Will it happen in the U.S.?

Maybe? Will it happen in the short term? No. Will it happen in China? Yes. Will it happen in Russia? I don't know. There is this inevitability where, like, many countries will likely transform the way that their currency functional.

And the idea that you can have, you know, some of the benefits that we've all, like, grown to absolutely love from blockchains, which is transparency, like, instant settlement, some capabilities for, like, automation. Like, these are really good things. These are all, like, the virtues that, like, got me excited about crypto in the first place. And a lot of people excited about crypto. And the idea that you can, like, bring some of these superpowers to a currency. Yes, there's the circle approach.

But there's also the CBDC approach. It's, you know, I think we're going to see it because I think it's superior to what exists today. Like, yeah, like, Fed now is better than, like, not Fed now. And, like, I think a CBDC, even in the dollar is, like, better than Fed now. And so it's like, what takes over eventually? Like, you know, I don't want to bash on Circle and Jeremy, but, like, is USTC going to be, like, the monopolistic interpretation of the dollar? No, probably not.

I think, like, it's possible that the U.S. government inevitably competes with Circle in the creation of a CBDC. So I will say, in my mind, the only thing that looks like a CVDC maybe quacks a little bit like a CBDC and definitely walks like a CBDC

is India's payment channel payment rails, which is like actually successful, right? Like basically India went from like zero people doing electronic payments to like 700 or 800 million via this centralized identification system. But they made applications that use it have this ability to write sort of like open source, almost like smart contracts, actually, if you read the docs, things that that can be built on top of that.

So, like, I can make a little fintech that is able to give you a loan based on some your prior data, which is like public at this. I wouldn't call it a blockchain, but it like kind of bears a lot of resemblance to a blockchain thing. And it's actually crazy that they like basically skipped credit cards completely. they skipped sort of, you know, conventional digital payments, and they like went even past Wii chat, because in the WeChat super app model of the world where you have payments done through a messenger or chat app, you kind of have this monopoly that has to,

that sort of owns effectively the app store of like, hey, if you're going to build something that uses this type of payment, you have to go through our app, right? Like we've captured this, we take some tax against you. But the Indian version is actually that the government's sort of, almost CBDC is basically just an open source layer for people to write these types of apps on. And I think like India is successful at that because it doesn't have all the dog shit like, hey, we're like in a naval gaze about what the definition of a CBDC is and what the

boundaries of having a CBDC are and what permissions you should have. And oh, we're going to talk about everything other than the technical considerations. The Indian version of Adhar was literally only focused on what is the open source software. and how can we build this and the technology side. And that's why they were successful. But most of these other governments investigating this stuff are doing everything other than kind of the technical design, which is why it's just hard to view them as credible other than it.

And it's just sort of like consultants, you know, fighting each other. So, okay, let me, let me give my take real quick and then I'll hand it to Jeremy because I know that he's itching to respond to Robert's points. So I think I take to ruin sight in this and that I think CBDCs are mostly nonsensical. I think that in principle one could build a CBDC that actually is substantively different than just an upgrade to the back end of a central bank. All central banks for many, many years have had digital letters, right? Of course, because, you know, it's whatever, it's 20, 23. So this stuff is already digital, right?

the thing that's interesting about a CBDC, relative to just you have a digital real-time growth settlement system, which is great. That's what Fed now effectively is, is real-time instead of, you know, settling at, you know, some fixed interval that makes, you know, settling up kind of annoying. The thing about a, you know, a blockchain system that's different is, I think two fundamental things about a blockchain that's different.

And people often say, they're like, well, CBDCs aren't decentralized. I don't think that's what matters, from the perspective of what users and developers can do. I think the first thing that matters is that it's programmable. And no CBDC that I have ever seen that is actually going into anything like production has any programmability whatsoever. So your ability to basically say, you know, if A, then B, you cannot do that. In the ECNY, the Chinese central bank digital currency, there is no such thing. They do tout that there is a blockchain.

There is no actual blockchain. There's no blocks. There's no chain. They do have hash functions and stuff like that. But, you know, who cares? just having PKI with central bank infrastructure is just an improvement to authentication. It's not the same thing as what you get with blockchains.

So the first thing is programmability. Almost none of the CVDCs that are getting through to production have that. And then second is this idea of non-serveing money from personhood. And none of the CVDCs do that either, right? And so that's one of the key things about blockchains is that you can have a multisig. You can have non-human agents.

AIs, whatever it is you want, as long as there is a public-private key, you can interact with money and they can be ephemeral even. That concept does not exist in any CBDC. And I think that very much limits the design space of what you can do with CBDCs that you couldn't already do with real-time growth settlement systems. And so that, I think, is the reason why most of these CBDCs are kind of window dressing. They're sort of yelling blockchain as loudly as you can while getting some budget to improve your infrastructure, which is great. A lot of these central banks need infrastructure improvements,

but it's not what stable coins do. And I don't think it ever will be. Yeah, if I can respond, I think we think about this a lot. But not because we think that CBDCs are imminent or a thread or anything like that. We think about a lot because people ask us a lot. But I think, I agree with a lot of what,

of what you said, Haseeb. And I, you know, a few things I would share on this topic. I think the first is, it is absolutely correct that most central banks need to continuously upgrade their core settlement infrastructure. And that, like, that's not going to stop. And I'm a technologist. And so when I look at the core architecture of the dollar, I don't, it doesn't make me feel good.

Because, like, years ago, I was in a meeting and I was talking to this, the, chief information officer of the Fed. And I was like, what is the dollar? Like, tell me the tech stack. What is the architecture? What is the dollar? And he was basically saying, well, it's, it's a cluster of orable databases in Sun Solaris machines in like these redundant data centers.

And I was like, okay, okay, so that's the dollar. Right. And then I'm like, okay, I interface with the dollar and like, it's FTP servers in common to limited text files. Like, that's the, that's actually like, that's how you interface with the dollar. Like, that is what movement of dollar is in the United States, FDP, CSV, or whatever. You know, it's like, so I look at that. I'm like, yes, we can improve that.

That should be improved. Like, we should, like, have, like, there will be fiat and there'll be government obligation money and it should be continuously improved. And that is like a wholesale infrastructure thing. And there will be some countries a la India where they have a tip of the sort of mountain top, which is sort of retail exposed, which is there. I think that is innovation, and I think that's real. So your point, has to you, it's not solving the same sort of problems

that are being solved by stable coins. And so, which I want to come back to, the other piece of this that is, I think, really important, is just to acknowledge that, you know, the history of electronic money innovation in the West, at least, the history of electronic money innovation has been entirely private sector driven. It's every single innovation. And we can think about what innovations exist.

The wire messaging system was a consortium private sector actors building standards. You know, the ATM machine was an innovation of the private sector. Credit card networks, debit card networks, innovations of the private sector. You know, PayPal innovation, Apple Pay, innovation, stable coins. Like all these things are private sector innovations. And there's a reason is that the private sector innovations. private sector mobilizes and iterates on technology at a very, very different pace and has a very, very different set of incentives. The other fact is that, you know, 95% of electronic money

in circulation is privately issued. It's not government issued. It's privately issued. And there's, I think, for many parts of the world, there's the desire for there to be an air gap between your money and the government. And that's real. Now, in some places, you're not allowed to have that air gap, but in a lot of places that is. And in the West, that air gap has been important. And so those are like big phenomena. But then kind of like, when I think about like, why did I start circle, like, what is it that we were excited about? You know, it was exactly the kinds of stuff you're talking about, which is basically, I believe that open networks, open protocols that have the reach of the internet that are continuously

improving open source infrastructure, and very specifically, the innovations of cryptocurrency, of blockchain networks, and the programmability that comes from open compute surfaces that are continuously upgraded as well. That's the innovation. And so to me, like, we want internet scale money. We want internet scale, you know, secure, programmable money. And we want to be in the continuous feedback loop of improvement that comes from like open source technology. And that is not going to be built by governments. It just isn't. And so I do think there is like this kind of like if I had magically had a license to

access the Fed directly, which I don't right now. But if I had that, would I rather interface with a cryptographic primitive that's a distributed ledger technology or whatever than FTP servers and stuff? Yeah, I would much rather, like as a technologist, I'd rather interface to an infrastructure that is better. And so I do think I would love to support Fed now. And you'll probably see us do that. You'll probably see like, you know, yeah, you want to create and redeem USDC through Fed now.

Go for it. But you're moving into the digital currency. You can see a supporting Fed now where, you know, we allow for people to kind of move in and out through those rails. And so as there are improvements in what central banks do, those can be positive things for internet scale money. Got it. Okay. So one more question. I know we're running up on time a little bit. One more question. I kind of want to go around the room and get people's reasons on. So once upon a time, a very long time ago, Jeremy, Jeremy knows the backstory. But I was once working on a stable coin way back in the day. And one of the questions at that time that really, you know, this is like 2017, 2018, really felt unsettling. I mean, you know, we should have called, you know, instead of bald being the token for the rugging on base, we could have made bald your stable coin.

That is true. So actually, funny enough, the name of the stable coin we were working on was called USDC. USDC as the circle thing at that time was not public that that was the name of circle. So we had a bit of a name collision. Anyway, it's a long story. We'll tell another day. Jeremy did win. That's right.

His baldness overcame my baldness and he ended up winning. But a big question at that time that many people were asking is, you know, will stable coins, at that time the dominant stable coin was tether, and today it is still the biggest stable coin in existence, will the architecture of tether, which is basically you KYC on redemption, you KYC on minting, but you do not KYC holders, anybody can hold? It was a real question in 2017, will this continue as a status quo? quo and will we basically get a very different relationship with, you know, holders of money for something like a stable coin than we will for traditional bank deposits? And it was unclear at that

time. It seems like it's becoming more clear that for whatever reason, you know, especially the stable coin bill that's in Congress right now seems to contemplate basically keeping the status quo, which is, you know, KYC on redemption and minting, but for the most part, anybody in the world potentially can hold a stable coin. I want to get a view from Robert Tarun and then Jeremy of do you think that persists indefinitely or are we in a kind of intermediary period where we get to enjoy the fruits of this freedom on chain and anybody can do anything, but is this going to be short-lived? What do you guys think?

And if it changed, why did it change? I would say one thing, which is that we have agency in the world as people. And so we can, nothing is predetermined, obviously. And so the outcomes of those things are things that we have agency in. And so, like, I spend a fair amount of my energy educating, advocating for policy that preserves the innovation of, you know, digital token instruments and open blockchain networks and what that is. And I think there's a lot of other people who have agency and who do that.

And that's really, that's the most important thing is that in a vacuum, if governments just said, this is what we'd expect, this is what the rules are, and here they are, then we probably know what the outcome would be. But because we have agency and because, like, there's actual product and technical innovation that's happening and it's establishing user preference. And the user preferences all around the world, like individuals, entities, firms, others. Like, society expresses its will, ultimately, and policy responds to the will of society. And so you couldn't put the genie back in the bottle that anyone can stream anything to anyone in the world.

Even though if you had asked governments in 1998 or whatever, like, do you want anyone to be able to stream to anyone in your country without any restriction? they'd say, no fucking way, ban it. Right. But like user preference is established. And I do believe that's happened in many mediums on the internet. And it's, it's, and there's, you know, section 230 and there's all these sort of things that were codified to basically establish, you know, open platforms and, and the free agency that comes with that in many respects. And it's enshrined in the nature of the internet protocols themselves and all of this. And I think that's real and I think that's durable. And I think that is now arriving into the financial system.

And it's been decades in the works. And that is like the, I think of the internet as like an organism. And it's like the internet organisms evolving. And like we're all just part of that contributing our ideas and computation and other things. And I think that the organism of the internet is evolving into adopting a financial system, an internet financial system. and I think user preference in the world will prefer that and policy will respond to that preference.

That's my belief. And so that's like a very abstract answer to your question, but it's what I actually believe. That's a great answer. And I think, though, however, like the problems that governments care about still exist, right? people don't want terrorists to be able to freely operate. They want to be able to have, they want to be able to enforce,

have effective enforcement of war powers in times of war or what are perceived to be extreme national security context, someone who's building a nuclear weapon that might attack you or whatever that is, whatever you decide is that. And likewise, generally, there's like a social contract between financial intermediaries and government that like we don't want to just let like criminals run over all of our stuff and do whatever they want and wander money and so that's like a social contract that exists the mechanisms through which the enforcement of those happen has to evolve and so my own belief is that crypto has the answers like i actually think like zero knowledge proofs and and cryptographic proofs

and various forms of credentialing and attestations and other things and can actually solve the problems better and preserve openness and privacy. And like, that's where, again, I have agency. I can think about how do I solve these problems? How do we collectively solve these problems and keep pushing on them and pushing on them? Because we're going to solve it much faster than policymakers are. And then it gets established and entrenched and people say, yeah, of course, I want a better, more transparent, but also private, secure, open thing that allows commerce to happen more fluidly, allows financial services to be rendered more fairly, equitively, globally. Like, I want that. Of course, I want that. And policymakers are going to want that too.

So we just have to, we have to actually think about what are the problems that governments are trying to solve for. And I don't want to solve for the totalitarian, like, you know, I get to see everything and like social credit system. Like, I don't want to solve for that. There are governments that want that. I don't want to solve for things that are enshrined in more traditionally, classically liberal ideals. That's great. Well, I will say, Jeremy, I know we're up on time, so we have to wrap, but I think as an industry, we're very lucky to have somebody like you as an advocate, because as much

as it gets depressing some time, seeing kind of, you know, the slings and arrows of regulation hitting our industry, it's folks like you who've been in this, you know, just been grinding for many years trying to make one particular vision come true that this industry is built on. So kudos to you for your service. And please keep those USC rails running because we all need them. They're getting better and better every day. Glad to hear that.

Jeremy, thanks for coming on. Thanks for me too. See everybody next week.