On Ep. 42 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Tony McLaughlin, Founder @ Ubyx and Andrew MacKenzie, Founder & CEO @ Agant to discuss the role of banks in stablecoin off-ramping, stablecoins as digital cash for corporate treasuries and more!
On Ep. 42 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Tony McLaughlin, Founder @ Ubyx and Andrew MacKenzie, Founder & CEO @ Agant to discuss the role of banks in stablecoin off-ramping, stablecoins as digital cash for corporate treasuries and more!
Timestamps:
This episode is brought to you by Visa
A world leader in digital payments, Visa is bridging the gap between traditional financial institutions and innovative blockchain networks, helping players in the payments ecosystem navigate the ever-evolving world of tokenized fiat currencies with confidence and ease. Learn more at visa.com/crypto.
Tokenized is also presented by Avalanche.
With Avalanche’s purpose-built Layer 1s, institutions can tailor digital asset strategies to their exact needs—while still tapping into the power of public blockchain innovation, developer communities, and seamless interoperability. Learn more at avax.network
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Music by Henry McLean
Speaker 1 00:00
The market structure to come is everyone can receive stable coins, everyone can issue stable coins, and it's a pluralistic market structure. And I'll bet you that's the outcome, and it's driven by just the network math. There are going to be many, many issuers, many receiving institutions, and it's just like in the days of checks, everyone send, everyone receive, in the days of visa everyone sends, everyone receives. That's going to be the market structure of stablecoins.
Sy Taylor 00:40
Welcome to tokenized. The show focused on stable coins and the institutional adoption of tokenized real world assets. My name is Simon Taylor. I am your host for today, author at FinTech brain food and head of strategy over at sardine. And I'm joined by the always excited, always effervescent. Kai Sheffield, Kai, how are you doing? Man, you got some big news today. Why don't you tell us about that before we get into the regular show.
Cuy Sheffield 01:05
I am fantastic, and I am always excited. I think that we've been using stable coins on thesis settlement system for about two years now. We've moved hundreds of millions of dollars on chain. And so this is a real effort, and not just innovation pilot in I think what we've seen is we're heading into this multi stable coin, multi chain world. And so we started with USDC. We started on Ethereum. We then added Solana. We've now announced today we've partnered with Paxos. We're going to add support for usdg and P y USD. We're now adding support for USDC on Stellar and on avalanche, we launched the first pilot with Euro C, the first non USD stable coin. And so we think that we're gonna have to live in a world where you have this three or four dimensional Treasury moving from any stable coin representing any currency on any blockchain. And we think that there's a major role for visa to be able to do that, and it's really gonna power the future of stable coin link cards. So really excited to be expanding those capabilities. And we've got some great guests today to talk about the broader stable coin ecosystem and this multi stable coin, multi chain world.
Sy Taylor 02:08
We almost have the perfect guests to speak about it. I'm gonna start actually with Tony McLaughlin, who's founder of ubix. How you doing, Tony? I'm doing good. Excited to be with you guys. Thank you so much. I think we'll get into why I think you're the perfect guest in just a moment. But then, of course, we've also got Andrew McKenzie, who's founder and CEO at a gun. How are you doing? Andy,
Speaker 2 02:31
yeah, good. It's good to finally be on the show. I remember the first couple of episodes coming out, and that was a life goal, so it's a tick in the bingo card.
Sy Taylor 02:39
Heck yeah, man. And for those of you not watching the YouTube, we will have subtitles if you want to head to that with two Scotsman on the show. I know a lot of you listening in the US, but no, these two are absolutely fine. I had to tease you. You'll be fine. I'm absolutely kidding. You're incredibly clear. Look two bits before we get into the content. We are doing our first ever tokenized live event in London on the 11th of September. Tickets are completely free, so thank you very much to our sponsors. To register, click the link in the description wherever you're watching and listening. And of course, I've got to remind everybody that views and opinions of contributors today are their own and might not reflect those of companies they represent. Don't take anything we say as tax, financial, legal, investment advice, and please do your own research, folks already. The first story this week was about a company called FIS partnering with circle to offer USDC to its 13,000 financial institution clients. So the TLDR here is FIS is a company that helps large banks move money, store money. They do what's called core processing and call payments systems. So they're going to help all of those banks to transact in USDC through this partnership with circle, and they're going to build it into something they've got called the money movement hub, and it's part of their broader strategy to help clients on their digital asset journey. So lots here to unpack, but Tony, I want to come to you. You've obviously been in this world for a long time, talk to me about the role of a company like FIS, and talk to me about the role of them supporting financial institutions, and how you see this, this fitting in.
Speaker 1 04:26
Sure, if I'm speaking clearly enough, Simon, for the Englishman to process, I know that we have to speak more slowly for you guys to understand. I'll do that. Sorry. I'm just DEM. Well, there's English and dem, so it's the compounding factors. But look this, this news, I think, is one data point of many, which is that we're on the road towards stablecoin ubiquity and the market structure that's going to emerge, and I'll put bets on it with any one of you, is it's not. An oligopoly. It's not even dominated only by US dollars. The market structure to come is everyone can receive stable coins. Everyone can issue stable coins, and it's a pluralistic market structure. And I'll bet you that's the outcome, and it's driven by just the network math. There are going to be many, many issuers, many receiving institutions. And it's just like in the days of checks, everyone send, everyone receive, in the days of visa everyone sends, everyone receives. That's going to be the market structure of stablecoins.
Sy Taylor 05:34
I think it's fascinating that you see this pattern playing out that Kai mentioned. Where, you know, they started with USDC, they started on Ethereum, and now seems that others are following that lead. Andy, do you agree with Tony's points here? And what do you think about the role of an FIS in something like this? Yeah,
Speaker 2 05:51
I almost think this is a really under reported story, and the implications that this has for banks, both large scale and small scale, globally, in the sense that, you know, it positions them as this invisible backbone within the plumbing that banks go into, and it gives them immediate access to the blockchain without the technical or regulatory lift. So I think the way that this unfolds, and the message that this sends to the market is that stable coins are no longer coming into the traditional financial system, that they're arrived and that they're now fully embedded.
Sy Taylor 06:25
Yeah, I think that's such a good point. We were actually debating what story goes first on this week's show, and we picked this one for precisely that reason, where the show focused on the institutional adoption of stablecoins and real world assets, and if you were focusing on consumer mindshare, there might have been other stories you'd start with, but I think this one's really crucial. Kai,
Cuy Sheffield 06:45
yeah, I think core ledgers are gonna play a really important role. And it's fascinating that there aren't that many people, particularly, for the past few years, who've, like, spent a lot of time around how banking core ledgers work and how blockchains and stable coins work, and now like this intersection, I think is going to get more and more important that if banks want to do anything that touches a stable coin, ideally, that would work just within whatever ledger and systems of record they have for their existing deposits. And so I think we're seeing more and more advancements towards how to connect those two together. I think that the big question becomes Okay, once that connection happens, what specifically should a bank do? And so I've been thinking about that a lot more lately, of like, okay, you've got the connectivity. What is the use case? What is it that a bank should look to create for their customers using that connectivity? And Tony, I know we've talked about this probably going back over a year now, and to me, it seems like there's this natural first step of treat stable coins as digital cash, where you could have this deposit and withdrawal functionality, where some of your consumers or businesses might end up with a stable coin. And there are many reasons they might end up with a stable coin, and it's hard to predict all those Can you let them take it to you and deposit into the bank and have that show up in the core ledger, that that's a deposit the same way there's physical cash, and that doesn't mean holding the stable coin. I don't think banks in the US have an incentive to hold a stable coin, but they don't hold physical cash for long periods of time if you show up and you deposit cash. And so being able to have this functionality of I could see a world where every bank mobile app five years from now, it's just a normal thing that you can deposit or withdraw a stable coin from it. But there are a bunch of steps that have to happen, a bunch of pieces of infrastructure that have to be built out for that to work seamlessly. And I know Tony, you've spent a bunch of time on that. I'm curious how you think about the use case and what you're hearing as you talk to banks about some of those flows. Yeah, look,
Speaker 1 08:46
there are many use cases, but if you think about one that's under discussed, which is like a large corporate treasury, many large corporates will be delighted to receive stablecoins. But if you're a corporate treasurer and you've got $50 million worth of stablecoins coming towards you from 100 different issuers. You don't want the counterparty risk against the issuer. You don't want the counterparty risk against the off ramp. You might not want the operational risk of running a wallet. And you certainly don't want the accounting treatment of stablecoins At the moment, which is not cash equivalent. So actually, there's a very obvious, and I think good business for a relationship bank to offer, which is, I'm going to catch all of those stable coins and convert them into Fiat. Now, I happen to think that's a great service for a bank to begin with, lots of banks when they're thinking about their stablecoin strategy, for some odd reason, they jump immediately to issuing. I think the correct place to begin is on receiving.
Sy Taylor 09:49
Yeah, off ramping. It might be worth just for the audience's benefit. Tony, talking about your CV or your resume, as our American friends would say, and some of the stuff you've done in the past that colors that comment.
Speaker 1 09:59
Sure like I grew up in Scotland, living in a puddle for most of that time, Simon then I fought my way up from poverty through newspaper rounds, etc. But anyway, I found myself working in banking 30 years ago, with Barclays, working on travelers checks. And I have to insist that for two thirds of my career, nobody gave a damn about payments. So thank God for FinTech and thank God for crypto for making for making payments cool again. But I've worked in all sorts of different types of payments, and it does amuse me to analogize between stable coins and travelers checks, because even you guys are too young, you guys don't remember travelers checks. I do maybe borderline, but these instruments are actually very, very ancient instruments wrapped up in new clothes. We've had negotiable instruments for hundreds and hundreds of years, and the fact that they used to be paper and now they're code doesn't make a difference.
Sy Taylor 11:01
Yeah, I think that for people, for some of the banking world, is just such a powerful metaphor. And Andy, you sort of alluded to, you know, FIS being this quiet bit of infrastructure in the most under discussed story. I know that there are several large government departments in the UK alone that use companies like FIS for their payments, transacting billions, and sometimes more than hundreds of billions in a single day. What do you think that an announcement like this is like compared to we saw fi servers gonna look at issuing its own stable coin and jump to issuing What do you think the right thing for the tech vendors in this space to be doing would be kind of building up some of the previous comments.
Speaker 2 11:45
Yeah, so I echo Tony's comments and also yours that the off ramp is a really important place to start. And I think what we're seeing within our own sort of day to day is a lot of focus around that. Businesses want to accept stable coins, and they want to look at how they can interact with them, but that conversion piece is critical. So I think for me, you know, what does that give them the path to achieving and focusing on that corporate treasury piece of intraday liquidity is key, and the capital efficiency benefits that and the reduction in counterparty risk that that presents is massive. So, yeah, I think, you know, from a government perspective, and what they're looking to achieve, I think it's the level of efficiency that it can bring into their system. You know, if you think at its core, what does a stable coin allow you to do? It's a programmable payment, and bringing that programmability will take time. But once it's there, the level of back office and mid office administration that generally takes place should reduce significantly
Sy Taylor 12:46
as a traveler's check that's programmable in 24/7, an instant, that's, I guess, a little bit different to paper.
Cuy Sheffield 12:52
One of the things that I'm interested to see in this context of banks playing an off ramp role is there is this interaction with existing third party wallets, where, I think as a bank, you can say that they're going to be wallets out there, that consumers are going to come across, and you don't necessarily have to build a full featured wallet on day one as a bank. And I think it's going to be difficult for most banks to be able to do that. And so I'm really interested to see if we come across a world where banks are encouraging consumers to link an existing wallet that they have directly to that bank account, and then to be able to accept the stable coin from that wallet to then off ramp it. We saw the announcement of Chase partnering with Coinbase this week, which argues kind of somewhat of a flavor of that, where if you have this explosion and growth of third party wallets, if I'm running a bank, I would really want my bank to be the default of the way that money moves in and out of that wallet. And I think you could also argue, to some extent, there's lower risk if you start with like a me to me flow, where if you say I'm just going to enable on and off ramps for my existing customers. There's a whole nother progression to say, Okay, what about P to P What about letting my customer send funds to any third party wallet or receiving funds from any third party wallet? I think that's going to take longer for banks to get comfortable with. But if you can ensure that someone is connecting an existing account that they have, or they're connecting and signing a transaction in an existing wallet. Why wouldn't you want to be the default account that anytime they want to move from Fiat back and forth between that wallet, you're their preferred way to do that. And I'm really interested to see how those relationships evolve over time. We did
Sy Taylor 14:36
an episode with Nick Philpot called eight ways banks can make money, and in that episode, the first thing he mentioned was be the offer up. And it's interesting that Zodiac markets is, of course, one of the leading FX brokers between Fiat and stable coins, and it just so happens to have a partnership with and was spun out of Standard Chartered one of the banks that's been doing an awful lot in this. Base for a very long time, quite quietly. So I do find that fascinating. As somebody who's been in the payments industry for a little while, myself, I found the fact that it's FIS very interesting. They're one of the big three core vendors in the United States. Typically, you talk about Jack, Henry, FIS and FISA those year sort of big three. And this is the bank's operating system. Every account sits on one of their systems, and every bit of money that moves typically moves from one of their systems. And if that thing that you are extremely reliant on, especially as a mid size, as a regional as a smaller bank, then if that adds the ability to accept and move stablecoins, then you're a step closer to being able to do it yourself. But there is this mentality at the moment of treating stablecoins as just another payments rail. It's like Ach, it's like wire, it's like Zelle. And actually, I think to Tony's point, it's also a different type of clearing and settlement, and that's where the journey that I think visa is on is fascinating to me, which is we have to clear and settle many more chains and many more issuers, and we have to be thoughtful about the ordering that we do that with. Speaking of which, there is another use case aside from adding it to banks, company called PayPal. You may have heard them have launched pay with crypto. So this will support transactions across 100 different cryptocurrencies, wallets such as Coinbase and Metamask, and in their press release, they say, Pay with crypto decreases the cost of transactions by up to 90% compared to international credit card processing. So it's gonna be available to us merchants in the coming weeks now. Andy, you probably remember the last crypto Bull Run. A lot of people added payment acceptance, but also Shopify have added this recently. What are your thoughts on adding payment acceptance? Do you think merchants are gonna add this stuff, and is it gonna
Unknown Speaker 16:57
be useful? I think
Speaker 2 16:59
just almost go back a step to what PayPal is building on, and it's, well, it's the bank accounts and bank against the wallets. And it ties into the previous article as well. And I think that is really powerful, because at the moment, if we look at a lot of the work that's been done by the card issues, for example, in terms of, you know, pay with crypto, it's kind of been a band aid on top of a traditional system. And, you know, it's all tied together almost after the fact, whereas now what people are proposing to implement, and happen is that the crypto is used as the settlement tool. And so I think that's quite a large difference, and a massive step forward for the merchant ecosystem as well, and also for PayPal own products. I think what we're going to see is a huge expansion of p, y, u, s, d, being used within the system, because, obviously it's within PayPal interest to expand that asset, and they can incentivize merchants, in particular, to make that an attractive asset for them to accept.
Speaker 1 17:52
I'm not that excited with pay by crypto. I think the game is stable coins. You know, Fiat backed instruments. I am much keener to see stable coin, native payments, merchants, and in particular kind knows this at the point of sale. So the interaction that I would like to see at the point of sale is Simon. You can take whichever crypto wallet you wish and associate that with the NFC on your phone, including the iPhone. And the merchant can take whichever crypto wallet they wish and associate that with their point of sale terminal, and you can do a stable coin native payment with no need for an authorization. So that's the interaction that I want to see at the point of sale. Now that has two dependencies. One dependency is, can the crypto wallet on your phone get access to the NFC? That's one question. And the second question is, can the crypto community get access to the EMV co kernel? Now there's a new kernel, c8 which is meant to be open to a broader range of payment schemes. And I would very much like such a kernel to be made available to support stablecoin native transactions from wallet to wallet.
Sy Taylor 19:15
Wow. Okay, so emvco, Eurocard, MasterCard and Visa, the people who set the standards for how Card Payments work. Of course, Euro card rip was Europe's attempt at building a kind of a card scheme. And so the interesting thing you're saying there is that that makes stable coins cash like and there's a lot of central banks that are trying to make that happen with the cbdc. So we can talk about that a little bit after the break, but I just wanna see Andy, if you have any other thoughts on this story, or if Tai you did as well. I wanted
Cuy Sheffield 19:45
to just comment on like, first, we have not seen any real demand to spend crypto, and we've been at this for six years, and I feel like we've got a pretty good perspective and data points from customers and. To, like, a meaningful degree. And I think that as crypto markets continue to grow and as people get excited about trading them, it sounds really cool to say, Oh, we accept 100 crypto assets, but how many consumers, even that have those assets? The first thing they think about is, I wanna spend this, and then how many of them would be in a habit where it's not a one time thing to cash out, but like, they want to convert over their day to day spend to spending in Litecoin, like it just, we don't see any demand for that. I think, when it comes to stablecoin acceptance, I think that there are scenarios and pockets where if a consumer is able to come across a stablecoin balance, and they haven't been able to get a card or a card that works well and enables them to spend cross border, I think that it makes a ton of sense in particularly in some of these emerging markets, to start to see some consumer to merchant stablecoin activity. I think our approach has been to say that's a huge opportunity for us to then put a card in every stable coin wallet and work with every stable coin enabler that we can to make it as easy as possible to issue these cards. It could be a virtual card connected to a stable coin balance. And then I think you have to also recognize to drive any behavior change, there has to be value on both sides of the transaction. And so we think if you stack together one option where you're spending a stable coin directly, even if the merchant accepts it, which we think it's gonna be a long time, and merchants will accept gradually, but like, wait till you get every merchant accepts it and you have a card that has all the protections of visa, being able to tap to pay how you normally do, and not have to even ask if the merchant accepts it. We think it's a better option for the consumer. And so we think that there's this big difference between first, you gotta go out and get merchant acceptance, but then even if you get merchant acceptance, then you gotta incentivize a consumer to switch. And if a consumer already has a certain behavior and a certain way that they pay getting them to switch, now what do you have to pay to get them to switch? And now are you gonna give them a 5% discount, which is enough to switch, so that's more than what you would have paid to accept the card. And so I think that there are a lot of these discussions that get so focused on a cost of acceptance, and less about the conversion of a consumer at the point of sale. And we think a lot more about, if you're a merchant, you wanna sell a good or service, you wanna reduce the transaction cost of someone even thinking about, can I buy this? How should I buy this? You want them to just buy it? And any other steps that you had, introducing new payment methods, we think reduces that conversion to some extent, over time. So I think it's fascinating to see it play out, but it's an area we're spending a ton of time on. We see huge opportunity on the stable coin, like
Sy Taylor 22:40
card set, the acceptance thing, the value of visa, I always saw as being when you see this logo, you know the payment will work, and if it doesn't, there are a bunch of rules about how you'll be made whole. And network effects are genuinely hard to build, as is conversion metrics. Cash converts pretty well, but the protections on it aren't great, because it's a bearer settlement. But there are some markets that may absolutely want that, and certainly that cash like instrument is something that central banks are quite keen on replicating as well. So I'm just going to hear from our sponsors, and we'll come back to some central bank news stories just after this break. This episode, if it's not obvious, it's brought to you by our friends at visa, a global leader in payments. Visa's tokenized assets platform vtap uses smart contracts and cryptography to help banks bring fiat currencies on chain. Vtap allows financial institutions to issue Fiat backed tokens, improving financial efficiency and enabling programmable finance. You can check out the links in this episode's description to express your interest in vtap tokenized is also brought to you by avalanche, major banks FinTech challengers and industry leaders are using avalanche to create new business models on a fully customizable blockchain infrastructure. Think of it as more than a blockchain. Think of it as an entire network built for financial institutions to innovate with purpose built layer ones. Institutions can tailor digital asset strategies to their exact needs while still tapping into the power of a public blockchain innovation, developer communities and seamless interoperability, join the institutions shaping the future of finance on avalanche, and you can learn more at avax dot Network. Thank you to our sponsors. All right, the next story came from, well, the European Central Bank and their blog. Did you know they have a blog? This one was titled, from hype to hazard, what stablecoins mean for Europe? It's a long blog, but the key bit that they say is stablecoins are reshaping global. Finance with the US dollar at the helm, without a strategic response, European Monetary sovereignty and financial stability could erode. However, in this disruption, there's always an opportunity for the euro. They also say, Should US dollar stablecoins become widely used in the euro area, whether for payments or savings or settlement, the ECB control over monetary conditions could be weakened. This encroachment, through gradual change, could echo patterns observed in dollarized economies, especially if users seek the perceived safety or yield advantages that are not available in Euro denominated instruments. Now, finally, enough, this was penned by somebody who wrote a blog in 2022 called bitcoins last stand. So I do think we should take this with a pinch of salt. However, this is fascinating as it relates to the euro now. Andy, I want to come to you first on this. It might be worth telling the audience what it is you're aiming to build at the moment and some of your rationale for building it. Then come back to this story.
Speaker 2 26:10
Yeah. So for those that don't know, which is probably many of you, we're building pound Sterlings on chain. We're taking the British pound onto the blockchain. And one of the reasons for that is it does center around that concern of dollarization, and central banks and governments becoming acutely aware to you know, if we have this influx of money on on the blockchain, bearer instruments on the blockchain, do we want that to be in dollars within a non dollarized economy? And quite frankly, a lot of them don't. And I think we're seeing that within the global south and other regions, there is this rush to dollars. But is it actually dollars that people want, or is it stability? And so that's really the approach that we are taking. By taking the pound on the blockchain, we're looking at bringing another option, you know, the fourth largest currency globally, to provide that stable asset within other domiciles, but also within the City of London, and as capital markets start to come onto the blockchain, we want to participate in that by creating that foundation
Sy Taylor 27:07
layer. I think it's interesting that stablecoins are not just a consumer use case, not just a corporate treasury use case, but also a capital markets use case, and those tend to be dollarized first, but to Tony's point earlier, 99.9% of the current usage is in dollars. But seems like Europe is concerned about that not being the case. But also, I observed their solution is to launch a digital Euro issued by the European Central Bank, although, as Kai mentioned earlier, there are already Euro stable coins such as Euro C circle Tony. How does this start to play out? Should we see central banks issuing directly some central bank token, a deposit tokens, a piece of this, or a stable coins? The
Speaker 1 27:50
thing here, Simon, when I read this story, I'm reminded of the Thanos quote when he said to Tony Stark, you're not the only one cursed by knowledge, and I feel very world weary, because it's exactly wrong. It's exactly wrong again. Back in the day, dollar travelers checks were accepted all around the world, universally, any Bureau, Deshaun Jenny, large hotel, any bank, would accept $1 traveler's check. Was that through altruism, it was not little old lady from Des Moines was on holiday in Japan with her traveller's checks. She took the traveler's checks into a bank to exchange them into Japanese yen, and the bank ripped her face off with FX and fees and took 5% the reason why American negotiable instruments are accepted around the world is because whomsoever accepts them and converts them to local currency makes fees and FX. The true analysis is every dollar stablecoin that America sends into the world is a gift and a blessing, as long as in Europe, for example, we equip our financial system to receive them, and where necessary, convert them into Euros or convert them into dollars. On the European financial system, every dollar stablecoin outside of America is a gift that should be gratefully received.
Sy Taylor 29:17
Fascinating perspective.
Cuy Sheffield 29:19
I love it like I hadn't thought about it in that context. But I think it seems that when you read articles like this, there isn't that thinking about how seamless you could potentially, in the future, be able to convert. There's this idea that if $1 stable coin exists, that means that it has to be held, and then if it's held, that all of a sudden, the country's dollarized. And I think if you work backwards, particularly in Europe, we haven't seen that much demand from European consumers or businesses to just hold dollars. It seems like it's actually more inconvenient, and people aren't worried about the euro in their day to day. And so if you think about stable coin. As a payment rail that you could receive funds and then automatically convert them, you end in very different outcomes. And if you think about it as another currency that is invading your country, that is, once it's there, it's stuck there, and people are gonna hold it and they're gonna use it instead of what you have. And so I think that it's important to have more infrastructure and more banks demonstrating the seamless convertibility that can happen. And then I think, on the other hand, being able to support euro stablecoins. And it doesn't seem like the reaction, as much as mica exists and there is a framework has been embracing Euro stablecoins, and I think particularly in capital markets, in new types of on chain lending, in a number of those use cases, it's easier if you have a local currency denominated stable coin. And so I would imagine, if I'm in Europe, the only reason I'd use $1 stable coin is if there's not enough liquidity in a local Euro stable coin. And so I think you kind of have to have that approach of, how do you encourage convertibility and making it easy to move back and forth. And then, how do you encourage regulated stable coins under your own framework to get those capital market use cases? And I think that those are very different approaches than the digital Euro being a solution to perceived demand for stable coins, which I think is kind of an apples and oranges comparison.
Sy Taylor 31:21
It's wild to me, the Euro is unquestionably a more stable store of value than the dollar. At the moment, like if you look at the last 12 months, the dollar is down nearly 30% against the other top currencies. So the European population does not have a my local currency is in stable problem. And so this is entirely coming from a place of worrying about monetary sovereignty, which I get. There are definitely real issues around monetary sovereignty. So the diagnosis there is probably accurate, but the solution is a top down digital Euro that we will issue to everybody, and we will control the technology, and we will make it happen, because we can do things top down. And I just don't think that's going to be how innovation works here, and I don't think that that's going to be a consumer experience that people want, and I don't think it's how the rest of the world works, and it's just so far away from what's happening in capital markets, what developers want to build with where entrepreneurs are starting to build that, if anything, it risks setting Europe back even further in yet another domain of technology. And I find that immensely frustrating. And then the second thing is that these regulations we have in Europe at the moment, Mika, everybody assumes it is some sort of equivalent to the genius act. It is not. It is called the markets in crypto act. It was intended, if anything, to replicate what clarity is trying to do, to define what was a security, what was a commodity, and how trading activity should be developed. Because it is not a payments regulation. It's probably not until the payment service directive three, PSD three, which is coming in 27 maybe 28 that we'll see any equivalent to what the genius act now has. In fact, if I were worried about the wild adoption of dollar stable coins, I would do everything I could to encourage local entrepreneurs to compete with the dollar stable coin, and one of the best things I could do, well, I'll save that for the next story.
Speaker 2 33:28
Just to build on top of that, I think the private sector is very good at driving innovation, and to echo the comments that you've made there, Micah stifles that drastically. It makes it very difficult for small organizations that are under capitalized in the grand scheme of things, to innovate to the degrees that they would like to and to roll the types of product offerings that they enter the European economy that they would like to see. And is a bit of a shame that, you know, the EU had a real opportunity to get things right with mica, and they chose war against the industry in a lot of ways, and even a number of MEPs will say on the record that that was a mistake, and they're spending a lot of time and effort trying to undo that. But I think it's unfortunate that the European Central Bank seems to be going in a different direction. I just think it's a very good case study for other governments across the world now to look at the difference between what's happening in the US with genius and clarity, what's happening in the EU with mica, and how that's unfolded over the last two years, and then really to consolidate and look at the sensible direction to go in.
Sy Taylor 34:34
Yeah. Well, speaking of sensible, there is something the Brits were historically known for. And that brings me to my next story, which is the Bank of England, says stable coins are no substitute for commercial bank money, but the UK Government does share its plans for digit its digital bond. So the governor of the Bank of England, Andrew Bailey, said in a recent speech, there may well be a role for stable coins go. Going forward, but I don't see them as a substitute for commercial bank money. I'm just going to come to Tony on this because I don't know why anybody felt the need to say that out loud, because they're obviously not the same thing. But maybe he's getting asked that, what do you think about Andrew Bailey's posture on this subject?
Speaker 1 35:19
Let me answer it by a story, which is, should the people who are their job rightly, is safety and soundness? Should they be the ones driving the strategy? So imagine, you know, Ethan Hawke is about to jump out of a Hercules to do a mission, and someone comes up and checks his parachute and says, You know what? It's too dangerous. You better take the bus. That's essentially what we've got going in the UK. You know, the folks who are responsible for health and safety of the financial system are asking the stable coin industry to take the bus, and the result will be from no stable coin industry in the UK. Now, a different way of thinking about it. Again, I'm a British person. So what would be in the UK national interest? The UK national interest would be to play the same game as the US, which is to diversify demand for UK gilts through the mechanism of stable coins. So I would rather say this, I would have a national target. If the Americans are going to put out a trillion dollars worth of dollar stable coins into the world, we're about 12% the size of the US economy. Let's go for 12% market share. So what does that mean? That means 100 and $20 billion worth of GBP stable coins and tokenized deposits circulating in the planet. What does that mean? 100 and $20 billion worth of diversified demand for UK government debt. So the folks who are responsible for the safety and soundness of the financial system absolutely have to play their role. But that doesn't mean that those are the folks who should be driving the national strategy? And what I think we're missing in the UK and in other countries, this is where the US have got it right, the stablecoin strategy, the crypto strategy, is driven by national interest, and that is correct. In other countries, we are driving the stablecoin strategy from the Health and Safety Department? Yeah. I think what's really interesting is that the creation of that demand makes the regulators in the UK nervous, not excited. And I think that is a fundamental issue that, like you say, is going to be a real stumbling block. However, I do feel there's key individuals that do get it?
Sy Taylor 37:41
Yeah, I would agree with that as well.
Cuy Sheffield 37:43
To Tony's point, I think it's a fascinating thought experiment of if you look at the percentage of global trade in activity that happens in dollars, it's not 99% and if you look at the percentage of stable coins, back to my dollars, it's 99% and so if you wanted to see the world diversify in the on chain economy to look more like the off chain world, where you've got participation of other currencies, I think that that's a super valid goal. The question for you, maybe, Andy is, how do you do that? Like, where does the demand, assuming the right regulatory environment, where does the demand come from for GBP coins outside of the UK? Is it in cross border flows that you have someone accept like because you could also make the argument that if dollars have the most demand, this is more and more of a network effect business. Anyone outside the US is going to gravitate towards dollars. So what would be your strategy of how to get to 12% of $120 billion of GBP just for your own what you're building and and what you would advise in the national interest?
Speaker 2 38:52
Yeah, well, I guess the first thing I'll say is it's, it's not crypto to start. I think what we are seeing is a real demand within capital markets, capital markets and, and also FX. I think a lot of people don't realize the flows that pass through London, albeit, yes, a large portion of that is dollars, but also a large portion is not dollars, and it's other currencies and and the pound sets up off that a lot of the time. So I think for us, you know, we see a lot in B to B. We see a lot flowing back to Africa and Asia, and that's a market that we're doing a lot on capturing. I think there's a number of global banks that are based in the city of London that see stable coins present an opportunity to their daily course of business. These banks were built on being a British bank with branches globally, and so I think they see stable coins as the way to improve that drastically. I think where we also see demand is within corporate treasuries that have a global presence. It allows corporate treasurers to consolidate their balance sheet back into their domicile and use stable coins as the spoken hub model, instead of having. The current banking facilities and exposure to jurisdictions that they'd maybe rather not be involved in. So I think there's varying degrees. I think, you know, charity starts at home, and for us, capital markets within the City of London is a huge under explored area that is going through a real acceleration, even in 2025 I think for us, the tone of the conversation and the eagerness of a variety of firms to look at how they can implement stable coins, you know, with a degree of haste, which is really, really surprising. And I think what's most interesting is the the inbound and intrigue that stems from that
Sy Taylor 40:42
people forget the role London plays in the global financial markets as an FX hub. They also forget the history of the eurodollars. So Tony, if you don't mind me playing Resident historian for a moment. Of course, the Midland Bank in the late 50s was quite an innovator. It figured out that there were a lot of dollars that had appeared in offshore banks. And actually, post the Marshall Plan and post World War Two, these were physical dollars that were appearing in branches everywhere. And these got called Euro dollars because they were used to rebuild Europe. The thing that the Midland Bank figured out was that interest rates in the United States at the time were capped at, I believe, 2% but the Bank of England at the time was paying 4% so what they said was, well, you store your dollars here in London and we'll pay you 4% and right there you had a little bit of arbitrage. London playing to its strengths, the UK playing to its strengths on the global stage. And I don't think you can quote, unquote, compete with the dollar. That's not the role here, but you can do things that play to your own strengths, like you would as any team in any team sport. And there was another piece of this story that I thought was quite interesting, which was the chancellor, Rachel Reeves, so our equivalent to Scott Besant, the Secretary treasury, saying they intend to drive forward developments including tokenized securities and stable coins and a digital gilt instrument. So this would be like the direct issuance from the Fed of treasuries by that central bank or by the government itself. That could be very, very interesting, because you're sort of not buying it from a money market fund, you're issuing it directly. But this is one of those that's been talked about for two to three years, and where is it? And I think the momentum and the speed here is just entirely missing. We've just seen the new US administration pass brand new legislation from getting elected within six months, and that pace of change, I think, is something we've really got to embrace. It is a fascinating time for the UK at the moment, though, because it finds itself outside of Europe, potentially with more optionality. Kai, are you seeing in your world that this is really an international story rather than a domestic US story? Or do you think we're going to see post genius more of a domestic US story as well?
Cuy Sheffield 43:05
Yeah, I've said many times that we think that the biggest opportunity for stable coins is outside the United States. We're continuing to see more and more demand across emerging markets, but we're also as we talk to banks in those markets, as we talk to large technology providers and digital wallets, they are wary of $1 stable coin only strategy, because they recognize this pushback, where, if it's only the dollar that's on chain, and then local currencies are running off in many ways inferior technology stacks, it's harder to make that case to a central bank or government, we're going to embrace dollar stable coins, and that's going to be the only kind of new innovation that we're doing. I think in many markets, it's more attractive to say, how do we have a strategy that combines embracing dollar stable coins with a path to a local currency issued stable coin, and then how could they interact together? And so I think we're going to see more and more of this push towards there are different use cases. But if we want to have a global payments ecosystem on chain, we need more than the dollar. And I think there are opportunities for both large banks as well as large technology providers in emerging markets to be the issuers of these non dollar stable coins that can then interact with the dollars that they integrate. So I think that's going to be one of the most interesting things to see over the
Sy Taylor 44:27
next year. It's certainly been the case that on chain FX has been a very hot topic lately. Tony,
Speaker 1 44:33
I was just going to be so bold as to try to broker a trade deal between the US and the UK, which would be in both of our interests, and that deal would be, we have this special relationship. So what we will do for our American friends is we'll open up our entire financial system to receive dollar stable coins into any financial institution in the UK, any FinTech in the UK, and you do the same for us. So you accept our stable. Coins, we'll make FX. We will help you diversify demand for government debt. You accept our stablecoins, and we get the same benefits. And Andy's GBP stablecoin accepted into an American bank is fx for an American bank, so they will be very happy to accept it. So I humbly submit that a good trade deal also includes reciprocal acceptance of each other's stablecoins, and I see that
Sy Taylor 45:26
happening. What a great suggestion. Andy, any final thoughts on the story on
Speaker 2 45:31
the back of Tony's comments, I think that demand is there.
Sy Taylor 45:34
It's interesting, when you are talking to people who are talking to institutions, how different the perception is than when you are speaking to people who are not talking to institutions. So fascinating one to watch. I want to thank everybody so much for listening Tony. Where can people find out more about you and more about ubix?
Speaker 1 45:56
If anyone's on LinkedIn, they're probably getting spammed by me every single day. So by all means, connect to me on LinkedIn if you want to get spammed.
Cuy Sheffield 46:04
Yeah, I was just gonna give you a shout out of Tony's LinkedIn game is on another level. Like, normally, I spend time on x, but I don't know whether what AI tools you're using Tony, but like, the full feature length video commercials in the comic books with stable coin superheroes. Like, yeah, he's a good follow on LinkedIn, highly recommend.
Sy Taylor 46:23
We all for institutions, so we gotta recommend LinkedIn. After all, it's not forecaster over here. We're a different kind of podcast. What can I say? Andy, how about you?
Speaker 2 46:33
Yeah, unfortunately, my LinkedIn game's not as strong, but I'm working on it, yeah. On LinkedIn, Andrew McKenzie, and also on Twitter. Andy, underscore again, and
Cuy Sheffield 46:41
Kai, I can't help but I still spend more time on x at Kai Sheffield and visa.com/crypto so I respect the LinkedIn game. I got to step it up. X still feels more like home.
Sy Taylor 46:52
X, s, y, Taylor, LinkedIn, Simon Taylor, I'm trying to follow in Tony's footsteps, one spammy message at a time. I'm that guy, too, and you'll also find me at FinTech, brain food.com, if you haven't already subscribed, please hit the subscribe button on Apple. Spotify. If you're on YouTube, hit the like button and subscribe as well. Do all the things that help us grow this show and keep getting some incredible guests. Thank you so much, and We'll catch you next time.