On Ep. 43 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Kevin Chan, Co-Founder @ Grove Labs to discuss the Grove Labs and Avalanche partnership for on-chain credit, impact of regulatory clarity on financial institutions and more!
On Ep. 43 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Kevin Chan, Co-Founder @ Grove Labs to discuss the Grove Labs and Avalanche partnership for on-chain credit, impact of regulatory clarity on financial institutions and more!
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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.
This podcast is also presented by BVNK.
BVNK is the leading provider of stablecoin payments infrastructure—helping businesses move money faster, settle globally, and even launch their own stablecoin products. Head to BVNK.com to learn more!
This podcast is also supported by Canton Network.
The groundbreaking Layer 1 public chain where traditional finance and crypto are converging. Visit canton.network to learn more.
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We’d also like to remind you that the views or opinions of our contributors today are their own and do not necessarily reflect those of the companies they are representing. Nothing we say should be taken as tax, financial, investment or legal advice, do your own research!
Music by Henry McLean
Unknown Speaker 00:00
Simon
Sy Taylor 00:10
Taylor, welcome to tokenized. The show focused on stable coins and the institutional adoption of real world assets. My name is Simon Taylor. I'm your host for today, author at FinTech brain food and head of strategy over at sardine joining me, as always, is my friend Kai Sheffield, head of crypto visa. Kai, how you doing? My friend?
Speaker 1 00:30
I'm fantastic. We've got a lot to cover. Let's get into it.
Sy Taylor 00:34
All right. Our guests for today, we're excited to be joined by Kevin Chan, who's co founder of Grove labs. Thank you so much for being with us. Kevin, how us. Kevin, how you doing great.
Speaker 1 00:44
Great. It's been an electric week so far. So excited to be talking about some interesting topics today.
Sy Taylor 00:49
Yeah, there's a lot of news stories, and you had some of your own news recently. Why don't you tell everybody what that
Cuy Sheffield 00:54
was? Certainly, yeah. Think the news that you're referring to is groves recent announcement of a partnership on avalanche targeting a two 50 million RWA allocation with avalanche. For those who are unfamiliar with Grove, Grove is an institutional defi platform focused on on chain credit, and we're starting with this strategy on avalanche, which is a perfect partner in this case, because really the goal here is, how can we bridge the gap between defi and institutions? And as you know, avalanche has many institutional partners that we at Grove have been speaking to or looking to speak with, and are excited to engage with. So this is just the starting point for what we expect to be a long and fruitful partnership.
Sy Taylor 01:40
Yeah, congratulations for getting that news out.
Cuy Sheffield 01:43
Yeah, so I'd love to better understand this. How does this play out to an end customer? Like, who is borrowing? It sounds like you're lending, what type of collateral? Like, break it down, like, how this will benefit the end customer? Definitely. We're kind of starting at the very early end of this journey, right today, and we're still very early on. So this allocation is mainly focused on the underlying being triple A Clos, those managed by Janice Henderson, a large, traditional Hall institution with a big business. I think they run about 21 billion plus in their J AAA, ETF product. And these AAA Clos is sort of the earliest extension of credit from defi to traditional institutions via these clo instruments. However, the intention is to continue to push that frontier forward right and bring more of these credit assets on chain natively. Today, I think Grove is still relying on many of the traditional originators and institutions to provide that asset and will source it through partners like avalanche on chain. But as we see this evolve, the goal is to continue to move down the spectrum towards origination, where the assets originate on chain natively and grow again, being the primary kind of lender in this case, can allocate accordingly. It's
Sy Taylor 03:08
fascinating. How much is going on chain native finance really does feel like it's going that way, and we're gonna have a lot more stories on that this week. Okay. Thank you, Kevin. Two things before we get into the regular news, we are doing our first ever live tokenized 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 if you're listening to this or you're watching on YouTube. Thank you so much. And of course, I do need to remind everybody that views and opinions of contributors today are their own and might not reflect the company they represent. Please, please don't take anything we say as tax, legal, financial advice or any other form of advice. It's not fashion or nutrition advice either. This podcast is sponsored by our friends at bvnk, and if you've been listening to this podcast, you've probably heard us say every business needs a stable COIN strategy, and if you're looking for the best place to start, that's bvnk. Bvnk is the leading provider of stable coin payments infrastructure, helping businesses move money faster, settle globally and even launch their own stable coin products, all with licensing and compliance. So you can build with confidence. We're proud to partner with bvnk on tokenized. To learn more, visit bvnk.com alrighty from everywhere. This week, we could have covered any publication. The biggest story I saw was the SEC unveiling project crypto. So the speech by chair Paul Atkins, announced quite a lot of things. So I'm gonna try and unpack it. I thought it was really good. Of the friend of the show dragonflies. Haseeb gave us a really good overview on Twitter. He says that it. Finds nearly all tokens as not being securities. It defines the discouraging of decentralization what hazeb calls kabuki theater. They want to bring more of these kind of platforms onshore and really onshore the on chain finance world, and ensure that Americans are not blocked by IPs or VPNs for participating in on Chain Finance. They're going to make explicit exemptions for ICOs and air drops and other kinds of kind of token launches, and they're going to also have a grace period so they've asked that people will report and give reports to the SEC if they're doing something along these lines, and if you're relatively small, you will be able to have those conversations without expecting anything from going wrong. They also carve out software engineers where there's no centralized entity. So you as a defi protocol, for instance, that don't have a centralized entity could be onshore. You could be a developer purely of software, and that would be fine. And then, last but not least, they talk about streamlining license requirements so that if you are issuing something that is a security, you actually have a path to getting that license, and that you can have a sensible conversation about that. So Kai, I want to come to you first on this, primarily because I want to get your gut reaction when you saw this news. Certainly, we talk a lot about stable coins on the show, but there was always this question of, is it a security? Is it a commodity? What does this mean from your perspective, in your day job and in what you're seeing and hearing in the industry?
Cuy Sheffield 06:40
Yeah. Yeah. So I think first, the reaction to this was really overwhelmingly enthusiastic. And I feel like the crypto industry, at least the people I've talked to, they couldn't have really asked for anything better in terms of ticking every box that the industry has been talking about for years now. And I think it's really interesting to look at, there's both the side of this that is, how do you make crypto assets themselves more clearly delineated and have clarity around what they are? Is it a security? Is it a commodity? Is it a collectible? And that has been the age old question, and how many debates there have been around the Howey Test and people struggling to decide and determine what an asset is. And so I think you got really a commitment to creating clear rules around that, and then you got the encouragement of tokenized securities and commitment to have a clear pathway to bring traditional assets on chain. And so I think being able to cover both of those sides. And I think the overall speech and the language around it, it's so clear that the SEC has a very deep understanding of the technology, of what the industry cares about, and has really been engaging and listening to the industry. So I think that there's a lot of excitement, and people couldn't have really asked for much more. And then I think the last thing that stood out was, I never thought we would hear the SEC say that self custody is reaffirmed as a core American value. Like, if you would have said that a few years ago, like we've talked to institutions have said, Okay, what is self custody? How does this work? Is this gonna be a thing? Like, is this gonna be allowed? And now you have the chairman of the SEC actually talking about self custody in that light like I think it's pretty incredible. If you take a few years ago and say this speech happens in 2025 most people in the industry probably wouldn't believe you. Yeah, my thoughts coming mainly from a builder. Totally agree with Kai on the sentiment and it being incredibly positive news. Speaking from kind of the CTOs perspective at grow up labs, I would generally want to highlight three things. First, from a builder's perspective, this is just reinvigorating the talent base within the US to participate and engage in these projects. Again. Certainly, we're hiring pretty aggressively right now, and I'm seeing colleagues. I'm seeing talented engineers again, re engage the industry like they haven't before, with this kind of public sentiment and clarity. Second of all, from a product building perspective, a lot of the times, a lot of the issues associated with experiences in engaging web three products or crypto projects is due to this lack of regulatory clarity, and therefore having to build these janky workarounds, and really, I think user experience degrading features and functionality. I've certainly dealt with a fair share of requests from legal teams and the business side as well, and we're seeing a lot of that UX be improved with this additional clarity. And then the last point is, from my perspective, that outside of the industry, looking in, I keep joking, like, I'm happy to bring up what I do now at the dinner table, at like, Thanksgiving, or like, you know, at a family dinner. That's the kind of public perception of what we're building, the progress that. We're working on that's also shifting. And I think it's helpful to have the weight of the SEC and the weight of these regulatory bodies provide this guidance and provide airtime for these subject matters.
Sy Taylor 10:11
I think that optics thing is huge for regulated financial institutions. And I think about institutions as being they could be crypto native on chain native, and just really big, but also traditional financial institutions. There was a lot of music from regulators, which was stay away from this stuff for a long time, and explicit that you couldn't custody these assets. And one of the things mentioned here is very much an intent for you to be able to custody those assets on your balance sheet and kind of really work with them directly. I think that's fascinating in how it changes the calculation of where these big financial institutions can really come into the market and make a difference, and also where the industry is happening, because let's not forget, on Chain Finance was happening anyway. Like, binance was still big. There was a lot of stuff happening offshore. He needed a lot of lawyers. It was all pushed to the last mile, but it was still happening. So the genie didn't go quietly, back into the bottle. On Chain Finance is here to stay. The question is, do you try and keep smooshing it down and then it's like a pin cushion and it keeps popping back up. Or do you go the other extreme, which is give it a really clean, regulated framework for everybody to operate in, and then you get to see it in the full white light of transparency? So I think that's gonna be interesting to watch, and it's potentially gonna open up a lot of new innovation when people can start to do that. I always get excited by projects like yours, Kevin, where people are thinking differently about where lending fits into the ecosystem, where it goes kind of on chain. Give me some thoughts of like, use cases that become available with on chain lending that maybe are a little bit harder to do when you're when you're thinking Trad fight.
Cuy Sheffield 11:57
I think collateral perfection is one of the major again experience benefits and kind of superpowers of when we talk about lending on chain, right, especially when we have truly native on chain collateral, you see time and time again that these defi platforms handle the ability to liquidate or conduct perfection of this collateral on chain In a much better way than the kind of clunky nature that it's handled in off chain finance. So that's a huge area for a focus on the growth side.
Sy Taylor 12:29
Could you just give me an example of the clunky nature, though? I think it'd be really helpful for people that have not dealt with dealing with collateral in their day to day lives. Just kind of really double click on that for me, that'd be really helpful.
Cuy Sheffield 12:42
Yeah, let's just talk about it from like, a time bound perspective. So the sky ecosystem, which Grove is a part of, is one of the major, largest lenders to Bitcoin backed loans on Coinbase. And we're seeing time and time again how this lending relationship tune up, like 500 million plus is enabling users on Coinbase to get liquidity in the form of USDC against their Bitcoin assets. And this is a high level of guarantee, a high level of a very secure collateral to lend against. And as Sky is making huge allocation to these types of collateral, one of the interesting trends I've kept seeing on the Twitter sphere is like, Oh, I'm starting to view the next generation of assets that you can get a mortgage off of like the previous generation was off of like homes and home financing, which, if you compare like the collateral there, which is the house, even though it's at very high quality collateral, And you can't move it the process of, if you default on your mortgage, seizing that collateral, going through legal procedures that takes days. Whereas, if you compare that with someone similarly getting a Bitcoin back loan, that Bitcoin gets immediately liquidated on chain, programmatically, instantaneously, without any kind of third party involvement, no fee takers, right? No kind of intermediaries. And I think that experience is just as you kindly noted, much better. So we've talked for years about this idea of like the defi mullet, with FinTech in the front and defi in the back. And I feel like it was an idea that people had for a long time. If you're a traditional FinTech, it was very hard to say, Okay, we're going to provide our consumers with access to a protocol where they're going to deposit stable coins into that protocol that is this permissionless, decentralized network that's governed by smart contracts that's then going to provide yield. But like, there's just really, really hard to explain. What are the regulatory implications of that? You know, are defi platforms? Are they brokers? Do they need to be registered in some way like and so it feels like, if you have more clarity around what has to be registered with the SEC, what is a broker? What is a non intermediated financial service that could not have to be registered, not have to be regulated, which it was clear in the speech, there's a recognition that there can be decentralized financial protocols and services that do not have this point of intermediation that shouldn't fit into how traditional intermediaries are regulated. So I think if you get that clarity, it'll be interesting to see. Do other fintechs follow this path. But Coinbase has gone down, and I think Coinbase is borrowing product has been very successful. On the other side of that, you have lending products where, if you imagine that we're in a world where more and more consumers end up with a stable coin, even if the stable coin itself doesn't pay yield, if there are a bunch of protocols that have clarity around how you interact with them, and those protocols pay yield, and so you could see this flywheel START to begin, where you could have real innovation in lending and borrowing powered by defi if you get the regulatory clarity
Sy Taylor 15:59
around that. Well, to that effect, I think about somebody like a Robin Hood, if they were going to do that today, they need about four or five different licenses. And chances are probably somebody like a Robin Hood already has that. But if you are not as deep into capital markets as a Robin Hood, maybe you're a chime, a Varro, a new banker, somebody else, then do you want to get four or five licenses from the SEC to do a different type of lending or borrowing product that's extremely complex. And then what's all the paperwork that sits around that actually, to have this one, I've got a streamlined process so I can walk through the door and I'm going to get somebody to speak to, and it's there's one clear license for it. They've also talked about the chair. Paul Atkins talked about a Super App style license. So if you are doing multiple things right now in the United States, if you want to move money, you might get money transmitter licenses. You might be regulated by FinCEN. But as a bank, you are at the top level, you're opted into all of the things. And if you're a bank, you don't need to go state by state and get money transmitter licenses. The SEC is talking about doing something similar here, which is, if you're doing crypto commodities, crypto securities, collectibles, on chain, lending, staking, why don't we just make one license for all of that? And it'll still be a really high bar. You still need to manage all of your risks, but we can really simplify it, and I think that's an innovation kind of unlock that wasn't there before. And as a result, a lot more FinTech companies outside of the crypto NASes, outside of the coinbases, will start looking at this as Wait, what are the new products I can build? I also saw that the day after, I think Hester Pierce announced that they're going to allow liquid staking, like, that's going to be completely available, and there was always this question of, like, is staking a security or not? And they said, No, it's not on you go. And a lot of people hold Ethereum, they hold other things, but they've been held back from sort of monetizing that or generating yield from it, so we have more yield generating opportunities available to consumers off the back of stable coins. We have more potential financial products that can be built. We can automate the workflows around those because they're on chain native. I don't need to create new software for everything the on chain software handles a lot of that, and I have regulatory clarity. It's gonna be fascinating to watch the next sort of six months ago, Kevin, anything we mentioned. Trigger any thoughts for
Cuy Sheffield 18:26
you, the Super App sentiment. Just adding on, I totally agree. We're starting to see an ecosystem of wallet providers exchanges provide that kind of super app experience. And I would highlight that the inherent power of these blockchain native systems is the modularity in building the building blocks and enabling the building blocks to go into these super apps, right? So we're seeing a lot of large institutions start to partner with these sort of more like defi native primitives, whether it's like a Morpho for borrowing lending purposes, whether it's a vault type infrastructure for creating earn like products, these all get kind of stacked together into a super app. And I think that's a beautiful experience, because you have highly tailored, specialized protocols building the best experience possible.
Sy Taylor 19:14
Do you know if, historically, if I don't know, chime built something, then SoFi couldn't use that thing, but on chain protocols are, you know, if are they build something, then there's nothing stopping you or I from being able to kind of bring that into our own product. And that's going to accelerate your innovation timelines as well. Kai, I wonder if there's anything from the financial institution side that stood out to you from this, like, what do you think that they'll be thinking and saying about this? Yeah,
Cuy Sheffield 19:41
it's an interesting question of, what does this mean for traditional banks? If you have defi get regulatory clarity and get more adoption. On one hand, you could argue it's going to significantly increase competition, because it's going to enable fintechs and non banks to be able to offer more. Types of lending and borrowing products that might meet consumers and merchant needs that banks might not be meeting today. And so it may be one of those things where it starts on the edges. You have someone who might not have a great credit score, but they've got a little bit of Bitcoin, they can use that Bitcoin as collateral be able to borrow against it. And then the cost in resources to set up a Bitcoin collateralized lending product are going to get lower and lower. If it's just an integration with Morpho, and you don't have to go out and source your own credit facility, you don't have to go and get registered to do that. So I think that we'll see a lot more competition. I think the really interesting opportunity for banks is trying to figure out how to participate. In that ecosystem, and I think that they could approach it from both sides. One is, it seems like what banks really have done well historically, is customer acquisition. They have branches, they have relationships with consumers, and I would imagine that there are a lot of consumers who might actually have demand to borrow, but for a number of reasons, banks might not be willing to lend to them, whether it's based upon their own balance sheet, whether it's level of risk. And so I could see a world where banks could build almost like lead generation businesses, where they own the relationship with the consumer, if they can find demand for a consumer to borrow, and then they could match that consumer with a third party lender. And I think we've seen banks start to do this, partnering with private credit funds in bilateral relationships. Now you could have banks basically send their customers into a pool, almost like an open source lending RFQ, that then has many different lenders on the other side. And banks could still participate in that. They could still get a cut of it without the bank lending directly to the consumer. And then I think you have the other side to say, All right, you could have new types of more FinTech focused banks. They don't have a lot of customers today, but they could specialize in how to underwrite, leverage the balance sheets that they have to go out and lend. But instead of having to acquire the customer, they come into these protocols and they provide capital to them. And so if I was running crypto at a bank right now, I would probably be spending 80% plus of my time on defi and on Chain Finance, I think is one of the most impactful areas that like, there's a big opportunity, if you figure it out, and there's a risk, if you recognize that there's just gonna be more and more competition from fintechs that are gonna offer more and more advanced lending products. If you don't get into the space
Sy Taylor 22:28
100% I'm sitting here in London, and you think about the amount of financial institutions that are now more concerned, like about somebody like a Revolut, they ship incredibly quickly, and they're gonna try some of this stuff. So you don't want to be flat footed. You may have a different customer base. You may have a different trust relationship with that customer base. So you definitely should leverage your brand and go at your own pace. But don't ignore this stuff. I think that's completely right. Kai, all right, we are just going to take a quick pause here whilst we hear from our sponsors, and we'll be right back this episode, if it's not obvious, is 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 back 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. This episode is brought to you by Canton network. Ever wonder where real tokenized asset volume is going Canton network, the groundbreaking layer one public chain where traditional finance and crypto are starting to converge. Why? Because Canton is the only public network with privacy, no workarounds, no compromises. This is 24/7 markets on demand, financing with real yield, where value moves as freely as information on the internet. This isn't just another blockchain, no, this is where the serious money is flowing to solve real market demand and risk. Visit Canton dot network to learn more. Okay. Thank you very much to our sponsors. The next story comes from remitly, who are using stable coins for, you guessed it, cross border payments. So remitly, with their 5 million user base, they're gonna be adding stable coins in September of this year. They're also gonna launch remitly wallet, a secure multi currency store of value for Fiat and stable coins all in one place, and all of this is being powered by bridge and the stripe folks. So Kevin, your thoughts on traditional remittance firms like remitly moving into this space?
Cuy Sheffield 24:56
Yeah, I think it's a natural place for bridge and. And the acquisition by stripe to find an early product market fit the lessons that we learned building within the sky ecosystem, which its product is USDS is the large early adoption came from foreign markets like non US foreign markets, because the value proposition was just so much higher. And I think in bridges case, it's a smart move, because obviously cross border payments is extremely painful, and there's just a lot of value to be squeezed there. And we're starting to see, you know, how this stripe acquisition of bridge is starting to manifest, and it makes a lot of sense to me. I think we've talked about this as a major theme on the show over the past few months, where basically every remittance company is now aggressively moving into the stable coin space. And so we've seen news from Western Union, from MoneyGram now vermility. And everyone who's in this space is likely, if they haven't already announced like they're very active. And I think the initial reaction that a lot of people, particularly in the crypto ecosystem, have on the surface is to think, oh, stable coins are gonna disrupt existing remittance providers, and the blockchain fees are much cheaper than the fees if you're going to MoneyGram and and they've kind of been the target of a lot of the people building around stable coins as that first Oh, this is a better way to do remittance. I would actually take the other side of that and say, I think you could argue that stable coins are a massive opportunity for remittance companies, because it lets them really be able to expand their value proposition and product offering on the receive side. And a lot of these companies haven't been able to really monetize and build downstream relationships of other products. Once money is received, they've focused on they acquire the sender. Someone sends a remittance, and then the recipient might walk into a location and pick it up and leave, and that's it. And so they charge the fee to the sender, the recipient benefits. But there's no ongoing relationship, and other way to monetize that recipient downstream? I think what you could do now is say you already have this flow going in of people receiving funds. How do you then get them to instead of just walking in, get physical cash and walk out, say, You know what? You can receive those funds as a stable coin and a wallet. So download our wallet now that you have that wallet. Well, what if there's a card connected to that wallet? What if you could have other lending products connected to that connected to that wallet? And so I think you could see a world where, if remittance companies execute, they could basically become global Neo banks for many of these emerging markets, where we see the most demand for stablecoins. So I think that there's a big opportunity on the receive side. I think the risk is if the send side has a significant shift in behavior. If the send side, a migrant worker in the US is habituated to kind of walk into Western Union or MoneyGram or drop off cash, and that doesn't change, but the recipient side now has a more advanced Neo bank app to do a lot of things to those funds. I think that's a big opportunity, and that's probably a net benefit for these companies. I think the risk is, if the send side is now downloading Coinbase, and they're taking USDC, and they're just sending it directly to the recipient side of both sides of the transaction being stablecoin native, then that's more of a risk. But I think in the near term, you're going to see some of these companies execute and find new business models, new lines on the receive side of the business. I
Sy Taylor 28:26
think it also speaks to the crucial role companies like bridge and BB and K and others are playing in this ecosystem, kind of unlocking a lot of these companies, taking some of that on chain complexity away, and just helping them, helping them execute. I wonder if the expansion is then into everything you just talked about Kai, which is okay, now you've got the flow going out, you've got the payouts, but what does the recipient get, and what's the proposition you get? So Bridge and bvnk and conduit and others start working with a Kevin and Grove and centrifuge and all of those sorts of folks to start packaging some of the on chain native capabilities to the last mile. And you start thinking about on chain finances as growing the TAM of Neo banking, of remitly companies, of the product extension that you could start to do. I really think you're onto something with that. Kai, I think it's not the mainstream conversation, and it kind of should be, it's the logical consequence, because these companies have distribution, they've got the distribution already, and even if Coinbase or somebody else starts to eat into it, it would more likely be local players, then they've still got a time window to execute with it. But there's nothing stopping local players from launching a mobile app that plugs into on Chain Finance, and then very quickly, all I need is a wallet address to send it for near zero cost. And if the person receiving the money says, Please do that to their sender in the g20 that's very, very doable. So I think there's a limited window to make make them. Most of that, that distribution Kevin, anything else on this remitly story that stood out to
Cuy Sheffield 30:04
you? No, I would just add that is a very thought provoking point from Kai basically today, that distribution channel, from an on ramping perspective, is largely through these major exchanges, which have a lot of additional complexity that perhaps a user who just wants to transmit funds from one country to another don't necessarily need to access. There's a lot more markets. So the remittance companies with this more narrow mandate and a better distribution channel to existing users, can onboard users that the crypto industry hasn't captured in the past, and then, as you pointed out, plug them into a growing ecosystem of other on chain protocols and platforms. I think it's a good before and after, like before stable coins after stable coins exercise here, because you could say, All right, if you're a remittance provider, you haven't really had a huge business on the receive side. What if you wanted to say, you know, we're gonna build a global Neo bank that is going to monetize and offer a full suite of financial services to every recipient. And when someone walks in to try and pick up and collect cash, we're gonna try and upsell them on actually download this app and it's gonna be a global, full featured Neo bank. And that's gonna work at 100 countries, pre stable coins. How much would it cost to build that? What licensing would you need? What bank would you work with? Could it be dollar denominated in every market like that's a pretty difficult proposition to build and scale in a traditional web, two FinTech world across 50 plus countries, that requires you gotta go out and raise a billion dollars. You gotta become a revolute. You gotta go and get local licenses in all these markets. And so that's not something that most remittance companies would be well positioned or able to execute. Now, if you say, you go partner with bridge, you go partner with PV and K. You leverage their APIs, you leverage third party licenses. You can even have the wallet be self custodial. You then plug in defi infrastructure. It feels like the cost and speed to roll out and scale a global Neo bank is just dramatically dropping, and I think that's a really big deal, because there are many businesses who they've got the distribution, but they couldn't necessarily make the investment beforehand to convert that distribution to a full featured financial product, and now they can, because it got so much cheaper to actually build and operate.
Sy Taylor 32:36
There's one more detail here that I want to kind of bring in, which is thinking about stable coins as cash from a regulatory standpoint, because a lot of people don't consider them cash. They consider them like E money or electronic money, or like along those things. And to your point about licensing, if I was looking at it as not cash, I'd be thinking, Well, I'm gonna go into 100 countries. That's going to cost how much, and it's going to take how long, but there's something in the SEC recent statements, which was considering stable coins as cash equivalents, and from a balance sheet perspective, that is an unbelievable unlock. Rather than recording as a liability, you could record it as cash. It goes from being a liability on your balance sheet to being cash. It is now an asset that's huge from an accounting standpoint, number one, but number two, it changes your regulatory default. It is perfectly legal and allowed for most citizens, most of them in most of the world, to go to the United States, open a bank account, if they generate income, they can collect $1,000 up to $10,000 pop that into a suitcase, get on a flight, travel somewhere else in the world, and use that cash as they see fit, maybe transfer it, maybe try and spend it, because dollars are accepted everywhere that is allowed. That's how we treat cash today. And on the previous episode, we had Tony McLaughlin talking about travelers checks. That was the paper version of cash. It was just you took that thing around and it was accepted everywhere. Stable coins are cash, and that is just not really talked about and understood as an unlock for what that allows me to do from distribution. And I think if you start thinking about them that way, well it's going to get very interesting indeed. We've talked a lot here about the consumer use case, but the next story, wow. I did not see this one coming. So ripple have acquired a company called rail pay for $200 million so rail was one of the largest players in stablecoin for cross border in business to business payments. I think they say that there's more than $3.6 billion of B to B payments moving through their pipes annually and growing very, very rapidly. It seems like B to B is this major theme in stablecoins. Artemis report from a couple of months ago talked to B to B as being one of the fastest growing sort of cross border payment types. So people see stable coins, they assume consumer but Kai, I'm interested in your perspectives here. B to B has always been a bit of a difficult one. Is this more in the like swift territory than in the consumer territory. And what are your reactions to this announcement?
Cuy Sheffield 35:25
The first thing that comes to mind with this announcement is it seems like there's this broader trend of the convergence of stablecoin issuance and orchestration, where we've seen circle started as a stablecoin issuer with USCC, now they have the circle payment network, and so they're getting more into orchestration. Bridge started as an orchestration provider. Now there's usdb. Bridges starting to issue stable grids. Ripple, you could argue, started in a way orchestration, but with XRP trying to get that adopted as a bridge currency, I'd argue that it hasn't really seen much adoption there. Then they moved on to stablecoin issuance. Now you have RL, USD, and then now they're going into orchestration, specifically with stablecoins. And so it feels like there will be more companies that do both issuance and orchestration. And I think the question becomes like, which is it the value is being the issuer, and orchestration is just how you try and drive more adoption of the stable coin that you issue. Or is it the value is orchestration and issuance is kind of one piece that helps you better monetize your like. How these two fit together? I think is going to be a really interesting question. And then, what does it mean for the neutrality of if you're going and trying to decide which orchestration provider to buy from, are you making a decision of what if you want an orchestration provider but you want to use another stable coin that is issued by a third party? Are they going to be steering you towards their stable coin? Are there going to be economic incentives if you use their stable coin inside their orchestration platform? So I think that's the big thing to look for, of how orchestration and issuance plays together, what the economic models are between them. And so it's, I think it's very logical approach from ripple as part of their strategy to scale. RL, USD, in and rail is clearly one of the orchestration providers that is in the mix there. But Kevin, curious, your your thoughts on it? I totally agree. I feel like the differentiation, the angle of attack for differentiating your stable coin platform, is on that orchestration layer. And how do you kind of pitch yourself to potential partners? We're in conversations with a lot of the stable coin issuers, and I think the general ingredients is the issuance side is becoming more commoditized. And so how do you differentiate yourself, and how do you slice and dice? I think the various components of the stable coin market at large, each player is starting to orient their particular stable coin product and the experience around it towards a specific user set and user behavior pattern, and that happens on the orchestration layer, right? So circle and tether being by far the largest in terms of on chain, public on chain trading activity today. I think that makes a lot of sense. Ripple going for the business B to B use case. I think that is a growing market, especially with the additional clarity with the genius bill and et cetera. And even smaller stable coin platforms are taking a more niche market approach, right going for either certain foreign cross border remittances or other types of smaller markets. And that all happens again on the orchestration
Sy Taylor 38:35
layer. In my opinion, it's really interesting how much capacity the orchestration SLAs have to direct customers in this market right now, because a lot of what the buyers are saying is like, I don't know what I'm doing here. Take care of everything. For me, they're looking for orchestration. But if you wind the clock forward five years down the road, is the industry going to be a lot more used to this stuff? I think about payment acceptance orchestration, has been as a separate category, something that's done okay, but not nearly as well as the payments processors themselves or the banks and the financial institutions, the acquiring banks and the processors do a lot better than some of the gateways and some of the more top layer specialist tools in orchestration and then on the opposite side, I think about card issuing, you have, again, the banks do really well out of card issuing. They're probably one of the main beneficiaries of the revenue model. Again, issuer processes do quite well. We had a bunch of orchestrators that did okay. But the banking is a service space. I don't know, that that set the world on fire in a way that some other things have. And what you see is that, certainly on the payment acceptance side, these things are verticalizing. So stripe will do orchestration for payments, but they'll also do a lot of your payment processing, and now they've got a specialized sort of charter for being an acquiring bank. Bank similar for a gin. And then on the issuing side, similar sort of thing, where the issuer processes are adding orchestration, the orchestrators are trying to move down and add it. So surely we see the same play out on the kind of stable coin side, which, if people will want to go vertical and they'll want to do more of the stack. But the problem with that is, to Kai's point, the incentive problem of like, well, is that the best for my customers? And I think that's going to be an it depends question, because depending on who the buyer is, somebody just wants you to take care of already make the pain go away. I think about the ideal stripe customer as somebody who wants the pain of payments to go away, and I don't mind giving up some payments margin to make that happen, because you're going to do a million little things and deal with all of the fact that payments are broken. And I just don't want to deal with it. I just want to say payments on the internet. I want it to just work, versus like a move customer, or a rain forest customer, or some of those newer acceptance companies that are out there in the payments world. Now, I want to tweak this dial on. I want to make this happen. And I've got this very particular use case, and somebody like a stripe, I'd have to work quite hard to get that out of it. This is just really modular and developer friendly. So how far down the stack are people going to go and does defi and the modularity of being on chain, remove some of the moats that you would have had as an orchestrator over time. I don't know what your thoughts are.
Cuy Sheffield 41:28
Yeah, I think that's an interesting question. The first place I was going is it feels like the value of orchestration is going to be somewhat dependent upon how many stable coins exist at scale, and if there are, like 100 stable coins that are widely used, and if you have some that have more liquidity in certain markets than in others, and and there actually becomes this, like real routing problem of which stable coin to use for which flow like, that's where orchestration becomes really valuable. If you end up in a market that actually looks more like today, where you have two or three major stable coins and you might have one that has better FX across most corridors, then how much do you need a like multi stable coin orchestration? I think the other piece is how many different blockchains exist, because I think orchestration is both multi stable coin and multi chain. So again, if you have a lot of blockchains and a lot of stable coins, orchestration becomes important. If you only have a few stable coins running on one or two blockchains, it's not as important. And then I think the other piece is what impact does on chain FX and the ability to swap stable coins on chain have because if you have these open protocols, and it's super easy to move between any stable coin and any other stable coin, then perhaps the cost and value of having centralized providers that are doing that in a licensed way gets lower. If everyone could just plug into public infrastructure that converts one stable coin to another. And we haven't really seen that outside of defi. I'd say you have curve. You have some of these other products that are very much stable coin to stable coin that serve traders. I'm interested if that model comes in more into payments, where it's more protocol based than licensed payment orchestration provider based. But Kevin, how do you think about that, like stable to stable swap? Yeah, that's actually a product area that is huge, key focus on the growth side, particularly because a lot of these new issuers, a lot of these stable coin platforms, part of the experience of using their product is where's liquidity being sourced from. Can I guarantee the depth of liquidity for use case or the purpose that I'm using this stable coin for and that has tremendous value for the user, and it's an incredible product dimension that many of these stable coin platforms are competing on. So we're in conversations with many of these issuers in how can we solve that problem for them? How can we ensure that there's depth of liquidity across exchanges between multiple pairs or multiple different stable coins at once. We'll have a little bit more to announce there on that front, but it's our view that you're starting to see a lot of differentiation occur. You'll have a multi stable coin model, and one of the problems that exists in that world is, how do you solve for liquidity?
Sy Taylor 44:17
No, it's gonna be fascinating to watch this. A lot of companies emerging trying to do on chain FX. I think about open FX. I think about stable. See, there's another one, checker finance. There's that really help connect some of the liquidity gaps that are occurring, and they help with connectivity into a lot of the market makers and into a lot of the financial institutions. There's a whole ecosystem popping up to try and fix some of those liquidity gaps. And it seems like every other day the Oprah meme of you get a stable coin, you get a stable coin. Everybody wants to launch their own so that they can get the yield, but they're gonna have that liquidity issue. And I wonder if the US dollar world starts to play out like the FX wall. Does today, in which you've got this power law distribution of the major stable coins, and then you've got these minor ones, where people have their little closed loops, the Starbucks coin, the Mercado Libre coin, inside that closed loop that would transact quite happily as a loyalty stable coin type of thing. But outside of that closed loop, you need this really clean, really consistent, ultra low cost, ultra instant way of transacting that what you don't want to have to do is rebuild the FX market for FX between the dollar and the dollar, because there's low liquidity in different types of dollar. You want singleness of that, and that should feel kind of instant. So I'm with Kai here. I think that power laws will play out for most of the market most of the time, but we've also seen closed loops work sometimes, where you have enough distribution and so how you make that world compatible without having to work with an orchestrator of an orchestrator of an orchestrator to make 15 different partnerships. And the industry's slowly starting to solve those problems. Before we leave this story and close out, I do want to say congratulations to the guys at rail Amy and everyone there. They've been plugging away at this space for a while. They were one of the first but I remember talking about B to B being a major use case, so congrats to them, and congrats to ripple as well. It certainly seems like they've got a lot of opportunity in front of them. That brings us about to time. Kevin, thank you so much for being on the show this week. Really appreciate you being with us. If people want to learn more about Grove and everything you're up to, where do they go find out more?
Cuy Sheffield 46:34
Best way to follow Grove is on X you could follow us at Grove. Dot finance, dot spelled out, D, o, t, and thank you for having me on the pod. It was a wonderful experience, and can't wait to see all of all of your conjectures play
Sy Taylor 46:49
out good stuff, man, Kai, how about you
Unknown Speaker 46:53
on x at Kai Sheffield and visa.com/crypto
Sy Taylor 46:55
so you not got the LinkedIn game there yet, after our chat with Tony McLaughlin last week
Speaker 1 47:00
and LinkedIn, I gotta step up on LinkedIn.
Sy Taylor 47:03
It's all right, man, I'm waiting for it. I'm waiting for it. You'll find me at sy Taylor on X, Simon Taylor on LinkedIn, or at FinTech brain food.com and you'll also find more of this show if you subscribe. So hit that subscribe button and tell people who might find it enjoyable to take a listen. Oh, and if you haven't already, and you're based in the UK, or you can get to London for the 11th September, come join us at tokenized live. We've got all of the banks coming and the regulators and everybody else you want to be there. Don't miss it. We'll see you there.