On Ep. 49 of Tokenized, Simon Taylor, GTM @ Tempo, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Stani Kulechov, Founder & CEO @ Aave Labs to discuss BlackRock's intention to tokenize all of its ETFs over time, and more!
On Ep. 49 of Tokenized, Simon Taylor, GTM @ Tempo, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Stani Kulechov, Founder & CEO @ Aave Labs to discuss BlackRock's intention to tokenize all of its ETFs over time, and more!
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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 tokenized real world assets. My name is Simon Taylor. I am your host for today, author at FinTech, brain food, and head of market dev over at tempo. And first of all, I've got to welcome back. It's only been two weeks, but Kai Sheffield is back. Ladies and gentlemen, Kai, did you get some FOMO from our live show?
Cuy Sheffield 00:35
It's good to be back. You crushed the live event. We got to do more of those. I'm definitely going to be at the next one, but excited to be back in the scene.
Sy Taylor 00:42
Well, speaking of token, I was live. We have one of the guests who was there with us, the one and only, Stani, the founder of all the How you doing?
Speaker 1 00:51
Stani, good. Simon, thanks for having me here. And I think it felt like ages ago, like Time moved so quickly in our space, yeah.
Sy Taylor 00:59
Oh, doesn't it? Defi moves just in different increments. It's got a different clock speed. Before we get on with the content, I gotta do the usual disclaimer spiel, so I have to remind everybody that the views of opinions of our contributors today are their own and do not necessarily reflect those of companies they represent. Please don't take anything we say as tax, financial, legal or investment advice, and please do your own research, folks. All right. First story, this one came from the Financial Times, and it was about crypto groups hitting out an alleged Bank of England plan to limit stable coin holdings of individuals and companies in the UK, and so this would be an ownership limit of 10,000 to 20,000 pounds sterling for individuals and 10 million pounds sterling for businesses on what they're calling systemic stable coins. They are concerned that stable coins would weaken the banking system. Stanley, I saw your tweet on this that read, this is absurd, and we need to push back against this kind of regulation. Stable coins issued on chain do not pose greater risks than traditional electronic money issued on more fragile databases. Do you want to unpack this and give us your thoughts here?
Speaker 1 02:19
Yeah, there is actually a lot that goes into that thoughts that I had, and also what came from the Bank of England. And I think the kind of, like a primary problem there is that there's some sort of aspect of limiting capital, and I think that goes quite against of the principles that we live in today's world, where, you know, the freedom of movement of capital and ability to access and having that freedom, as long as you are a good actor in the sense which most people are. So I think that was like a really big problem there that I saw in that positioning from Bank of England. And then the second kind of a piece is that the stance is a little bit towards aggressive on stable coins, where they could actually be very net positive for banking systems and governments in general. And I think just to give an example, the biggest buyers of us, Treasuries are also stable coin issuers. So stable coins can be a way of exporting a national currency. And I think that is really something that from Bank of England perspective and from the UK perspective should be assessed of actually how we embrace this technology and we can actually make pound a more kind of like a stronger and appealing settlement currency within the stable Coin World. And then the other piece of it is that, well, if stable coins are limited, what about electronic money where, typically electronic money institutions hold the cash of their customers and they reinvest that cash into so called low risk, high liquid instruments, which are effectively money market funds. So just two different wrappers, regulated and treated that different ways as something that feels unacceptable
Sy Taylor 04:04
to me. Yeah, I'm fascinated by your views on this. Kai, yeah,
Cuy Sheffield 04:08
it's interesting that I believe this proposal actually came from a paper that they put out back in 2023 which was about regulating the regulatory regime for systemic payment systems using stable coins. And it was interesting, I was going back and looking at the paper, and it was part of, like, this era of almost the entire paper just focused on risks. Like, there wasn't really an acknowledgement and like, okay, here are the opportunities. Here are the ways that stable coins could drive innovation or new use cases. It was very much what are all the risks that stable coins could have? There were a number of proposals in the paper that I think have been unique and I haven't seen adopted or incorporated in other markets. I think the same paper proposed that 100% of the reserves should be kept with the Bank of England as central bank reserves. And should not pay interest, even to the stablecoin issuer. And so then you get to, like, Okay, well, what's gonna be in the incentive for any business to actually issue a stablecoin and bring it to market, if there's no business model to make any interest? And then if you also have caps on what could hold them like, it seems like you could put these things in place that, on the surface, I think, come from good intent of trying to mitigate risks. But the end state is you're not gonna have a stable coin ecosystem. There's gonna be, there gonna be no stable coins that exist. And so you kind of have to say, like, are there opportunities and upside that stable coins can provide? If so, you need to have an environment that there will be healthy businesses that are built and incentives to create them. If everything is just focused on the risk, then the outcome is you just might not have the industry at all. And then what are the implications if you don't have GBP stable coins, of which today I was trying to find, like, what the circulating supply is? It is extremely low. And so it's kind of the question, do you want GBP stable coins or not?
Sy Taylor 06:04
You know, I'm kind of very close to this subject, living here in London, starting I know you spent a lot of time in London as well, and GBP is, what 5% of global cross border trade. It's a meaningful reserve asset, meaningful reserve currency. And there's potentially a new version of the euro, dollar markets being born in stable coins, a new type of cross border flow that you're essentially opting out of. But Tai, your reference to 2023 is really interesting, because what happened shortly after, or shortly before 2023 was Terra Luna and stable coins, I think to a lot of regulators, meant things that were going to fall over, and things that we needed to potentially limit the damage of. And if these things got really big, and they all looked like Tara Luna, then this was going to be a real issue. From that happening, and from trying to set policy to this potentially still being on the cards, tells me that some of the policy thinking probably hasn't been updated from the risk mindset. But then, you know, these older people that are paid to think about risks, but it's not escaped me that just yesterday, we had the United States president in the UK, we had announcements of material investments from companies like Blackstone and others in AI and data centers in the UK, we are talking about deeper capital markets integration, and the number one holder of US Treasuries is, of course, the sovereign state of the United Kingdom. So this is potentially two very deeply intertwined nation states. But it seems like there's a schism between the sort of prudential policy thinking, and I wonder how much of that is sort of dealing with old scar tissue and real problems, too big to fail financial institutions in 2008 Libra you know. Could that be the next even bigger, too big to fail financial institution and then AML risks, which are real, let's be honest, there are real problems that need to be solved, and potentially then some genuine desires to kind of protect consumers. You wrap all of that together and you say, well, maybe some sensible limits are a good approach, but that's missing the kind of broader context here is, I think the genius Act has now passed, and that should be a real reset moment.
Speaker 1 08:19
Stani, yeah, I mean, genius act definitely started a whole new chapter in stable coins. And especially, obviously, stable coins weren't like illegal, it was just unclear what they were in us as an example. And I think the regulatory environment really sets the course quite a lot. So why do we, for example, see a lot of innovation in AI and a lot of these other industries? There's a very little like ahead of it, and there's a lot of tailwind. There's investments, there is discussions of AI safety, and also discussions about maybe regulating AI. But there's a very little of actually, gray area, whereas in stable coins, that has been the case, and especially when we go to Europe, and specifically to EU, Bitcoin regulation was partially or in most cases, targeted towards a currency like Libra, a basket of currency in a digital On chain form. So looking at what's happening recently in us, and overall, this more progressive policy towards digital assets, defi and also stable coins, it really set a new type of, kind of like a wave, and that means that as genius Act passed that by itself, bring a lot of clarity. Means that now tech companies, fintechs, can start thinking about stable coins and how to actually bring this new technology that by design, can help them move funds across globally, mitigating a lot of these issues that they might have, implementing smart contracts around these tokenized assets of stable coins. Yeah, and how that can help. So I think there's a lot of that progress. So seeing what's kind of like is being discussed in the UK context, and seeing kind of like these thinking around risk and capital controls, and I think we need to figure out what actually is on the table and what is the opportunity within the UK first of all, to have a very progressive and clear policy on stable coins. First of all, and what kind of implications that can have for innovation, for the government or even Bank of England, like how it can actually help there. And I do actually agree on the educational piece, because the example of Tara Luna is that, yes, it was marketed as a stable coin, but effectively, you know, that was more of like an equity backed asset, where the equity is some sort of like a traded cryptocurrency that basically was backing so the economics of that didn't really make sense, and It
Sy Taylor 11:00
wouldn't have qualified as a stable coin under genius, would it? So I think there's a definitional issue there that's really important. And neither would necessarily in its original incarnation, Libra, necessarily. So those are different things to your point.
Unknown Speaker 11:13
Tai, exactly.
Speaker 1 11:14
And I do think we should keep the design space open that if you can figure out a new, innovative model to move funds or transact, you should be able to bring that idea and the kind of like, barriers should be low, but we should kind of like, understand what are these, like, back stable coins, and what they actually are by definition, and understand basically that we shouldn't apply something else to those things.
Cuy Sheffield 11:37
The thing that stands out to me is this isn't going to be the last time there's a proposal to have caps on stablecoin balances, I expect that that's going to be something that regulators in many markets across the world look at. And it seems like there's pressure coming from multiple angles. Of there are banks that are saying, even if the stablecoin is in the same currency, well, you don't want deposit flight. And what does it mean if a bunch of consumers start holding a stable coin balance that's backed by treasuries rather than holding traditional commercial bank deposits? And then I think that the bigger area will be concerns around dollarization. If you say, Okay, how do we not have everyone just move out and hold dollars? And I would imagine that there will be a number of attempts to put in some type of stable coin cap. I'm curious how you each see that playing out of is this going to be a world where just capital controls are impossible, and everyone tries and they fail and it just Yeah, everyone has a self custodial wallet? Or are there going to be middle grounds that regulators will be able to successfully implement some type of you can have access to a stable coin up to a certain amount, but there is some cap on it. Like, is that going to work? Like, how would that even be technically operationalized? I think it's still a big open question for the space.
Sy Taylor 12:55
Yeah, I think it's fair. I think this like a practical question as well, like if stable coins are Treasury backed, there's the sovereignty risk of that not being national, and not being within your control necessarily, and not being something that you could deal with, the risks of if it all blew up. So that's a genuine concern, but I think the way you solve that genuine concern is by leaning into the stable coin movement and providing a local currency alternative that is competitive and or even better than what genius offered, but doing so mindful of the fears of deposit flight and making sure that all parties have sort of as close as possible to a level playing field by embracing tokenization. And I think the UK has done a lot of good jobs, like with the digital security sandbox the Bank of England, and what it's doing with bis around some of its sandboxes, they're doing really great research on one hand and on the other side, it feels like the policy stuff we're hearing about is either a slow or B still being refined. So I don't know that there's anybody necessarily making the ball case. There's nobody making the industry case with a Clean voice. And I think that's the opportunity to say, What could this mean for the UK like Tony ubix was doing kind of recently, and others have done. The second point I want to make is also, if you compare stable coins with cash, it's quite difficult to carry, 10,000 pounds, 20,000 pounds, 30,000 pounds across a border, but a stable coin, that's not an issue. It's just a mobile app. So you could say that there's a reasonable control that one might wish to have if you were worried about that sort of thing, but then there's nothing legally stopping you from having a million dollars in cash, right? Like that. You are allowed to have that thing. It might be very obvious if you try and move that and spend it, and it's a bit less obvious with stable coins, but with stable coins, we've got a blockchain network, and we can see that that happens. So I think people just get themselves confused sometimes.
Speaker 1 14:58
I also think that. The capital controls is a somewhat kind of like a outdated principle of concept of reacting to movements of monetary policy or economy. I think that today you can obtain any type of currency and exposure relatively easily without you know, if you are bearish on pounds in UK, you can relatively easily switch into dollars, and you can do it with any bank effectively. So I think that's kind of like a capital control moments that we see between borders is very dated, in my opinion. And I think that all this kind of like a currency fluctuations are signals of the strength of local economies and stable coins are just another form of distribution, or another medium of where we record financial transactions, and it has different properties that we didn't have before in terms of programmability and transparency and execution. But I do think that if a country really knows how to, kind of like create really good economics that should reflect actually in better exports of their local currency, in form of stable coins, to countries where you might have instability and haven't been able to actually create a great economy. So there is this idea of dollarization, and it's been existing for as long as we are been living in this planet. But at the same time, why wouldn't pound be used across different countries, in Africa, Asia or Latin America? Why it has to be dollar? You know? Why couldn't it be pound? So I actually think that there can be alternative and stable coins can be a really fast way to tap into this distribution. So that's kind of like my thinking, is that if you take a one step approach and realize that what's the potential, yes, there's risk. If we label something that isn't stable coins and doesn't, you know, fit the criteria, there's a risk. But when we are talking about real things that actually really backed the same way as any type of electronic money or bank deposits, that could be a really interesting way to export economical benefits and stability across the world
Sy Taylor 17:13
well, and the dollar is down 30% year over year, the pound is not and so I think there's different definitions of stability, and I Love that point of we've got to balance the opportunity. Balance the opportunity with the risk, and regulators only look at one side of that, and hopefully this comes to a close. I do want to move us to the next story. This one came from Bloomberg, and it was about Blackrock saying that they intend to and want to tokenize all of their ETFs over time. That, of course, such shift would face some fairly big hurdles, because today, a lot of ETFs settle through a lot of Wall Street's clearing houses, but blockchain tokens move instantly, so that's going to have impacts on collateral. But to put this into perspective, the market for tokenized assets is still relatively small compared to the ETF market at around, sort of like 28 billion, or something stunning. You might have a bigger number that I got that from RWA dot XYZ. I know this is something that you've been looking at for a long time in terms of tokenizing real world assets. What's your thought on this move from BlackRock and where it sits in kind of the RWA story more broadly?
Speaker 1 18:17
Okay, I think tokenization is a really great tool, especially like if you can take an asset, put it on chain, and make it more productive, lowering any types of cost, improve transactioning, better execution or access to wider capital. So if you're able to actually do that, then it makes a lot of sense. And I think in some products, it takes a bit of time to get there. So it's really like a case by case basis. I think the another thing to think about is that, when we're talking about tokenizing assets, what are we talking about? Is it basically taking, let's say, an ETF fund, an ETF and wrapping into a fund for private investors, and then tokenizing that fund, or does it mean that we're actually issuing ETFs directly on chain, which is far more exciting path, and I think both of these models will coexist for a while, and it's definitely going to be exciting because it allows you to trade And collateralize existing assets that you have in the traditional world on chain, I think that's going to be a quite big benefit there.
Cuy Sheffield 19:27
So is one way to think about this. It could just become a better wrapper that if you have many different types of assets that are tokenized, being able to combine them together in more novel and customized ways would be much lower cost and more efficient to do if you do that as a token. So are you saying, like, instead of just taking a traditional ETF and issuing that as a token on chain, what if all of the assets that made up that ETF were all tokens themselves, you could actually create more novel types of products, and I'm always. Is just like, what are the brand new products that don't exist today, instead of just buying something, you could buy through a brokerage account, now you're buying it through a wallet. How do you actually use the technology to create an investment vehicle that there was no really analog to that you could just normally buy in your brokerage account? And so do you see that as a progression of how this happens and which kind of class will of a vehicle will be more successful?
Speaker 1 20:23
Yeah, I think it's we have to see something novel and kind of like, in terms of, like, the novel products that might not exist by using this construction. But also I think that we have to kind of like peel the layers between an asset and how it becomes tokenized. So if you look at a lot of these, kind of like tokenized money market funds or tokenized T bills, there's sort of a private fund vehicle where you kind of one token represents a share ownership of that vehicle. And I find this as a kind of like a good intermediate solution, but it's still a tokenized like a fund, whereas, if you can actually go towards the underlying so let's say that you have equities that are directly tokenized on chain. And then if you think about like ETFs, creating these funds directly in this like a more simple format, because that's what the ETFs are interesting from, because you have a simple way of creating a Traded Fund on public markets with as minimal cost as possible, so achieving the same kind of like a pathway where you reduce the costs and are able to construct these products. So I think, Kai, what you're saying is exactly kind of like the idea is that you will see a really unique product offerings at a very, very minimal cost to be able to be composed and represented on chain and then traded and obviously used as a collateral.
Sy Taylor 21:48
Yeah, I think that's the key thing. Is bringing the underlying asset on chain and then all of the ancillary benefits you get around cost. But once it's traded on chain, it sort of also gets that superpower of being instant, 24/7, programmable, remixable into potentially structured products at much lower cost, right? Historically, if you were going to do something with a portfolio where you were making some basket of ETFs and you were going to create funds and all of that sort of stuff, this was a very specialist thing that fund managers would do, and specialist broker dealers would do, just because all of the paperwork was so incredibly hard, potentially, with tokenization, things like that, start to get a little bit more atomic and more Lego like and that has always been hugely exciting to me, and that's like a big aha moment for people. So I'm not surprised to see Blackrock wanting to do this, but there are some big challenges here. Kai, any thoughts from you on this one? Yeah, it
Cuy Sheffield 22:46
was just reminding me that I think it might have been like 2018 2019 like there was a protocol, I think it was called set. It was kind of like, make your own ETF, and I remember playing around with that. It was like such a cool concept of it was of existing crypto assets that you could then say, Okay, I want to create one token that is actually comprised of a smart contract that holds these four or five tokens. And so you could then just trade that one token, but then it has the underlying and so it's like the primitives have been here for a long time, but there was all the regulatory questions or okay, like, what happens if anyone can just create their own ETF equivalent, and then how do you know that the underlying assets are there? This was like, all these, like Ico coins that were under it. And so being able to take these primitives that have existed in defi for a long time and finally bring them to real, regulated capital markets, it feels like there are plenty of these examples, things that were just too early.
Speaker 1 23:41
Also, Kai, what you can do is, like, you can use something like Flash loans and, like, kind of like a recompose those ETFs from one form to another. So you, if you have a ETF that isn't forming well, and you want to, like, convert it to something else. Like, you take a flash loan and buy and sell things, it's there's a lot that you can do there that makes it, like, super programmable. And I think we're not there yet where, you know, we can, just like, financially, engineer and program everything on chain, best potential financial products. But that type of a future could be very exciting.
Sy Taylor 24:16
Yeah, I think to your point earlier, that some of these intermediary steps are sort of rappers, of a rapper, right? Like this is one thing I hear critics say a lot, and is that what Robin Hood did is just a rapper. It's just creating net new risk. But let's not forget, the ETF itself was a wrapper for an underlying asset. So the market gets used to rappers. I want to make some Hip Hop joke here, but I won't like hip hop itself, suddenly it becomes, like, kind of mainstream, and guys in our 40s really enjoyed it back when we were kids, you know, like Time passes and things normalize. And I suspect that will happen here. But two things will be true. There will be these SPV tokens that can trade for those with the risk appetite. And slowly, gradually, all assets will. Be tokenized. So I think that's a good place to go into our ad break, 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 also brought to you by bridge a stripe company businesses need easier global money movement. Bridge is the stable coin orchestration platform that makes it simple to receive store issue and spend using stable coins. Companies like X, Shopify and airtm already use bridge to lower their costs simplify their global Treasury operations and expand their global reach. Learn how you can grow your business with instant global money movement using stablecoins at bridge dot XYZ, tokenized is also sponsored by fireblocks. Fireblocks is the stablecoin infrastructure of choice for global businesses, from visa to wallpay to bridge to Revolut with over $100 billion in monthly stablecoin volume, fireblocks powers stablecoin strategies at scale with infrastructure that enables PSPs, fintechs, remitters and banks to issue, move, hold and manage stablecoins. It's all done securely at scale with secure built in compliance with fireblocks, you get complete control to build your own stablecoin orchestration layer, create payment accounts, manage liquidity and access on and off ramps in over 60 currencies. Makes it easier for you to build and scale and expand your business globally. Learn more@fireblocks.com thank you sponsors. Thank you so much for keeping the show on the road. This story came from just about everywhere. Tether are going to launch a domestic US based stablecoin they call USAT by the end of the year, Bo Hines has been appointed CEO of the new venture, and aims for significant us expansion. They aim to comply with the genius act and will be issued by anchorage digital bank. And the CEO, Paulo, said, I think this is a very exciting moment, because we were under severe pressure from competitors that want to create a monopolistic environment in the United States. I wonder who that might be aimed at. So Stanley, your thoughts here? I know tether is a major part of the on chain ecosystem. Do they have a shock domestically? What's your read on this and where it fits overall?
Speaker 1 27:59
Yeah, it's really, really interesting. I think usdt is used quite significantly in us. I think kind of like we underestimate of the market share there, and for various reasons that might be and some companies might have more international presence that also use us and and usdt is their choice of stable coins. So I do think that this move is more of kind of like signaling that, you know, we need a vehicle for us and create more kind of like competitive pressure there. It's a really interesting because we live in a really exciting times in the whole like a stable coin era, in the sense that we have these older stable coins like the usdt and USDC and this first generation stable coins, they don't really have distribution for the users. So when we look at these stable coins, there are a lot of in these on chain protocols. I mean, we know that there's significant amount of deposits out of 15 billion worth of stable coins. Significant deposits are in usdt and USDC. We see like centralized exchanges where there's a lot of deposits there, but for these platforms that actually own the users, let's say centralized exchanges for them, changing a stable coin can be as fast as doing it overnight. And what I think is interesting here is that to understand is that how these stable coins that are first generation will actually preserve existing market share that they have without having those end user applications. So when you look at a lot of these fintechs that are looking into stable coins and making different kinds of announcements, they have that, let's say, end user distribution. They might have merchant distribution. They have a really long book of clients over a decade or two as an example. So I think. Um, this move is more of a policy move and somehow strengthening more with like a branded us targeted stable coin. And it probably has some sort of angle there. But I do think that those who trust tether, they will rather use usdt Unless there's some sort of like additional, like a compliance protections that this new stablecoin will provide.
Cuy Sheffield 30:23
Yeah, this is gonna be fascinating to watch. I think it seems clear that the stablecoin issuers, the major ones, are trying to build consumer facing brands. USDC is is a good brand that people understand. US dollar coin, usdt is a trusted brand for potentially hundreds of millions of people across the world, in emerging markets, who have used it, who get value from it. And so now, coming out swinging with us at in this, like, very American themed stable Coin brand. It's an interesting approach of I think that you have some people say, of all stable coin brands are gonna fade into the background. It's just gonna be USD behind the scenes, they're saying, like, no USAT, is like going to be a brand? I think the big question I have is, how is a consumer gonna access it? And are they ultimately gonna have to go in have a wallet? Because if a stable coin is a brand, even if you kind of build as brand, you still on its own. It's not a product that a consumer can access without a wallet. And I don't know what the wallet distribution is gonna look like in the US now. I know they have the investment in partnership with rumble. They've announced tether has this wallet development kit that they're working with other providers. So I'm curious if there's going to be like, a network of multiple different companies that use tethers wallet infrastructure that have us at as the preferred way, so you could get USD at multiple places, or is it going to be more vertically integrated, where they either build or go buy a wallet? And so you have, like the USAT wallet with the USAT coin all together. And so I think this distinction between wallet and stable Coin brand is going to be really interesting to see how that plays out.
Speaker 1 32:06
I'm wondering if this is actually a play for tether to kind of like have a stable coins as a service business, because obviously, there's a lot of requests coming in. You know, we want to have our own stable coin. You're the biggest one. You have some infrastructure. You clearly were able to do this successfully. You know, how do we tap into so could this maybe be a way for tether to actually allow other brands to come and create their stable coins under the same umbrella and benefit from that? Because it seems that there's a lot of demand for that as well. If that's the case, that will be a significant shift in tether strategy.
Sy Taylor 32:46
Yeah, no. The amount of non banks and merchants and payments companies that want their own stable coin to collect yield is kind of unbelievable. And why wouldn't you if you could have wallet balances as a payments company, if all of your merchants had a wallet, you could give them direct settlement, and you could collect all of that yield for yourself. And that would be amazing, like the business case rates itself, and so yeah, agora and m zero, and these kind of issuers or service platforms have popped up, and they've got a lot of opportunity. I can't unsee this being kind of geopolitical in some way, in that you've got your onshore tether and your offshore tether, and the offshore tether can go everywhere, and especially its superpower is actually getting in and out of markets where there are potentially a lot of friction points, and indeed capital controls, like from mainland China to Hong Kong to elsewhere, or from global south to global South, where the correspondent banking rails don't work and the traditional dollar didn't work so well. But if you want to get into capital markets in the United States, then those institutions cannot and will not want to touch usdt, because they're too regulated and they view it as too risky. This allows tether to compete and play within that, but also potentially to bridge the two better than anybody. They can create a single ecosystem between their onshore coin and their offshore coin. And so that was kind of how I looked at it, in that you would just be creating more demand for US Treasuries, and you'd also be creating sort of this onshore and offshore dollar, a bit like how you have the onshore dollar and the euro dollar in regular old Fiat. That was one thought I had. My other thought was like, Have you ever seen branding for the dollar that looked like this? It's like some movie from the 80s. If you've not seen the videos for this thing. It is the most branded dollar. Like, if you were gonna go on a world tour trying to sell the dollar to people in a 1980s cyberpunk style, it absolutely would. And if anybody's played the cyberpunk video game, it just gave me militech vibes. It really did so Niche Video Game References. Aside, the last story we had this week is MoneyGram going live with stable coins. This is, of course, the 90 year old remittance business that has been serving 40 million people in 200 countries has launched, in collaboration with cross mint and stellar Foundation, a whole series of capabilities for instant cross border stable coins, and they're rolling this out at scale. What's fascinating about this is, of course, MoneyGram has been at this for a long time, and we've seen a slew of announcements of people going to do something with stable coins. This is looking like it's going live and like a real product, and it's really starting to happen. Kai, we've spoken a little bit about the remittance players before. Your thoughts when you saw this announcement?
Cuy Sheffield 35:50
Yeah, I think MoneyGram has executed well in the space going back several years, I think starting with the on and off ramp functionality, which I think they were the first major remittance provider to do cash on and off ramps for stable coins. And so they were embedding that inside third party wallets that you know, if you wanted to on ramp inside of a wallet, you could find a monogram location deposit local Fiat cash, and then be able to have stable coins sent to that wallet. I think that's an interesting piece of the on and off ramp equation. And potentially it's even, even if someone isn't making remittance, they might go into a MoneyGram location just to exchange local currency, cash for digital dollars that they want to hold. So I think it's been very clear that they've wanted to serve as this on and off ramp role. Now it seems like this is a part of the what we've talked about on the show of there's this opportunity for remittance platforms to become these global Neo banks in emerging markets and offer more and more financial services to the recipients. And traditionally, most remittance companies, they really monetize on the Send side. They have a bunch of recipients coming in to their locations and picking up cash, but they don't have a lot of products that they're able to sell and monetize on the recipients. And so I think if they're able to take that distribution and have a fully comprehensive stable coin based wallet that can serve those customers, there are a bunch of different things that they can add on top of that, whether it's a stable coin, Link card, whether it's other type of financial services. I'm interested to see if they add yield or lending using Ave and other defi protocols. So I'm excited. I'm optimistic that it comes down to execution. But I think remittance companies, a few years from now, may end up having grown and have more upside in terms of expanding their businesses from stable coins than they do risk of people on the surface saying, oh, won't people just use stable coins end to end for remittances instead,
Sy Taylor 37:41
yeah, it's funny how the market caps of remittance businesses trade at something like one and a half to 2x revenue, whereas for a FinTech company like a Revolut, that can be 18x for a lot of other businesses in financial services, it's FinTech generally. I mean, like a visa is what seven to 10. So if you're in the payments business, your benchmark is somewhere quite a bit higher than one and a half to 2x there's definitely something where that business model is not seen as exciting by investors and as a publicly traded stock, then it makes sense to find innovation. Friend of the show, Jeff kazanes mentions here as well, is the receiver side. If they do continue to hold the funds in dollars, benefits from obviously avoiding potential local hyperinflation. But the MoneyGram, or whoever the remittance business is, is benefiting from some of the yield on that stablecoin If their issuer is passing that through and or if they are the issuer of that stable coin themselves. To Stanley's point earlier, hence all of the demand on issuance as a service. Stanley, your thoughts on these remittance companies?
Speaker 1 38:54
Yeah, I think it's interesting what Kai said about stable coins, allowing them to expand into more like neobank capabilities, because typically these remittance companies are like the railway type of companies of FinTech or finance. And I think it's a very kind of like clear type of a business model to facilitate a corridor between one destination to another one. And I do think like maybe wise is one example that kind of like started with that remittance angle, but then can provide yield and these other things on a more fintech. Rails and stable coins might be that way of expanding their businesses from purely being a remittance business actually kind of like a building around these user bases and also providing the same kind of like, I would say, assets and features from both side of the remittance corridors. And it's specifically exciting because it allows on the recipient side to access, for example, dollars or other currencies, very seamlessly. And access also yields through defi. Yeah, so I see this as a really kind of exciting way of getting these remittance companies back to be important. And they've been here for, I mean, MoneyGram, what is 90 years old company, and you have Western Union, and I feel like this is a really big opportunity for them. And nothing connects better the financial rails than a stable coin that moves on a really transparent and a secure ledger.
Sy Taylor 40:24
I love that idea that the incumbent with distribution does have an opportunity here. It's kind of fascinating the cycle we're in where, historically, the question of, can the innovator get distribution before the incumbent gets innovation? The answer was, Well, duh, the innovator is going to win this time around, with both AI and with stable coins, the answer is not so clear, especially for the non bank sector. If you have a lot of distribution, you potentially have a lot of benefit fairly quickly, without a lot of meaningful change, if you can get the risk appetite into the right place. And distribution in this type of business, is extremely hard at the last mile. Building agent networks is, you know, inch by inch, it is owned and so very hard to hack on top of So Kai. Any closing thoughts on this one?
Cuy Sheffield 41:12
Yeah, I think just owning proprietary on and off ramps is going to be more and more valuable going forward. Like anyone can start a global Venmo, global stablecoin, Neo bank. How do you have Fiat on and off ramps in 100 countries? And how many partnerships are you gonna have to do? How many of those do you own directly versus that you have to sit on top of someone else. How many layers are there? You're sitting on top of PSP, sitting on top of a choir, versus you being able to be as close to the metal as possible. I think wise is a great example of being able to go and get licenses, get direct connections to central banks and like they've been able to build the best performing remittance business doing that. Now, I think with stable coins, it's being able to do that in five times as many markets that are the most challenging, hardest to navigate, most volatile currency markets, that, wise, hasn't necessarily operated or focused in to date. And I think the remits platforms, they have distribution in those markets. They have those agent networks. And so it's it all comes down to can they execute? And it's exciting to see them, not just talk about stable coins, but actually be shipping products in the space.
Sy Taylor 42:22
That's a big moment, isn't it, when we're not just getting headlines about stable coins from incumbents, they're shipping product and delivering it to customers. And I think that is a really, really big moment, because it's very easy to be cynical about stable coins. It's very easy to lobby against them for the fear of them. It's a little bit harder to look at where the volume and the traction is really coming in. And I think that's kind of where the opportunity is. So to the point earlier on, on the Bank of England story, people tend to focus either on the risks or the opportunity, but if you look at both sides of that, I think you can have a much more balanced discussion. And speaking of folks that do that, there's also Nubank, one of the largest Neo banks in the world, one of their kind of senior executives was on stage recently having talked about testing stablecoin linked and stablecoin backed cards. And this follows, obviously, them offering yield and the ability to consumers to hold USDC in kind of the new bank wallet, and this is a very large kind of banking institution that many banks around the world kind of base their roadmap on. If Nubank did it, then we should copy paste it, because every bank in the world wants to be second to market. I think it's really interesting signal to see what Nubank is doing for where things might start to go. Kai, your thoughts on LATAM and stable coin linked cards and the opportunity there?
Cuy Sheffield 43:45
Yeah, I think we're seeing this as like lac is the major market that a lot of stable coin linked cards are starting in and scaling in. There's a ton of demand. We want to work with every wallet in the ecosystem. And I think that's our approach of stable spending a stable coin on a card is the easiest, best experience you can have spending it. So we're trying to light up the enablers, make it as easy as possible to issue enable settlement. And I think that we'll see this combination of new, next generation fintechs, along with the very established large fintechs, starting to offer these products, and they'll just be more dollar cards that are in circulation across the region.
Sy Taylor 44:21
Stony, your thoughts on Nubank and the Neo banks more broadly?
Speaker 1 44:24
Yeah, I think the right move and LATAM is it's a region where there's direct utility from stable coins. You can enter into lower kind of volatility, inflation, currency access to dollar, access to other currencies, and then also to yield. So that is really important aspect. I think that's going to be really explosively growing market for stable coins.
Sy Taylor 44:50
What's also interesting is the legacy financial institutions that are now delivering some kind of crypto capabilities are the ones that have some LATAM experience. Closure so BBVA Santander both now offer new capabilities. I saw that Anna Burton's open bank division of Santander Group launched a broker, and that broker can now trade in major cryptocurrencies like Bitcoin and ether without transferring those platforms in and out of other funds and manage them in one single platform. So that brokerage is like a mini Robin Hood, but that's live in Germany and it's live in Spain. So these are hard markets to get those things kind of live in from a legal and regulatory standpoint, but they're also G sibs. So I think sometimes we forget some of the things that get buried in the news that the G sibs are also quietly doing, especially those with LATAM exposure. If you're looking at some of the innovative markets in the world, you tend to have a bit of more of a competitive juice, I suspect. Well, that brings us to a close today. So I want to thank everybody for watching. There's more and more of you on YouTube, steadily compounding. So appreciate you for watching. If people want to find out more about AAVE and what you're doing with Harrison Stani. Where do they go to do that?
Speaker 1 46:05
Aave.com is the best place to learn generalist information. And you can also find us on Twitter at AAVE and follow us what we do and or sign up on a newsletter@ave.com
Cuy Sheffield 46:18
Next at Kai Sheffield and visa.com/crypto
Sy Taylor 46:21
by me at sy Taylor on just about everything tempo dot XYZ and fintech, brain food.com Finally, please remember to subscribe to this thing and tell everybody you know to do the same. Grab them, hold them, shake them, make sure they check this thing out. Thank you so much, and We'll catch you next time.