On Ep. 38 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Itai Turbahn, CEO & Co-Founder @ Dynamic and Joao Reginatto, CSO @ M0 to discuss Robinhood launching stocks tokens in the EU, their layer 2 blockchain based on Arbitrum, and more!
On Ep. 38 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Itai Turbahn, CEO & Co-Founder @ Dynamic and Joao Reginatto, CSO @ M0 to discuss Robinhood launching stocks tokens in the EU, their layer 2 blockchain based on Arbitrum, and more!
Timestamps:
This episode is brought to you by Visa
A world leader in digital payments, Visa is bridging the gap between traditional financial institutions and innovative blockchain networks, helping players in the payments ecosystem navigate the ever-evolving world of tokenized fiat currencies with confidence and ease. Learn more at visa.com/crypto.
Tokenized is also presented by Avalanche.
With Avalanche’s purpose-built Layer 1s, institutions can tailor digital asset strategies to their exact needs—while still tapping into the power of public blockchain innovation, developer communities, and seamless interoperability. Learn more at avax.network
***
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 stablecoins and the institutional adoption of real world assets. My name is Simon Taylor. I am your host for today, head of strategy at sardine, author at FinTech, grown food, and I am reunited once again with Kai Sheffield. We should make this a habit. How you doing, Kai? I'm
Cuy Sheffield 00:31
fantastic. We're back in a rhythm. This is great. There's so much news to cover. We have to be here together every week. And we've got some great
Sy Taylor 00:38
guests. We do got some great guests. First up is it? Tai Taban, who is the CEO and co founder of dynamic, the wallet infrastructure company. How you doing it? Tai,
Speaker 1 00:49
you know, still waking up, doing well, just one coffee in this morning. So very excited. I
Sy Taylor 00:56
appreciate you accommodating those of us that live in the UK to try and make this happen. That's very good of you joining us today as well. Is a long awaited debut from Joao reginato, who's the CSO over at m zero. Great to have you on the show, sir. How are you keeping thanks
Speaker 2 01:16
for having me, Simon and Kai. No. Super excited. We were joking just before, right? I feel like I listened to the pod so much, and I feel like I want to unmute myself and say something to you guys. So I'm super happy to finally be here and have some cool conversations.
Sy Taylor 01:31
Yeah, no, say it to my face, man, you get the opportunity. I'm here for it, as I often hear it in various telegram and WhatsApp groups, I'm sure. All right, just before we get into the content, I need to remind everybody that views and opinions of our contributors today are their own and might not reflect those of the companies they represent. Nothing we say should be taken as tax, financial, legal, investment, sports, fashion, advice or anything else like that. So we're excited to get on with the show, and the first story was everywhere. So in Cannes, Robin Hood announced that they were launching stock tokens with a layer two blockchain that was going to expand their crypto suite in the EU with us, perps and staking. So that's like the most giant mouthful ever. So let's take it piece by piece. So they've launched us stock and ETF tokens in the EU giving eligible customers exposure to US equities with Robin Hood stock tokens, the tokenized stocks will be facilitated by a new Robinhood layer two blockchain based on arbitrum, and they've also launched crypto perpetual futures and crypto staking in the US. But my goodness, has there been some background reactions to this. Everybody in the industry has a take, but Kai, help me unpack this one a little bit more first, because I think there's kind of a long way to go to explain what got announced here. How are you thinking about it, and how are you understanding
Cuy Sheffield 03:15
it? Yeah, a few reactions. So I watched the event last night, and it was pretty impressive, like, I think, just to see Robin Hood's vision, and I loved Vlad bringing out a chalkboard in can and the drawing with chalk. You know what the flow is, I think on the tokenized stock product, I'm still trying to better understand the plumbing and how that works under the hood. And I think it was still a bit high level. And there's a lot more that we could try and unpack there. I thought what was impressive was they showed the consumer experience of side by side, trading a stock in the US, using existing infrastructure they have already and then trading a stock token in Europe. And the experience was virtually identical. And I think that was the point is that they're here trying to create the really good consumer experiences that they're famous for, but using token infrastructure on the back end. So I thought that was really impressive. But then there's the drama on x of open AI, first they started talking about public stocks, and then they said, Well, okay, what about private stocks? And you've got open AI and SpaceX, and they're giving out OpenAI shares, and OpenAI is tweeting out, we have no partnership. It's not authorized. And so I feel like it's driving a bunch of discussion around there's the question of, how do stock tokens work for public equities, and what is the plumbing there? And how is this gonna play out? And that seems to be a major trend. And then there's how will it work for private companies? And how do the private companies themselves think about a company like Robinhood trying to tokenize a version of their stock? And what can they do? What can't they do? So I think it spurred really interesting discussions around the future of tokenized stocks, while moving the entire space forward when someone like Robinhood is taking this. Very forward thinking approach to say we're going to make
Sy Taylor 05:03
this happen. Yeah, it's, I think that signaling value point Kai makes is really, really crucial, right? They have a big brand. My understanding of this is, what they've done is they've created a perpetual future derivative. Effectively, it's a derivative product that derives its value from the underlying asset. These stocks, those could be public equities, which, as a broker dealer, they were able to get access to or private market shares, hence open AI tweeting that, no, we have not authorized the sale of these shares. But if it's a derivative, you don't have to it's a derivative. So it exists in this sort of legal gray area. The other thing I understand is that this l2 is currently a closed loop, so only Robin Hood customers can trade with Robinhood customers. Have I explained that correct? I see you nodding. I hope I'm vaguely Correct. Here it Tai What are your thoughts?
Speaker 1 05:56
Yeah, that's my understanding as well. To your point that first on the l2 side, if you think about it, this is Robin Hood, in my opinion, just trying to own more of the value created by a chain, right? So at the very base level, if you're a big company, like a Robin Hood, or any similar player, like a Coinbase, right? You sit there and you're like, why am I giving a lot of the value created by me creating activity on a chain to the chain itself, versus myself capturing the underlying value, an underlying kind of ecosystem growth from the chain. So to your point, like I would argue that over time, they're probably gonna open it, but for now, they're saying, Look, instead of deploying this on Solana and letting Solana enjoy all the benefits, let me deploy it on my own kind of l2 reap the benefits of the fees associated and win twice on that front. So, yes, that's on the chain front. To your point on derivatives, yeah, it's became a really interesting debate with open AI yesterday. I don't know if folks have seen the Elon Musk tweet of Elon Musk replying to open AI's post about OpenAI posted, hey, this is not really our equity. Elon Musk replied saying, you don't really have equity, which its own sub argument that was fun to watch. But in short, to your point, like, in my opinion, what we're gonna see is we're just gonna see more of these innovative financial products where crypto enables that kind of growth. Some are gonna work. They probably took a leap of faith here a little bit. I'm sure Robin Hood is a very good legal team. So I don't know if it's like a big risk on their end. They got ROI just on their attention on its own. I expect we're gonna see a lot more of that. We're gonna see a lot more of that from web two companies.
Sy Taylor 07:36
Yeah, fascinating. Joao, I wanna come to you on this because I know with what you do at F zero, there's definitely a big gap between being on chain native and sort of always referencing back to fear, and this is sort of somewhere in between the two. I wonder if you saw the news from Super state, who are sort of also out there, but they are directly tokenizing stock issuance, so the stock certificate itself lives natively on chain, which is a different thing to building a derivative. What are your thoughts on the story overall, and what are the trade offs of being on chain first versus being perhaps referencing something back in the classic sense. Yeah,
Speaker 2 08:23
you know me Simon, because that's exactly what attracted me when I read those pieces of news this week, is that I really applaud what Robin Hood was doing. First of all, that announcement was like up there as one of the coolest presentations I've seen lately. Right? Like that setting was unbelievable, and the chalkboard, as you say, cut. So kudos for them to pulling that off. But I think for us, who have been like in the so called crypto industry for a little while, and I think like share the ethos and the beliefs behind what crypto initially, I think, was brought up to do what they're trying to do, seems really cool to me, because I think a lot of people, you know, jumped on the analysis of, wait, is this legal, right? Like, how is it actually being built, and how are they able to pull this off? But I think if you zoom out a little bit, there's probably a lot, as you said, Simon, huge gray area, right? There's a lot of things, as it Tai mentioned that I hope they have a great legal team, and certainly they do. And there's a lot of unanswered questions, right? That I think is going to take months for people to wrap their heads around, but being a product person that I am, I think there's a huge market for what they're trying to do, right? I think I would be bold and say capital markets are broken in the way that they are today. Right? We have to wait years and years and years for private companies to get to, like, hundreds of millions or billions of dollars in revenue, until they get to a point where, you know, John Doe on the street can actually tap and participate on that. Why is that the case, right? And is that a technological or a platform or an infrastructure issue? There is an argument that it is some of that right, and there's a huge amount of regulatory regime and policies that we have that were constructed, you know, decades. Go, I think, in the ethos of rethinking everything from first principles, the crypto way, if you want to call it, I think this is super interesting. This is being really, really in tune with what the market is probably claiming for, which is, can we participate in the open AI's of the world? Can we participate in the starlings of the world? Everybody knows these things are humongously valuable. And, you know, and John Doe in the street, by the time they are able to participate, they will have lost, like the majority of the upside. So I really like these approaches of zooming out, thinking about a huge opportunity, and trying to construct it from France principles. And as you alluded to Simon, that's exactly what we're interested in on what we're doing. And m zero is the same thing, right? I think in stablecoin world, a lot of people kind of reduced that space for a long time, just saying, you know, yes, stablecoin is a token that's trying to peg itself in a stable way to the value of the dollar. I think that is a very mechanical way to explain it. What people in who have been in that industry, in that sector for a while, have been trying to do is, how do we get the dollar to run on the internet, right? So it's bigger than that, and that might actually sometimes not involve, as you said, like all these layers, right? And connecting to a bank and trying to replicate everything that we have to that on chain. It might actually start from first principles and saying, What is backing the dollar today? You know, it's US debt. And how do you put that on chain. How do you construct authorizing issuance of money on chain, coordination of those processes on chain. And that looks very different from even the v1 of how stable coins have been built. So I applaud Robin Hood. I think they're gonna go through a bumpy ride, but it's a clear opportunity the world is claiming for a new generation of capital markets, and maybe this is a starter.
Cuy Sheffield 11:42
I don't know if you guys saw, but part of the announcement that stood out to me was Vlad mentioned these stock tokens that in the future, you'll be able to withdraw them to your self custodial wallet and then be able to use them connected to protocols and benefit from the composability, where maybe you could lock your shares up in a smart contract to be able to borrow against it. So that seems like a really, really big deal, if you could get to the point that US equities are composable in any type of new defi protocol that is built. And so plenty of huge questions around how that's gonna work and how they get there, but you have to applaud they're trying to build the future, and they're not waiting for these things to play out. They're going to be at the center of it.
Sy Taylor 12:24
And I think there's a model here, going back to Joao point, which is like, maybe we are. We had the v1 of stable coins. We're not at the end of that roadmap. I think we've had the v1 here of tokenized stocks, but we're not at the end point. And just as we're seeing innovation. We'll see it elsewhere. I think a lot of the criticisms about these tokenized stocks are, look, it's thinly traded, and the spreads are going to be not very good, and therefore real pro traders, or US based traders, are not doing as well. And I immediately think a couple of things, which is okay, but when we first even had crypto on Robinhood or in Cash App or elsewhere, that was a closed loop, and they figured out the compliance, and then they opened it up, because when you were a regulated market actor, you kinda have to baby steps your way to it. And to Kai's point, they're really figuring out the UX and what's works for users. The second thing to bear in mind that I don't think has been part of this conversation is in Europe, it will very soon be the case that you can't do payment for order flow, which famously is how Robinhood makes it lot of its revenue. It gives you zero fee trading by essentially selling the orders that you're about to make to market makers, who can then make a little gain off of that information existing early in high frequency traders that won't be legal in Europe in the near future. So they needed a revenue model that was going to make these shares make sense, because there are other ways to buy US stocks globally that doesn't require a token, but having your own l2 having a revenue model or having perps maybe allows them to start to go into that. So it's going to be fascinating to watch this one play out. And we had thin spreads in stable coins, and that's starting to change. And now there are some exotic markets where that business case makes sense and it didn't before. But do you see that journey it Tai from a user experience standpoint, being something that is always going to be custodial in an app like Robinhood, or is it going to become more self custodial? What's going to be the driver that flips things?
Speaker 1 14:35
I very much believe in a non custodial world. I might be biased here, considering the dynamics, biggest selling product is non custodial wealth infrastructure. So in that sense, a little bit biased, but the way I think about is the following, which is, Robinhood is a FinTech company, right? And by definition, they have the associated licenses. They kind of have a very specific path, and it's a custodial path, and it comes with trade off. Dollars. But you're gonna really see, in my opinion, the next set of 50 or 100 of these fintechs starting to compete in the same space. In the future, you're not gonna have a place where you go and you trade web three based crypto tokens and a different place where you trade web two equities or real estate or anything of that. You're just going to get your all trade everything platform, right? That's what Robin Hood is going for. That's what a coin base is going to start moving to, or a crack and probably is going to start moving to trade equities, trade everything, right? So both the web, three companies, exchange companies, and the web two FinTech companies are going to kind of merge into this trade everything. And in that situation, any web two FinTech company that doesn't necessarily have these global licenses has to take an approach of non custodial wallets, where they create this abstracted experience that looks like any web two login, right? So they would log in, you would log into your name, random fintech. You would log in, you would interact, you would trade. But the FinTech company, or any company there would not necessarily have your private key, and you would be the sole owner of that private key or share in an MPC setup. And so if I'm a company in this space, I'm looking at Robin, and I'm like, Okay, how do I get this to market in a month or in two months, not in five years. And the only way to credibly do that is to actually set up these non custodial, hopefully with dynamic, these non custodial, kind of embedded wallets in your app, and spin up this financial infrastructure that can work globally very, very, very quickly. So we are going to see, in my opinion, Robin would kick this off, but we're all going to see the next 100 or 1000 fintechs spin up these non custodial versions of wallets and kind of create the same experience in in a non custodial way. And the second thing, and Kai mentioned this, you're going to have kind of second order innovation, right? So your Robin ODE is going to open up their ecosystem, and then you're going to have a bunch of these defi protocols and a bunch of these apps that are built on top of what Robin Hood said and said, Okay, now you can do these clever things with your tokenized stock, right? These clever things with the stock that isn't publicly traded yet. And so you're gonna get this second degree innovation that can only happen in a defi, non custodial world. So you're also going to get a set of new companies spinning up there. So that was an extremely long way of saying, absolutely, in my opinion, the next of innovation. The way this gets everywhere is this not centralized exchange, but rather non custodial path at global scale.
Sy Taylor 17:33
Joel, talk to me about the fragmentation risk here, because fragmentation of liquidity was maybe starting to be solved in stablecoins, but people worry about fragmentation. If everybody has their own chain, everybody's tokenizing their own stocks, and none of these are interoperable. Is that solvable? And if so, how
Speaker 2 17:51
I think it is solvable. But unfortunately, I think these things goes in, like ebbs and flows, right? I think first, and as you said, like what we have seen in stablecoins, I think it's going to be perhaps like a lesson that hopefully people learn more quickly than in the prior iteration. But I think first you go towards fragmentation first, because the barrier for entry is so low, it's so easy to experiment with these things, right? It's going to be increasingly easy to launch products in this space. I mean, the things that are going to be hard are going to be the things that are always hard, which is, which is, do you have money to pay for good legal teams? Do you have money to get the licenses and things like that? But the technology in and of itself, it's becoming trivial to build these platforms. And so I think you're going to go into a situation where there is fragmentation first, and then I think technologically, we will evolve into things that are better and more with higher level of interoperability, in the same way that I think it's happening in a way with stable coins. I, I came to crypto from a technology background, right? I was trained as a software engineer and led teams of software engineers for many years, and I think I was fortunate to kind of grow up with the transition of traditional software development into web development, right? And I think when you realize like the shift that happened over there, I think what we are seeing is a very, very similar shift just applied to financial services. And I think people have been saying that blockchains and crypto would do this, but now it's pretty clear to me, because what happened with the internet was essentially powered by the standardization, driven by these protocols, right? Like you got something like HTTP, which was really the thing that you know, allowed everybody to work off of the same platform, right? Everybody knew that there was an endpoint, a URL with five methods, like get, put post, et cetera. There was no like coming up with your own interface, and the way that it used to be before in software, right? Which was, Oh, I think I need like, 10 methods, right? And I'm gonna call them like John, Mary and Joseph, or whatever it is, like, no, every endpoint is the same. Every endpoint represents a resource, and you get five methods, and you don't get to mess up with the interface. If you think about it, that's huge from a technology point of view, because then every. Everybody knows how to interact with every endpoint, with every service out in the world, and you can write code against those things because they are standard. They're less likely to change. Now move that to like crypto, right? And essentially you have things like ERC 20 tokens and stable coins, which, effectively, today, mostly have like, the same methods, you know. So $1 might have like, different form factors on chain. You know, it might be the USDC, the tether, et cetera, but they kind of roughly have the same interface. So liquidity becomes a problem then. But you can write code against these things and kind of homogenize them a little bit, and then tap on the advancement of things like pools and solvers and intents to improve liquidity. I think the same thing is going to happen to other I think stable 40 is where the tip of the spear. But I think the same thing are going to happen to these other asset classes. Eventually we will have a standard for what an equity token is. And again, as I said, it will be standard. It will have, like, the five or six methods that are necessary that's that's really powerful, and engineers tend to really, like, concentrate around that, and then liquidity gets solved with I think the magic of crypto, which I think is already inherently superior to how you solve liquidity in traditional markets, which is essentially via concentration, right? I think crypto is proving that you don't necessarily have to have concentration. We have a fairly fragmented on chain and defi market.
Cuy Sheffield 21:18
To joao's point, I think it's really interesting to see the Battle of chain standards, where you've got optimism in the OP stack, which base is built on. And so Coinbase has been really successful in building out base as their layer two. We've then seen other companies with distribution go the optimism op stack route. You've got world chain, which I believe is zero P stack. You've got Kraken creating the ink chain. And so if it's using those same standards of an l2 built on optimism, the idea is that it's easier to interoperate between base and ink and world chain. Now you have Robin Hood, who it's been fascinating to see the battle and the competition between Robin and Coinbase. They're not saying we're going to build on the same chain standard so that we can make it easy to interoperate with base. They're saying we're going to go with arbitrum. And arbitrum is really the biggest competitor to optimism. Arbitrum has got its own ecosystem. I think, benefits from more neutrality of developers who might be competing with Coinbase who don't want to build in Coinbase ecosystem. And so then Robinhood is really giving a huge boost to arbitrum, saying we're gonna use this stack and we're gonna build our own chain on top of it. That to go from arbitrum to base or go from op stack to Robinhood chain is not necessarily going to be as easy, but they're saying we're gonna create a separate ecosystem. Now the question is, does it stay a Robin Hood chain that is very closed loop just on their own customers? Are they going to take the same approach, and how Jesse Pollock has gone out and built a big ecosystem of other builders on base? Are there going to be other builders on the Robin Hood chain on arbitrary and so I think those standards wars are going to be really interesting over the next few years,
Speaker 1 23:01
maybe just to point on that right, like if every large enough company, I think there's kind of a global fact, which is, every company that's large enough wants to be a FinTech company, every company that's large enough wants to own their identity layer, right, and build an ecosystem around themselves. And therefore, every large enough company will want to own their own chain. Would want to maybe through an m zero issue, their own stable coin, right? Would want to own the full user experience, et cetera. And so to your point, there's like, this conflicting thing between standardization, right, and the crypto ethos of like, Hey, we're all using shared rails versus this inherent local Maxi bar. Hey, every company wants to own the full stack, right? And that's true for business, right? Like that's your wanna build your competitive advantage, right? The fact that Robin is playing crypto does not mean it's still not thinking about, okay, how do I create my strategic moat and competitive advantage, right? And so you're always gonna have this conflict. The cool thing though, at the end of the day, whether you're on base, which is optimism, right, or and even, by the way, base is kind of signaled that they're not gonna be a part of the super chain, right? So even this vision within optimism of a kind of a single, unified thing that works across their entire ecosystem is unclear to me still whether that will happen, but they all end up, whether you're an arbitrum or optimism, you end up selling on the theory, right? So there is some sort of common rails, right? And then it creates this, this really interesting. You're not going to agree on standards by definition, right? There's the famous XKCD comic of like, hey, there are 14 standards. We got to standardize this. Now, there are 15 standards, right? Like, we're not going to agree on standards, but you are going to get this innovation on bridging and swapping and interoperability between these chains in order to create less gaps. In that sense.
Sy Taylor 24:57
Well, we've had les arrow on the show with. Four I know chainlink likes to buy. In that space, there's lots of folks that are trying to build for and solve even if you're on Solana or something else so you know, something that's EVM compatible with an l1 like, I wonder if it's a case of, everybody wants to have their own stablecoin and everybody wants to have their own l1 in the same way that everybody needs a system of record. Like, actually, if you think about this as my company's system of record, and it just happens to live on chain because I get a bunch of network effect benefits from that, but also my system of record needs to talk to everybody else's system of record, and how it does that is still not figured out. It's like we have X 25 for networking, but we don't yet have HTTPS and HTTP even so we've got a ways to go and GET and POST and all of those other things. So yeah, we're still somewhat early, but we are always, always finding something new every day. Well, listen from tokenized stocks to tokenized sponsors. Let's hear about our sponsors who make this show possible. You 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 tokenized is also brought to you by avalanche, major banks, FinTech challengers and industry leaders are using avalanche to create new business models on a fully customizable blockchain infrastructure. Think of it as more than a blockchain. Think of it as an entire network built for financial institutions to innovate with purpose built layer ones institutions can tailor digital asset strategies to their exact needs while still tapping into the power of a public blockchain innovation developer communities and seamless interoperability join the institutions shaping the future of finance on avalanche, And you can learn more at avax dot network. All right. Thank you to our sponsors. Next up was a story from Reuters. This is about circle applying for a US trust banking license. I believe since then, it's also broken that ripple has applied for a national banking license with the OCC and anchorage digital of course, has a National Trust Bank Charter and has for some time. This charter would allow circle to manage reserves directly and provide custody of both Fiat and some of the other assets that they handle, and it would be called first national digital currency Bank, which FNaC, kind of a catchy name. And then this all came in the same week When news broke that Peter Thiel and anderal founder Palmer lucky are backing a new bank called Erebor, which intends to serve crypto startups and technology companies and be on chain native in how it does that. So Joel king of on chain native, is everybody going to be on chain native? Does everybody need a banking charter? What's the rationale for these folks getting charters? Yeah,
Speaker 2 28:35
it's really interesting. I love the name, by the way. I thought it was very clever and a classy name. I used to work at circle for eight years before m zero. I led the build out of USCC. I love the team. Love the product over there. Very happy for the IPO and for everything that they accomplish. It is a bit interesting, right? Because I think a lot of us in crypto are in the business of critiquing banks, right, and saying that, you know, that is a an outdated model, potentially an extractive model, and, you know, and if anything, we should have like, less of that and more of, you know, disintermediated models and etc, but because of what's happening with genius, right? I think there's going to be a race now. And there is clearly a race already, right? I think you named three or four, and there's going to be, like, five or six, and we could add a couple of others to that list. So it's going to be a race. I think obviously there's going to be some level of regulatory moat that genius will imbue to these companies, and having a federal charter like it's obviously, obviously put these companies at a place where potentially they can fight or compete for certain use cases, where folks who don't have that are just going to be unable to compete, I think, though, and this is interesting, my bet, personally, for a number of years already, has to do with something else that you said before, Simon, which is, or, I think it Tai you were talking about this. It's a bit of this conundrum right at the same time, we know, especially we who are technologists, we're like, No, don't go away. And create the 15th standard, right? Don't do that. Let's work together. Let's do more with less. Let's be more interoperable. But technology is just the way it is, right? People gravitate tremendously towards customization. It's just the way it is. You pick your favorite technology area, and invariably, the way things evolve is towards customization. We see this at m zero every day, right? Like every day, we have a new conversation about a new use case, where somebody wants to build their own digital dollar form factor, their own stable coin, and you just can't stop that. And the answer that we have to the market as well. If you can't stop it, let's at least try to introduce better technology so these things are more interoperable, and by adding customization, you don't have a fragmentation. So I think what we will see in the market is a very clear bifurcation. Now, right? I think we will see this upper end of the market where there will be very, very large existing use cases for the dollar, where people are going to seek who is a very large, very trustworthy provider that I can work with to be my stable coin platform of choice. And, you know, and these folks who are applying for these federal chart licenses, they're certainly aiming for that, right? I think, though, there is a significant long tail of the market which has to do with what we were talking about. Not the Robin Hoods, but the Robin Hoods wannabes, right? Not the coin business, but the coin business wannabes, those companies who are starting now, they don't have a way. There's not even a good fit for them to work with these very large incumbents at this point. You know, never mind the fact that they're going to be banks. They're gonna, there's gonna be a bar to be a counter party to those entities, right? So there's going to be, in our opinion, a significant opportunity on this long tail of fintech. You know, two guys in a garage trying to build a new FinTech built on things like dynamic blockchain rails, custom stablecoin rails, and those folks are going to move very, very fast. So I think the interesting thing to me for FinTech for the next couple of years is, who's going to win, right? Is it Robin Hood with like, tokenized stocks, or is it going to be three guys in a garage that, in a year will have a new hyper liquid, you know, that is a $5 billion gorilla that nobody saw coming from anywhere. I think that's going to be a bifurcation in the market that we will see. But certainly these folks who are going down the banking route, you know, led by how genius is coming up, I think we'll certainly have a share of the market.
Speaker 1 32:20
To your point. I do think, look, we're gonna see two things. I think this word might be overused, so apologies in advance, but we're gonna see this democratization of fintechs, right? What that means inherently. And I get that this word is probably overused, but really, what we're gonna see, I think, over next couple years, is the following, you used to take multiple years to build the Robin Hood, right? You would need to build the full financial stack internally. You would need to build internal tools. It used to take years to build a Venmo or a cash app, right? That would be an extremely complex task, and you would be kind of siloed to a single geography where you get that right in the next five to 10 years, your ability to wake up in the morning and build a FinTech company, it has accelerated significantly. So you're gonna see in the next year or two, a huge slew of Neo banks, a huge slew of Venmo competitors that are global contractor payments, that are global remittance apps, like Felix pago that are global come into the market very, very quickly, because at that point they're playing not on technology differentiation. They're playing on brand differentiation, right? Their ability to establish a brand, their ability to kind of go after a market, will happen. So when you see that shift of hey, the 10 Robin Hoods that can compete to the 1000 companies startups that can compete. All these need these new types of services that are associated with it, right? They need embedded wallets. They need custom stablecoins. And they also need a new type of bank that is a crypto first bank for them and for their use case, right? I think that's what Peter Thiel identifies here, right? Is that kind of new bank, and then you're going to have all these folks are going to make decisions, do I go with a ripple and a circle and the services they provide, in which I'm assuming they're going to expand beyond just stable coins and beyond just the requirements for genius act? Or am I going with like a traditional Morgan Stanley type mercury. You know, Mercury is not traditional, but there's going to be this brand new the competition, my opinion, is going to be for the next 10s of 1000s of companies getting started now, not for the companies that already started. And I think that's going to be this interesting trend over next couple
Sy Taylor 34:39
of years. Yeah. Can the incumbent get innovation before the innovator gets distribution? Clayton Christensen Kai, you've said it before. It is the classic question. But if it's faster and cheaper than ever to build new financial products on new financial rails, then you got to wonder if you do it. But coming back to the interoperability point, it's probably. So much fun you can have with your own blockchain, with your own coin in your own corner. But then there was a lot of these competing incentives in 1958 around the launch of something called BankAmericard. And then many years later, in San Francisco, there was something called the Fresno drop, and a little guy named D Hawk from Utah suggested that people should maybe start to just work together and build an incentive mechanism, and that incentive mechanism we call interchange. And as much as people tend to hate on the intermediaries, what they forget is the incentive mechanisms. What I think is fascinating about the digital asset space is some of those roles in the value chain get really, really segmented into pieces, and lots of people get to play for those pieces, and they get to connect to economics. So right now we're in an everybody trying to be everything phase. I wonder what happens when, when that starts to change? And maybe everybody always wants to be everything, and the incentives are just to launch your own chain, launch coin and go. But I'd love to potentially see that change. Kai, you work a lot with banks today. You work a lot with digital asset innovators and on Chain Finance. What is your thought on coming clarity and kind of the maturity in this space?
Cuy Sheffield 36:13
I completely agree with the broader thesis that we've just discussed here, of the barrier to entry to creating financial products is getting lower and lower almost by the month, and I think stable coins have played a major role in doing that. I think open source blockchain infrastructure. I think embedded wallet infrastructure, like all of these different pieces, like the time and cost to create a product that has functions that could look and feel like a bank, now not a bank, but functions of store, value, move value, send, receive, like those things are becoming easier and easier, and so what are the effects of that? I think one is there's just gonna be more competition than we've ever seen before in FinTech and financial services. And I think that the expectations of consumers, and I think consumers generally win when there's a ton of competition, that there's gonna be a lot of different unique approaches to creating differentiated new products and and I think that that's a good thing for consumers. I think for regulators, there's a question of okay with this barrier to entry getting lower and lower, that also screams risk. And if two people in a garage are creating a new financial service that can then grow and scale, are two people garage like ready for all the things that could go wrong. And so I think that there's this counterbalance of the role of specialized institutions that have charters. And a path towards federal supervision is going to become more and more important, and to then serve as some of the backbone in the infrastructure around how real dollars, traditional dollars, get into stablecoin and digital dollars and back out, and what are the obligations and responsibilities there? I think it's going to be more and more important. And more important. And so my understanding of a lot of the news on the charters is it's very much it's driven by genius, that people see genius coming. And for the first time, there is a potential federal path to supervise stablecoin issuance, where the past few years, the only option has really been state paths. And so you've had either state by state, MTLS, which was designed for traditional closed loop e money, not really designed for global stable coins. And then you've had some state trust structures, like New York trusts, which regulate some of these stable coins. But I think that there is a logical approach to having a federal regulatory framework to oversee a stablecoin issuer, and if you're going to have hundreds, 1000s of companies building on top of that, stablecoin, being able to have some entity that's regulated in the flow that I think will be important for regulators and risk mitigation, but it's never been a more exciting time for builders in terms of this barrier to entry getting lower. And I think for banks, they're starting to wake up to say they're gonna see more competition than they've seen before. And I think you have to be ready, and you have to embrace that. And I think if you are using that to push yourselves to innovate faster, create better products and do things that you haven't done before, that's where that competition is going to be really hard. I think you you have to up your game as more people come in to create competitive products to you
Sy Taylor 39:37
know, it's fascinating to watch, for sure. I think there's a couple of things you get as a bank that you might not get as a permitted payment stablecoin issuer, which is access to fed master accounts and direct access to fed wire so you can clear stables against regular Fiat dollars. I think a little bit about column bank. So column is an API first bank where. The full federal charter, one of the co founders of plaid went on, I think, will to create, and they now support a lot of the FinTech companies who want to provide banking and payment services. So the non banks, I think, I don't know who the clients, but I would imagine it's a Mercury brex type of, type of company. And what's instructive, I think, about the whole banking as a service. Thing that we saw over the past couple of years was there wasn't really a clear regulatory framework around how sponsor banking should work. If you go back to the Dodd Frank Act of 2010 passed in the aftermath of the financial crisis, there was this little quote that said very small banks should be able to receive more interchange than the larger banks. And this was designed to help community banks thrive and flourish. But what it actually did is it created a new business model where they were able to partner with intermediaries and then third parties, your chimes, your cash apps, and everybody else, because they could share that revenue up. But that was never designed. It was an accident of regulation. This time around, we have at least intentional regulation, and I was speaking to will gaybrick Yesterday, who'll be on the show soon, the president of stripe, and he had a great frame for regulation, which is the best answer is yes, the second best answer is no, and the worst answer is maybe, and clarity is extremely valuable in this world. And I do wonder, with Peter Thiel and with Palmer Luckey how much the SVB collapse is part of their thinking. The collapse of SB VB was the biggest systemic risk to stablecoins and crypto there was, it was actually a bank collapsing that delivered a lot of that risk. So by building their own and changing how the backing works, perhaps they're sort of being able to deliver new products and services that are tech natives. So I will get off my soapbox now and move us to the next story. So this came from again, just about everywhere. Crypto exchange Kraken has unveiled crack the all in one global money app so users can send funds peer to peer across 110 countries using 300 plus assets across crypto, stable coins and Fiat without inserting bank details or crypto wallet addresses. It will also offer dedicated spend and earn accounts where eligible users can receive up to 4.1% rewards on usdg stablecoin balances, as well as opportunities across 20 plus digital assets, yielding up to 10% so in an interview, Kraken Global Head of consumer products, Mark Greenberg said, Look, banking sucks. Maybe that's the simplest way to say it. I gotta say Mark, I don't fully agree, but I think it could be a lot better it. Tai, what are your thoughts on this one?
Speaker 1 42:59
Yeah, absolutely. So first full disclosure, they now make Kraken is a dynamic customer, so we know the team very well, and we're giant fans of what they're building. Plus, I think just the fact that we saw the crack logo in an f1 car is cool on its own. So you know, just the ability for you to write crack twice on an f1 car, I think, is as a pretty unique experience. But look, I think it actually touches the Robin Hood point, which is what we're gonna see is we're gonna see your all in one FinTech app, right? And we're gonna see whether it's a web three or, like a crypto based company moving more into, you know, trade anything, or a FinTech company like Robin Hood moving into crypto and trade everything, you're gonna get these unified giant, full stack experience FinTech apps that sit there and let you trade everything, let you earn, let you send money, let you do the Cash App Venmo type thing, let you pay, and do that at scale, right? And so these are all attempts, in my opinion, and I bet we're gonna see the same from Coinbase, right? These are gonna be all attempts at building your single, unified place where you wake up in the morning and do everything financial, right? And that is my take of the crack app. Is really it's a huge step, and in my opinion, an extremely successful kind of launch and hype generation. Step around your all in one FinTech app that happens to include crypto, that happens to be global by nature, that happens to just work on your phone. We're just gonna see a lot more of that over next six months, 12 months, as the barrier to launching them is going to be extremely low, right? You can wake up into more again, coming back to this, you can there's a hackathon in two weeks that leverages dynamic you can wake up in the morning on the Saturday, by Sunday, you can get a v1 of a NEO bank slash Cash App, right, or global Venmo by implementing on ramps, off ramps embedded while. So my take here is that these are very much becoming not technology plays, but customer acquisition plays. And you're gonna very quickly see anyone who has already a consumer brand, like a kraken Coinbase, I would bet a crypto.com and then a Robin Hood chime extend. Anyone in web two that has this brand try to build their all in one full stack powered app. That's my take. It's like the first signal in kind of a set of launches you're gonna see over next 12 to 18 months of all these apps trying to be your all in one unified FinTech app. I'd
Cuy Sheffield 45:37
love Joel's thoughts on this, but I was going back to when stable coins emerged and launched, the first consumer interfaces were crypto exchanges. And crypto exchanges weren't really built for payments, and the first use cases for stable coins tended to be more around crypto trading. It was really interesting to us when we started to see in 2021 2022 these examples particularly in emerging markets, of mainstream consumers downloading a crypto exchange not to buy or sell Bitcoin, but to send or receive stable coins for mitsus. I think binance is probably one of the best examples where binance, you had everyday people who were like had an order book that they were withdrawing from to make a P to P payment. And so I think it was a matter of time that crypto exchanges, they had all the infrastructure they understood stable coins that had been embracing stable coins from day one, when they were created, now to say, why don't you create an app that is purpose built for more mainstream stable coin payment use cases that are separate from the core value prop of looking at an order book and trading crypto assets. And I think we've seen Coinbase to that, to some extent, with Coinbase wallet, they're taking a very different approach, and have had some products that have been more USDC focused. And so I think Kraken doing this with usdg, it makes a lot of sense. And I think that you need more purpose built FinTech products that are going to get stable coins in more mainstream consumers hands, rather than having to go through the complexity of a crypto exchange. If you don't have any interest in trading crypto, you just want
Sy Taylor 47:09
the dollars. Simplicity is a wonderful thing. Your thoughts you are,
Speaker 2 47:13
yeah, I think Simon, you will remember this from a prior life of yours where we worked together or collaborated with in my times at a product I circled, that I led, that was called circle pay, which was perhaps a little too wordy, but it was another one of these attempts at building a social experience for peer to peer payments, right? And at a time we would power those peer to peer transfers with Bitcoin. You know, Bitcoin turned out to be after 2016 like not the digital cash that people, some people, hoped for, right? It became something slightly different, more like, akin to digital gold, but because I've seen those things like for a number of years now, I find it very interesting. And I looked a little bit at the UI and the user experience, this seems to be like a great product that Kraken is putting together, but it is hard, right? And I, what I find interesting is, again, we've repeated a few things today already, but this is all part of the same trend, right? Because if you think about Kraken, you know, they also have the underlying infrastructure in Inc, right? They're also playing there. They obviously have the exchange. They participate on the usdg network. So this is one more attempt, as it Tai said, as you know, what is the actual composition of, like, a full stack offering to our customers, right? Because I think what crypto makes this fascinating is that I don't think we have an answer yet in terms of the layers, in terms of business models that people will occupy, right? What is the platform layer, what is the app layer, and what gets built on top of what I mean are stable coins, an app or a platform, right? I think all these things are still going to be determined. I don't think layer ones and layer twos kind of appreciate how much stable coins have interfered between them and the end users that utilize those platforms, right? And as a platform, you never want somebody to come in and stay between you and your customers. But at the same time, Kraken is coming to this from that angle, but you look at a lot of other people are trying to do this right, like telegram. Telegram started from the consumer experience and have gone into the chain, right? And Coinbase, you know, can easily like play in this space. You know, you could argue that PayPal, like, also had, like the peer to peer payments experience and have gone into stable coins. So I think there will still be a lot of experimentation there. But at the end of the day, these types of experience, especially with the more social ones they are about network effects. And I, I think it's going to be hard to beat the folks who actually own the network effects, right, the large WhatsApps, you know, messengers, all these large like tech companies, who are able to get to billions of me use. It's interesting when they are going to make their move as well? Because I think they will. It's just a matter of time. When are they going to introduce financial services and applications into those social experiences. And you know, are they going to have their own stable coin? Are they going to have their own layer one, layer two? Eventually we'll start seeing more of that happening as well. I
Sy Taylor 49:58
suspect that's some of the things. Thing between Palmer lucky and peace Thiel is be the bank that serves them on the basis that none of the big tech companies want to be inside of the regulation of ppsi or the bank holding company Act, which can be very, very difficult to be a part of, for if you are a tech company that's trying to operate on a global basis. But I buy your point. We just don't know. There is still just so much experimentation. I saw that I think Takeo one of the most downloaded apps in either Brazil or Mexico, and that is a sort of stablecoin focused wallet with cards attached. Cast are growing incredibly fast. So that experience of like stablecoin native dollar card are some of the fastest growing products in the world of fintech. They just happen to be not domestic. So Joao, I buy your broader argument that we're at the beginning of this journey, not the end of it. Well, listen, that puts us at time. I'm sure we could keep rolling on this one forever. We probably need a two hour show just to unpack all of the news and other takes that could be done about this one. But before we go, I gotta thank everybody for watching, for listening. I appreciate all of you. Tai, where can people find out more about you and what you're up to at visa
Cuy Sheffield 51:12
on x at Tai Sheffield and visa.com/crypto
Sy Taylor 51:15
it's Tai. How about you?
Speaker 1 51:16
So on X, turbine, same on farcaster, and then dynamic dot, x, y, z, for at all your embedded wallets or wallet needs, fantastic
Sy Taylor 51:26
and Joao,
Speaker 2 51:27
you can find me on x at reginato as my last name, R, E, G, I, N, A, T, T, O. And if you're interested in building and integrating your own bespoke stable coin into your business, you can find m zero at at m zero, an M and A zero fare. Easy to find out. X, what
Sy Taylor 51:44
a great title. You'll find me at sy Taylor on Twitter, Simon Taylor on LinkedIn, or FinTech, brain food.com and if you haven't already, please go ahead and hit the like button. Subscribe, leave reviews. Do all of the things that good hosts remind you to do at the end of The Show, and we'll we'll catch you next time.