On Ep. 62 of Tokenized, Simon Taylor, Head of Market Development @ Tempo is joined by Marieke Flament, 2x CEO, Angel Investor, Advisor, Co-Author of Euro Stable Watch, Chuk Okpalugo, Founder @ Stablecoin Blueprint and Nadine Chakar, Global Head of DTCC Digital Assets to discuss DTCC being authorized to tokenize top 1000 US stocks, the importance of tokenizing real legal rights vs. synthetic wrappers and more!
On Ep. 62 of Tokenized, Simon Taylor, Head of Market Development @ Tempo is joined by Marieke Flament, 2x CEO, Angel Investor, Advisor, Co-Author of Euro Stable Watch, Chuk Okpalugo, Founder @ Stablecoin Blueprint and Nadine Chakar, Global Head of DTCC Digital Assets to discuss DTCC being authorized to tokenize top 1000 US stocks, the importance of tokenizing real legal rights vs. synthetic wrappers and more!
Timestamps:
Tokenized is sponsored 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 presented by Bridge, a Stripe company.
Just like the internet made information global, stablecoins are making money global. And Bridge, a Stripe company, is the infrastructure powering that shift. Built for speed, scale, and simplicity, Bridge helps businesses send, store, convert, and spend stablecoins instantly, all without borders or having to navigate the complexities of crypto. Learn more at bridge.xyz
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With over $1 billion in total value locked, Centrifuge works with major institutional partners to tokenize and distribute their funds — and with capital allocators onchain to invest and manage yield. Through every crypto cycle, Centrifuge has been building — and today, it’s the market leader in tokenizing real-world assets. Learn more at centrifuge.io
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We’d also like to remind you that the views or opinions of our contributors today are their own and do not necessarily reflect those of the companies they are representing. Nothing we say should be taken as tax, financial, investment or legal advice, do your own research!
Music by Henry McLean
Sy Taylor 00:00
Simon, welcome to tokenized. The show focused on stable coins and the institutional adoption of tokenized real world assets. My name is Simon Taylor. I'm your host for today, author of FinTech, brain food and head of market dev over at tempo, and there is no Kai today. He's actually taking some time off. Guy's had quite a big year, but don't worry, you'll hear his voice soon, because we recorded our 2025 review, our 2026 predictions, and they'll be coming to you very soon. I'm joined for the whole show by two incredible guests making a return. Is marique Flamen, who is an Ned investor advisor, former CEO of the NIO Foundation, CEO of the Neo bank metal and former CMO of circle, possibly the most qualified guest we could have on the show. Marik, thank you so much for being back with us.
Marieke Flament 00:56
How are you very good? Thank you so much for having me back, really looking forward to our chat today,
Sy Taylor 01:02
and making a debut is the incredible Chuck okpelugo, who is founder of stablecoin Blueprint now working at this week in FinTech, hosting the incredible Money Code podcast. Please do go check that out. And if you follow Chuck at all on social, he creates some incredible stuff now and formerly product of pack source, how you doing,
Chuk 01:22
Chuck? I'm doing very well. Thanks for the kind words.
Sy Taylor 01:25
Yeah, you're welcome, man. You do good stuff. I'm going to give you your flowers, and it's going to happen. And we're also joined by a special guest to help cover one of the biggest stories of the week. This is Nadine chakar, who's Global Head of DTCC digital assets. Nadine, how are you doing
Nadine Chakar 01:40
I'm doing great. Thank you for having me. Thank you so much.
Sy Taylor 01:43
You've got a big story. We're going to come to that in a second, but before we do, I just got to remind everybody that views and opinions of our contributors today are their own and might not reflect those of companies they represent. Please don't take anything we say is tax, legal, financial or investment advice, and always do your own research, folks. And I'm happy to remind you that this podcast is sponsored by our friends at centrifuge. Tokenized is brought to you by our friends at centrifuge. Centrifuge exists to bring institutional grade finance products fully on chain. Centrifuge is a full lifecycle defi platform from asset creation and structuring to defi integration, and it's cross asset by design. What that means is they work across private credit, ETFs and equities, making your financial products much more accessible and much more efficient. This is the tokenization you keep hearing about unlocked for all asset classes by centrifuge. All right. Story number one from just about everywhere, the DTCC is now authorized to tokenize the top 1000 US stocks. So of course, the DTCC through the subsidiary DTC, that's lots of DS and Ts and Ts. This is essentially the people that hold and move the stocks, processing 3.7 quadrillion securities transactions annually, with custody of over $100 trillion in assets. When you buy an Apple stock through fidelity, DTC is what actually clears and settles that trade at the last leg. This is not a synthetic derivative or an IOU. This is actual real world assets, real obligations being tokenized. And this is in the same week that securitized are launching their real, not synthetic stocks on trade. So Nadine, we couldn't have a better guest to talk through this, talk us through the journey to get to where you are today and what you're hoping for now that these stocks will increasingly be available as tokens.
Nadine Chakar 03:49
So it's been an exciting week, but it's been years in the making. So we joined DTCC, myself, dam Doney and a whole bunch of us about two years ago when DTCC purchased the FinTech that we were leading. It was named securrency and securancy, actually the same platform. The same technology was actually the backbone that allowed WisdomTree, many years earlier, to achieve its first SEC authorizations, to launch some of the first tokenized money market mutual funds, actually in the industry. So two years ago, actually, last week, was our two year anniversary, when we joined DTCC, and we had been working on, how do we extend what DTCC does into the defi world? That is really the vision that we have, is, how do you bridge between tradfi and defi? And listen, there's a lot of people with very strong opinions of what that depositories won't be needed in the future. Do we don't want anything that centralized, all that good stuff. And what we actually tried to do was show them that there's actually value to have organizations like DTCC really help with that process. Now. What happens in five or 10 years? I don't. Know, my guess is it will continue to evolve, and we'll do what we do a bit differently. But you needed somebody right now to be able to do tokenization in a way that continued to protect investor protections really extend it with all the legal rights and obligations that go with it. And what a depository does, which is really important, Simon, is we are also at a good control location. When you have an issuer like Apple, let's assume they issue 1000 shares. How do you make sure, after the 1000 shares get tokenized and those get tokenized and those get tokenized, that there's still fundamentally 1000 shares, and that's really what the Depository does, among other things that we do. So extending that into the digital world, I think it's also important to acknowledge that our hypotheses, and I think you'll agree with that, is, while we believe that someday everything will tokenize, it is going to take us a while to get there, what we've tried to do at DTCC is really, we're trying to take 5055, years of evolving the US capital markets. We're the largest capital markets in the world, and we're really trying to digitize that in a matter of, like, 50 weeks. Obviously, there's been a lot of work and foundational work that occurred before that, and I'll give you some stats here. It's like you said, we settle for quadrillion dollars a year, which is true. I don't know if you guys know how many zeros are in a quadrillion I had to google that my first time? So anybody want to take any is it 16? You're close 15, so or put $100 trillion on our platform? Like we had grandiose ideas on how we can transform the markets, but not at the scale. So you need scale, you need resiliency, and there is no better institution that can enable all that. So it was a matter of like, how do we enable the market? How do we get participants and consumers choice? You can tokenize or you don't. You can continue to use the old ways or the new ways. But if you want to engage in a brand new world of defi and test your investment hypotheses, we wanted to give the market on ramps and off ramps that they could do that. And this week, the SEC agreed with that. And hence we commence our journey.
Sy Taylor 07:07
It's a big moment for sure. And I think it was Vlad Tai nev of Robin Hood said that tokenization would be the biggest thing to happen since dematerialization. And of course, the DTCC itself really grew up in the ending of paper stock certificates and the forming of depositories. So now, surely it gets to pass the torch to tokenization. But there was also this narrative at the moment of the amount of things where distribution of existing assets is really a leg up into tokenization. If you already have cash, if you already have customers, if you already have stocks. You're the right place to do it, but we have seen these synthetic wrapper products before, where it's an SPV or something else. Talk to me about why it's important that this is not a synthetic wrapper around the stock. The token really is the legal rights and obligations and claims to that stock.
Nadine Chakar 08:01
As I said, it's important the way we view the market, right again, we look at our role in the market to ensure stability, to ensure that there's deep liquidity and, obviously, investor protection. So the best way we could think of doing that was to extend, if you will, the offerings that we do in tradfi into defi. So in the digital space, we are creating digital twins, so you can actually move the assets on multiple wallets depending on what your investment strategies and your risk tolerance are. We also wanted to make sure that by being able to ensure that it is a real good representation of that asset. Again, I go back to the good control location. Somebody's got to account for that. Somebody's got to ensure that there's governance. So I'm not saying the other models work or don't work, honestly, where we're at right now in the marketplace, every single innovation is a step forward to get us to the place that we're all trying to get to go to we've decided to do it the hard way. For example, there's nothing harder, and what we do is probably the less sexy thing that we do is corporate actions, right, paying dividends, paying income, doing mergers. That is very hard to do on chain, and we've taken the past couple of year to be able to figure out, how do you process it on chain? But there's also protection of the underlying participant, right? This protection of data. So from a technology perspective, it is an amazing problem to solve, and this is where you see DTCC emerging into a true technology enabler and provider. So all the things that people think about centralized depositories, we would like to think that we sort of shattered that myth and Simon. I don't know if you and your listeners may have looked at what we did earlier in April. We did something called the Great collateral experiment, granted no marketing people were hurt trying to name that experiment, what we were able to show is. Is the technology is no longer the problem, right? Like we've got good technology that works. We were able to show how you can combine crypto assets with traditional assets. We were able to show how you can move collateral at the speed of the network. We were able to show, God forbid there's another bankruptcy like Lehman, we could return the assets. We know where they are every single minute of the day, and we know exactly where these assets are. Should something bad happen, we can and this is where we use a very proprietary methodology. It's called the compliance aware token. So again, we're highly regulated. We need to make sure that I know who Simon is, that Simon is a good guy, Simon's use of funds are legit, and then you and I can then exchange our tokens, 24/7, as long as I can recognize your wallet and move things around. That's amazing. So we were able to shatter this myth that depositories listen. We know our role in the future is going to change. I don't believe we're going to disappear. I think what we do and how we do it will change, and you're starting to see this evolution with the first steps that we're taking today.
Sy Taylor 11:07
Marie, what are your thoughts, questions, comments?
Marieke Flament 11:09
Well, a lot. One, I think it's huge. So indeed, like Nadine, congrats, and it sounds like it's been quite a journey, and there is more to come. You know, when I saw that, I was like, Oh, the Larry, think vision is also coming too, right? We hear tokenization of financial markets, which, on reflection, I remember, you know, when I was at Circle, almost 10 years ago, Jeremy was also talking about tokenization of everything except 10 years ago, people thought, you know, you were crazy. You were saying that. And to me, this is like, now it's starting to really happen, and you have this very huge component of the infrastructure system that are doing that. So that's thought number one, which is like we are getting on this realization of the journey. My thought number two was, Oh, I wonder what it would take in other geographies to get to the same level, right, and actually the realization that with DTCC, you have a unique, like humongous player, which basically can therefore also show the way to a much more fragmented market behind that, for anything that stock related. So I think that will definitely be charting the way forward in terms of what other continents and what other geographies actually, might actually be doing. So I think a lot of eyes are going to be on that. And I mean, my third thought is more like, it's more technical, but I was wondering, because it's the beginning of the journey, but you know, which chains are you going to use, or how is that all going to work? Because I think there's going to be a lot, you know, and a lot of eyes looking so given the volumes and given the size of it, I think there's going to be a lot to look into that. But again, congrats. I think it's huge, and it's definitely getting into this tokenization of everything that we've been talking about for, for decades.
Nadine Chakar 12:34
No, thank you. And you're absolutely right. I mean, all our clients are global in nature, our participants. So while we're starting the journey in the US. And you notice these tokens, once you issue them and release them, they can move anywhere they want to move to, right? So they become global in nature, and we've taken great pains, if you will, to ensure that wherever jurisdictions they operate in, that they're compliant with the local rules and regulations. But again, we would advise all our participants and users of these tokens to get their own advice as we started this podcast. And you're absolutely right on the chains I think you saw yesterday, we announced the first chain that's out there that we've partnered with, which is Canton. To your point, there is not one chain that's going to be able to handle the volumes that we're looking at. So by definition, we will be looking at other chains, but they need to satisfy requirements that are going to make our regulators comfortable that there's nothing funny happening behind the scenes. And I think you guys have seen the stories this week, so we take great pain to ensure that from legal and regulatory perspective, all these chains are above board. And what DTCC is working on is to, as we add these chains into our ecosystem, that we would have an orchestration layer that covers it, right? So if you tell me, all right, mint today on Canton, but tomorrow, I need you to move it to stellar, or move it to SWE or wherever we want to go Ethereum, we'll be able to do that while maintaining the appropriate records. So I think that's going to be super important, and that will be another phase, if you will, of where we're head. Because, yes, the headline today is, we're going to tokenize everything. But in my head, it's like, okay, we did that. Then what? Right? So we've got to give these tokens mobility, velocity a purpose. That's where the collateral app chain comes in. This is where some of the orchestration layer comes in, and then working with with our participants across the board to create more applications that would add value as we move down the chain.
Chuk 14:31
Yeah, I think it's incredible, really. And I echo the congratulations as these are many, many years in the coming. And I remember when I was working at Paxos, one of the first things that we did, we were and you may remember Nadine, we were working to build a clearing agency that would plug into the DTC and then enable the mobilization, and then claim the settlement of securities and then pass them back into the DCC when needed. And I think one thing that folks probably don't appreciate about what security. See, and now within DTCC is doing is this incredible innovation within such a large system that processes so much and has so many rules and regulations and processes that have been going on for decades to adhere to. And we mentioned at the beginning of the section that this is not a wrapper. It's not an SPV. It is the direct share. It's as close as you can in this current system, which is the security entitlement. And there are, we're about to talk about another model, which is also the direct share, that securitize. And, you know, securities securitized are the two kind of pioneers of the space, right? And they have a different set of constraints, where there aren't the same set of rules and regulations. It is brand new, and they have to operate in a way where, yes, the user can hold the token and be on the cap table of the customer, the customer here being the issuer, the company, but that's an opt in, and there are a lot of constraints as to how that fits in with existing systems versus with the DTCC. All the participants know how that fits in. They know how to reconcile. They know what the equivalent movements are, and being able to do all that innovation within a world where everyone is already participating, the 100 trillions of asset is already sitting, I think, puts you in a great position to move more of the kind of standard flows on chain. And so I think that's at a unique point where I think both systems will need to coexist. That you don't get the 3.7 quadrillion of trade settlement without the efficiencies of clearing in a kind of centralized way, but you need to be able to add the tokenization in a world where the existing participants are working and all the rules and processes are well understood.
Nadine Chakar 16:43
Indeed, indeed. Yeah, I was gonna say Chuck, you're spot on. And great debt of gratitude to the Paxos and Chad's vision earlier on. And also a massive shout out to Frank la sala, the current CEO of DTCC and the board, because when they did acquire security, they definitely took a leap of faith that this was going to happen. So their vision for the future actually spanned out very nicely. And to your point, and I think I said it earlier, I think it's very early in the stage to determine if there is a right model or not. So that's why every model is a good step forward. But there's one thing that we need to make sure that we don't do and we need to work together as an industry, is we can't fragment liquidity Right? Like our markets are the biggest in the world. They're they're the envy of the world, because we've got very deep liquidity pools. So if you go back and take a look at the work we did with NASDAQ, and again, just like the chains, there'll be one of many exchanges, one of many pools that we will work with. So no matter what we do and what models we choose as an industry, there's only one card in the rule here, maybe two. One is don't fragment liquidity. And two, make sure that ownership is accounted for and well governed. And I think everything else will eventually fall into place as technology gets better, our understanding gets better. And then there's one last piece, which is, everybody's excited about this, but the state of readiness of the industry still not where it needs to be. And I think 26 will be a good transition year, maybe spilling into 27 so we'll have inventory, it'll be available, and check our model, as well as opt in, we will need a participant to, say, tokenize whatever stock that you have in the methodology that we've used is they actually can tokenize from traditional into digital, and they could also request to go back from digital into traditional, and we'll give them their positions in both, so they'll get total and How they broke it out. So that will be critical. But what I'm more worried about, I'm somebody who spent my career on the infrastructure side of the house, so looking at how this transition is going to occur from traditional systems into this new, brave world, converting from account based systems into wallets, that is something that still, I think that on back offices are still grasping with on that journey.
Sy Taylor 19:05
It is non trivial. Nadine, I think I'm echoing everybody. Want to say, congratulations again, and we look forward to many more things to come from you. If people want to find out more about what you've been up to, or if they do want to opt in, maybe they are in the industry, and you know, they're building a NEO bank and they're building a brokerage, or they're sort of clearing agent, and they want to look at this, and if it can make a difference for them, where do they go to do that?
Nadine Chakar 19:27
So we would love to hear from everybody, whether you're an advocate or not. So we'll talk to one and all. I would urge you to go to the dtcc.com website. We have a micro site there where we have the FAQs. We've got the nal letter. If somebody would like to become a DTC participant, we'll walk you through all that. And if all fails, just come to me and I'll be happy to assist. But the website is probably a good place to go. We've gone to great length to put all that information, and we update it pretty much a couple of times a day.
Sy Taylor 19:58
Well, thank you very much indeed. We'll. Have you back on the show many times, I'm sure to talk about it.
Nadine Chakar 20:02
I would love that. Thank you so much, Simon and Happy Holidays to all. Thank you.
Sy Taylor 20:06
Thank you. Bye for now. Alrighty, guys, the next story this week was from just about everywhere. I don't know if you saw this one, Chuck America, but these are going to make stable coin settlement available to us banks using USDC and Solana Cross River, and Lee bank are the first to use it, and this means banks can now settle seven days a week. And the head of growth products at visa says our banking partners are not only asking about us, they're preparing to use it. And visa said their stable coin settlement is already running at $3.5 billion annualized, and that compares to the previous quarter, where, I think they were said it was 1 billion. So three and a half x is pretty good. And they also announced their stable coin advisory practice. So Kai's been saying every big company needs a stable COIN strategy, and lo and behold, he goes and builds an advisory practice for himself. But Chuck, I'm gonna come to you first on this. Like, how important is this move, and what difference does it make to banks and sort of behind the scenes. What's your take here? My favorite
Chuk 21:06
part about this is that it's a domestic settlement use case. I think many people think about stable coins as okay. Where do they fit? Domestic rails are pretty okay. Cross border. It's all cross border. It's remittances, it's treasury, it's this. And this is a domestic use case. And when folks are looking at the there's always so many visa settlement diagrams on LinkedIn that you can find of money who has to go from the issuing bank to the acquiring bank. Visa facilitates who gets what and when and through a cleaner settlement process. And if you're the merchant, you get your funds in three days. And if you're the issuer, you have to manage your treasury and think through when you go into settle, and you only have five days of the week to do so. And so there are benefits on all sides. Really, this is upgrading a core part of the kind of the settlement pipeline and plumbing for this network. And I think, you know, in the future, even though we're at 3.5 billion, which is a small part of Visa's overall volumes. Over time, the merchants will no longer be held hostage by the merchant inquiry. The funds should be getting there faster and faster as more and more stable coins settlement is a greater percentage of the overall assessment that visa does. So very excited to see especially Lee bank and cross river being the kind of early pioneers being able to offer unique, sponsored bank card issues programs to their fintechs. And I think that will empower FinTech companies to start to offer better use cases for their customers, and that should overall, put more and more pressure on other card issuers and other acquirers to improve the offering. And so unfortunately, the 3.5 billion annualized number, we don't have a good number to compare it to. I think people know that visa process is 17 trillion annually, but that's the authorized number that gets multilaterally netted down to a much smaller number, but we don't have a sense of what that is yet. Chi isn't here, but it appears to know what percentage that 3.5 billion is of overall settlement, because then that's going to rapidly encroach on that number over
Sy Taylor 23:03
time. Indeed, indeed. Marie, your
Marieke Flament 23:05
thoughts, yeah, I think Chuck, you nailed it like this. The fact that this is actually a domestic use case is actually really interesting, because everybody out there is talking about cross borders. I think that's a huge thing. The other thing to me, it's really like this is using stablecoin rails instead of Fiat rails. And therefore this idea that now you have, like, a unique layer on which you can go back and forth, and therefore go faster, and you could transpose that mechanism even in other geographies. Actually, you could say, let's say, for example, for the African continent, you could have the same stable cone rails, but that actually helped do that between different countries. So I think that's actually also a very powerful concept the way it can be designed. So that's one thing. Bouncing back on what Nadine was saying, there is something really interesting with liquidity. Because I also loved her last point, which was like, we cannot mess up liquidity, because everything is going to be about liquidity, and we are, indeed, sometimes I wonder, a bit in danger, because we have so many different chains, even if it's the same asset that it's being bid on. And therefore, like, are we fragmenting things too much? And therefore what are we doing to liquidity? But here, this use case is actually helping liquidity. And I don't know what the number is, but I think there's a huge amount of liquidity that's being trapped because it can't actually be released fast enough for all the smaller merchants that if they had it, their working capital would actually be better, and therefore what they could offer to the end user would be better, and so on and so forth. So the that's just the tip of the iceberg, which could be a very big unlock. And so yet still to be seen how much it plays out and how much it's going to be, but I think there's definitely a lot of potential. And indeed, like it looks like Visa is firing on all cylinders here. So yeah, looking forward to seeing what the other card issuers are going to do, because daemon,
Sy Taylor 24:43
indeed, your boy Kai, was on Bloomberg talking about this stuff, and he was in 4k and I think the TV presenter was in 10 ATP, like, I don't know what's going on there. It was an incredible video, but long may that continue. And I think, to your point, Marie, it sort of pressures the rest of the industry to look at this alt. Alternative settlement mechanism. And whilst, yes, I fully agree, the domestic thing is, what really stuck out to me about this, it does work across borders too, like sometimes you issue cards and a customer authorizes a payment, but then settling that through the correspondent banking network, that can be extremely slow and expensive, even as a card issuer like that's quite painful to do. You know, if customers walking around the world on a tour of Latin America using their visa card, then all of the different local banks that you have to settle through correspondent banking with, there's the card issuer in the United States that can be tricky. So stable coins just done much, much simpler. And then it becomes this rail above rails, this alternative supplement layer. And I think people are starting to get that now, which is a really good point. The couple of other stories that caught my eye on the stable coin front whilst we're there, both SoFi and Coinbase launched stablecoin as a service, this stablecoin issuance product. Chuck your thoughts on both of these, like Coinbase coming into it, and SoFi specifically, because their setup is a little bit
Chuk 26:03
different, I think this is just another indication that stable coin issuance is a commoditized product, and the issuers have to position themselves differently based on the types of customers. How regulated do they need to be, how large, how small, how programmable. There'll be many, many stable coins, as is becoming very clear. And I think, you know, I counted about maybe seven or eight issuers who have come out in the last six months. What's interesting about SoFi is they are a OCC regulated bank, so they issued also so far USD, so it's the first time a national bank has done that. And I think their positioning will be, if you are a bank, you're a bank like institution, you can trust us, because we understand you, we understand the regulation, we understand what you need. We can speak your language, and the reserves are held at our accounts at the Fed, and so they kind of have the end around cbdc, but it's private, because essentially it's cash. There's no treasury, there's no run on the Fed, right? It's not like you can look at the comments that folks have made about people having to run on stable coins and potentially having liquidity issues on treasuries. Even though Treasuries are incredibly liquid, you can't have that argument with the Fed master account. And so I think so far, this positioning is strong from that perspective, because there are no other issuers who, incredibly say that until the many issuers who have just received their OCC charter, if any of them get fed master accounts as well, then they'll be able to do the same thing. But then clear when and how soon that will happen. And then for Coinbase. Coinbase is really interesting. I think I saw some confusion backed by USDC and a basket of other stable coins. How does that work? But folks may forget that Coinbase, because of their relationship with circle, earn 100% of the yield from circle's stable coin, and they get a portion of the yield that's sitting outside of the Coinbase platform, so 100% of what they sit on and a percentage of what's out there, and so therefore they can utilize that in their own rewards. And not only that, I mean, that's what most stable conditions will do. The underlying asset is a token. So their reserve management will actually be quite efficient, because it's completely on chain. They don't need to actually manage need to actually manage treasuries. And you know, some folks are using tokenized treasuries, but if you work with Biddle, they have minimum investment requirements, so Coinbase can $5,000,000.50
Sy Taylor 28:32
basically to move it is very expensive. So
Chuk 28:35
Coinbase now essentially has one of the most efficient reserve management processes, because they can just use USDC. Not only that, and they didn't say this, but I imagine they'll try to do this. They can make their white label issued stable coins interoperable with USDC on chain, which is another benefit. Because, as we know, in defi and in most western use cases, USDC has the most liquidity now. Tether has more liquidity elsewhere in foreign exchanges and cross border payments. And USDC is catching up, and they're working very hard there, but the ability to be seamlessly interoperable on an on chain way is quite a good draw. So covid is actually quite competitive, and they also have their extensive on ramp and off ramp network, plus their Coinbase developer platform, has wallet tech and so on. So they're actually quite a vulnerable competitor into this many horse race
Sy Taylor 29:33
indeed, and orchestration may be coming next is probably the one piece missing, and there were rumors of them potentially acquiring bvnk Or others to try and nail that piece. Marie, getting any thoughts on these two stories? I know they've sort of come up in the last 24 hours, and you might not have had chance to look at
Marieke Flament 29:47
them, no. But I think, to me, what's really puzzling is that, and Chuck, I agree with you, there is probably going to be, like many stable coins out there, but, you know, orchestration, liquidity, like all of them, just like, you know, how is that all going to work? So I think that's still actually to be sold. So because it's not just about like having the possibility to launch a stable point, then you need a powerful distribution network. You need to have a reason to really do that and and in a way, to do that pretty better than USDC or usdt, right? So I think it will be really interesting to see what the pickup is of those. Indeed, it's a signal that issuing now is completely commoditized. I really like the point that conveys pretty better suited to do that, because they will probably be able to offer some of that interoperability. Otherwise, if you don't have that, I think you're really going to struggle. Like, look how many USD backed stable coins there are today. Like, over 200 and how many are real? Two are real, right? So why do we need more? I don't know. Do we need more in other currencies. I think, you know, other currencies, other countries are the GEOS are starting to wake up, and I think we're definitely going to see that. And there is a playbook to actually make that right, the making of it's not that complex, although our Geo, like the how you back, it is slightly different. But yeah, to me, when I hear that really, my mind goes into what does a world with multi 1000s or 10s of 1000s of the stable coin look like, and therefore, what are the missing interoperability? And also, how is liquidity really going to work so that it doesn't mess it up and actually makes it worse than it is today?
Chuk 31:11
Absolutely, I think there'll be 1000 or more than 1000 stable coins, but many of them will stand within their walled gardens, the incentive for a financial platform or a platform that handles money, which can be so many different platforms, could be consumer marketplace, gaming and so on. E commerce, to control your own dollar, is very large, from Treasury to the way that your internal customers, maybe the buyers, maybe their sellers, maybe it's multi sided marketplace interact with each other is very, very strong. And so I think there's going to be lots of branded stable coins, and then mostly 95% 99% going to be utilized on the platform which issued them. And that will be a financially, economically positive move by these firms. And then the question will then be, will any of the these break out of these walled gardens into something that's more into defi or cross platform? I think that is a very small number. I think a few might. And the ones that I would have my eye on are if the large social media companies or very, very large consumer brands manage to get a branded stable coin in the hands of enough people, then they can start to go to merchants and merchant acquiring network and say, actually, if you accept this token, maybe there's some incentives in there. And I think you know one to watch out for is Cash App, who you know, only a couple of weeks ago, shared that they were going to support stable coins. They didn't say anything about a branded stable coin yet, but that's the kind of platform that has such a strong consumer dominance, 55 million individuals, that if they did, and you are a merchant or you're a developer building for that user, you would accept that, and that's the way that they would break
Sy Taylor 32:47
out of that walled garden. And they also have a lot of terminals. I think what's interesting as well is when you scratch beneath the surface of a lot of these branded stable coins, there's about four or five companies at the bottom of all the way, and if they replicate what circle has with cctp, the ability to go across multiple chains, and some of the orchestration tools, then really everything sort of does ultimately go back to those and should become quite instantly swappable and quite liquid. So to the consumer, I might have all of my branded stable coins, and I go to spend them, and then behind the scenes, that's getting swapped for USDC, which is then getting cleared, right like programmable money has benefits people. All right, I need to pause here while we hear from our sponsors, and we'll be right back. This episode, if it's not obvious, is brought to you by our friends at visa, a global leader in payments. Visa's tokenized assets platform vtap, uses smart contracts and cryptography to help banks bring fiat currencies on chain. Vtap allows financial institutions to issue Fiat backed tokens, improving financial efficiency and enabling programmable finance. You can check out the links in this episode's description to express your interest in vtap. This episode is sponsored by stripe. Stablecoins are the building block for borderless financial services, making money move around the world as easily as data. With stripe, you can use stablecoins and crypto to reach untapped customers, reduce cross border fees and settle payments in minutes instead of days. Best of all, it works the same way other stripe products do buy API or write inside the stripe dashboard, meaning you don't have to worry about the intricacies of which blockchain or what wallet to use, from Shopify to vercel, global businesses trust stripes complete crypto solutions to unlock new markets and reach more customers. Borderless finance built on stripe. Learn more@stripe.com forward slash crypto. Thank you very much to our sponsors, the Wall Street Journal had a piece about JP Morgan launching their. A tokenized money market fund on Ethereum. They're going to seek the fund with 100 million and it's open to outside investors. It's called the my on chain net yield fund, or the ticker M, o, n, y, money, no notes, chef's kiss, just utterly beautiful. This could only be available to qualified institutions. And the head of global liquidity at jpm said there is a massive amount of interest from clients around tokenization. Interesting to me Chuck that they're sort of getting into that Blackrock Biddle space right of tokenized money market funds. But they've been doing Connexus for a while. They've been doing cross border 24/7, tokenization, the Treasury Management use case here could be quite good for their walled garden, but it's going to be open to outside investors, but that's obviously who's investing in the money market fund. What are your thoughts on this? What's your takeaway?
Chuk 35:52
I think they had to get into this business like stable coins. I think tokenized treasuries, or Treasury style products. Money market funds, being one of them is going to be a crucial part of the toolkit. If you are a financial services provider and JP Morgan, of course, the largest in the world, they need to have this product. It enables their financial institution customers, the institutional clients, to be able to go in and out of a yield bearing asset instantly, no waiting for a day, no bug transfers, and that powers just much more efficient Capital Management on the investing side. Now there are corporate treasury use cases here. Now there's only so many corporates that would classify as qualified institutions, but this is just a starting point. And so I think being able to just move in and out for those two customers and also potentially serve as a backing for stable coin issuers. I think we mentioned earlier, Coinbase having a tokenized backing with USDC, they can do the same with JP Morgan, and I think when I looked at the release, the minimum transaction size is 1 million instead of five. And so already starting to be a little bit more user friendly than Biddle, but there's already a long list of tokenized funds. I think each firm, each financial institution, will have its tokenized deposit, its stable coin, if they so choose, and the tokenized fund, and they'll work very well together. It makes sense. They may as well already utilize the distribution and the customers that they have and offer them their same asset management products.
Sy Taylor 37:22
I just want to underline something you said there that every institution will have their own tokenized deposit, stable coin and potentially money market fund if they're going to be a financial institution in tokenized markets. I think that double underlying exclamation point is such a key thing you just said there. Chuck Marieke, your thoughts on this and your thoughts on the middle class of stable coin issuers, the middle class of people in tokenized markets that can't just buy in for 5 million. Have we seen competition at last? And is JP Morgan doing it as well?
Marieke Flament 37:50
Again, all of that is in the same thesis around. You know, Larry Fink, he's peace in the economy. So I was like, brilliant, right? This is it like, just another live example of what it means to tokenize financial markets. Interesting to see also, competition heat up, right? So you guys mentioned BlackRock, I think Franklin Templeton, fidelity, they're all trying to have some sort of product. So I think we're also going to start seeing competition in terms of ticket size, competition in terms of fees, and therefore these products are going to become more and more appealing, and therefore better and better, right? And until the day when it gets into, you know, more Robin Hood type and all those type of products, which is total democratization of how you can invest in a way that is actually tokenized. And I think that's the real power, and that's actually the real revolution that we're going to see, which is you can do not just like very, very large tickets with those instruments, because the idea ultimately also with anything that's tokenizing, you should be able to do micro transactions, because you can actually itemize it to the level of sub fraction that you want. So I think again, all of that in the same movements, in the same block. I think it's very interesting to see that the big players are getting in that they have to, they have to propose some sort of product. And to your point, like the middle layer, the people who are in between, I think it's coming. It's a matter of time, because when we see like more and more of this going at some point, how many very large players do you have that you can serve? They're all going to have a supplier. But then you can actually start going down for the line and therefore having smaller size tickets. Well.
Sy Taylor 39:12
And if everyone's going to be a stable coin issuer in the future, or there are going to be more stable coins for more financial institutions, there are going to be more tokens coming along. Then this is a currently quite a small market for JP Morgan, but it looks like they're placing a bet that it's going to get bigger, and it is an incumbent that is quite happy to move this way. JP Morgan, Connexus, is now central to their entire payments franchise, and you can remember, the payments franchise has been the driver of the stock price growth for JP Morgan for quite some time. It's the jewel in their crown, as it were, that's been driving so much of the growth, I think 35% of their earnings. This is a massive, massive bet on tokenization that they've not given credit for. And so people look at the Connexus volumes. Historically being sort of a trillion dollars or so, and that's meaningful. They're a very big bank, but it's a fraction of, a fraction of what they do in a day. It's still very small compared to something people forget just how big JP Morgan is, like, they're just enormous. And so then bringing this is really meaningful. But there may be other areas that grow, and I think one of the things that will help things that will help things grow is because the FDIC proposed a stable coin application framework rule as it moved forward with genius. So the Board of Directors approved a Notice of Proposed Rulemaking that sets out an application process for financial institutions that are covered by the FDIC to issue payment stable coins through a subsidiary. The Council, Nicholas Simmons said that the application would need to scope out proposed activities, provide a description of the subsidiary's ownership and control structure and include an engagement letter with accounting. They also get into some quite interesting redemption mechanics and notice periods, and all of the kind of things that if you were the FDIC you'd want to be able to see, so that you could unwind something like this in a bank run scenario, which is sort of the FDIC job. I'm impressed by the pace of this Marik. And do you think you can just give me some comparison here on how different this pace of momentum is from where we sit in Europe and some of the things you see around the world,
Marieke Flament 41:25
yeah, definitely, that's also what I was thinking, right? Like, for this move to happen, it's definitely, like, very promising, because if I get that right, there's actually over 4000 banks that are overseen by the FDIC. So this is a significant move in terms of the oversight of it. You know, however, the one thing I was pondering upon is, like, it's also still, like, the complexity of the US system, because my understanding is that although you have that now with the FDIC, you'll need that also with the OCC so there's going to be, like, different translation. And therefore, depending on where you fall within, like, who's your overseen and the regulator you're gonna have to do, we don't have that in Europe. There are many things that are complex, but we don't have that. So, you know, I think that might be one thing where, where, you know, all things granted together. Micah, might be slightly, you know, a bit more. I would say, dare I say simple in a way, because you go to the country where you actually are supposed to be, and therefore from that country you can actually, then passport, so it's a bit cleaner, and you don't have all these different hierarchy. So, yeah, that's, you know, those were the thoughts I had when I was reading into that super keen to hear Chuck and you Simon, like, what do you make of it? But am I right in thinking, actually, there's several layers of OCC and others that will basically need to fall in line with to also apply that.
Chuk 42:36
Yeah, and I think that's the part that I found interesting as well. They've kind of started the gun on the application framework and the OCC, there's the OCC and the Fed, if you look at the full kind of range, and also one more for credit unions. And so there's three more entities that need to make rules. However, in order to prevent kind of regular arbitrage and make things simple and easy to understand there will likely be some alignment. I'm sure the regulators are all speaking amongst each other, but in one way, by being out first, the banks and savings entities who have the FDIC as their primary regulator, now have this clarity and can start thinking and start planning. Now, obviously, if you have a line in and out the OCC you probably get already starting to think about this stuff as well, but it's nice to have, like a very clear public set of rules. There will be kind of 60 days of kind of comments, and then we're off. We've been waiting for rule making around genius for we know it's going to take some time, but it's very encouraging to see this come out so fast indeed.
Sy Taylor 43:35
And that was what I was about to say, Chuck, is that these regulators tend to work quite closely together at the federal level, and the genius Act compliant permitted payment stable coin issuers that are not FDIC insured would have similar, almost equivalent, sets of rules coming out of the OCC who would be their primary regulator in an unwind scenario. So interesting to see the OCC maybe next to move along with the Fed, there will be rules coming from all of them, but the pace of change here is really, really fascinating. And one of the big criticisms, I think, historically, of stable coins has been, what about redemption risk? It's all IOUs, after all, isn't it? And this is kind of saying, Well, yeah, this is how we control that risk, and this is how we'll deal with liquidity mismatches. And this is, it really is, given the speed in which this has happened, surprisingly, incredibly robust, if you read the whole framework. So I'm the public servants don't always get their flowers and a shout out, but shout out to the public servants that are trying to pull all of this together, because they've been sprinting to get this out the door, I'm pretty sure. And not all of them are politically motivated. I think a lot of them are just trying to prevent another Silicon Valley Bank and trying to make sure that things don't go wrong for consumers. And very rarely do we pull one out for the regulators trying to do the right thing. What I think is interesting observing this from the UK is how the OP. Six are so, so different to what the UK has done, where the Bank of England. What the headlines pick up is a limit on the amount an individual can hold personally. And whilst there were some sensible concessions on what your collateral needed to look like and what your backing assets could be for a local stable coin, and it now looks like the FCA is going to be regulating a lot of those stable coin issues that are non systemic, and that we will get some real forward momentum, that we do now have draft legislation for a stable coin framework. It looks like it's going to be in the King's speech and coming very, very soon. Those are all exciting developments, but those don't dominate the news cycle because of that one thing that was kind of done wrong, and this general sense of slowness, even though, actually, I think the facts on the ground are people are working quite hard to get things done. So think something about the pace since the genius act in the US has really concentrated mind. There's a couple of stories we didn't have time to cover, and I want to ask you about one of them, in particular, which is PayPal launching py USD savings vault on Spark. You mentioned Cash App earlier. I don't know if you saw this savings vault that PayPal has done. Help Me Understand where savings vaults and pyusd fit into the overall PayPal potential Venmo strategy, and how all that fits together. Yeah.
Chuk 46:21
So I'm not sure about the vamos strategy, but in general, there are multiple vaults across defi and essentially they are set up by curators or kind of identities for folks to go borrow and land and so on. And therefore there's a a return that one can get I go deposit my stable coin, in this case, pure USD and a return based on what that specific vault is doing. And I think what's super interesting about utilizing defi to create earning vaults, almost like you save in an account. It's almost like a savings account. You're essentially getting around the stable coins can't pay yield, or stable coins shouldn't pay yield argument by saying, well, stable coins are also really easily transferable. And so if I can do the defi moment, which is, I have a regular web to customer facing app, and in this case, it could be a demo. And you imagine cash app as well. You have a user who goes from money in an account, it could be a stable coin to pressing a button and saying, now I'm earning 4% or 6% or 9% depending on what that is. And you have the Ave app, and you have Coinbase, who enables the customers to lend into a Bitcoin lending pool. All these different things are turning the game around on what it means to save and what it means to invest. And so I think by giving your stable coin this kind of utility, you're saying to users, hey, yes, you can use it for holding, yes, sending and transferring and using it to pay for things, but whilst it's sitting in your account, yes, putting in your quote, unquote, savings account is a vault which ends interest. And so I think that is a it's not a loophole, it's just a financial product.
Sy Taylor 47:59
It's just a different product. It's not a loophole. It is just a meaningfully different product. And I think that is very different to some of the rewards, the marketing rewards that you see in other corners. But I imagine every Neo bank and every non bank would want to do this, because if you are valued primarily as a payments business, take a chime, a revolute, or whomever, then how much do you want to get into balance sheet lending and be valued as a lender? Like it's a different multiple whereas this you're not necessarily a lender, but your customers have the benefits of being able to borrow or being able to earn. And these vaults just look like private credit funds, but they're way less complex private credit funds because a curator is somebody who's put together a strategy, and then an individual has put their cash into this vault that's essentially following this software strategy. And that's a really interesting model that I think people have to get their heads around, because then you can ask sensible questions about what's the risk of that to the consumer, and who's responsible for dealing with those risks, and what disclosures do we need? But unless you understand what it is, it's very, very difficult
Marieke Flament 49:05
to me. That's exactly the example of going back to narrow banking. And that's the power of stable coins, which is actually stable coins now put in the hands of people, and you can choose, with a bunch of different defi protocols, where you place that. And so it could flip completely on its head. The model where we're used today, which is like, I have a bank account, I actually put my money there, and then it's almost from that bank account that I need to find my strategies. And here actually I have stable coins, and I can choose, like, a bunch of different protocols that could be anywhere and everywhere, and that's how I decide to actually invest my money. And that's this narrow banking concept that stable coins are just creating. And therefore you could imagine banks are not banks anymore. It's narrow banks, and then actually, all the other services are done in defi, and that's very powerful. I don't know how long it will take,
Sy Taylor 49:49
but that's it could take 50 or 100 years. But JP Morgan, launching a money market fund is certainly an interesting development, right? And you've got to be hedged. You've got to be trying all the things. Well, look. Tai, thank you for indulging me on a couple of the extra stories we had this week, because I thought they were fascinating, and that does about put us out of time. So I want to thank everybody for watching and listening. As always, I'm going to do the annoying host thing and ask you to click likes and subscribes and all of those things, and please spam all of your friends to check out this show, because it really does help us and it helps us grow. I want to thank Chuck for joining us, being a debutante and being incredible as always. Where can people find out more about you and the many things you are doing these days?
Chuk 50:27
Thank you, Simon. You can find me at my website. Chuck dot, x, y, z, that's C, H, U, K, you'll find links to x, LinkedIn, staple gun blueprint and money code
Sy Taylor 50:37
and Marik, how about you?
Marieke Flament 50:39
You can find me on LinkedIn, and you can read my newsletter, which is called currency of power, because the moment we live is very important, and there is definitely an unspoken Bretton Woods thanks to everything we've been talking about here.
Sy Taylor 50:50
Great name. Somebody's got a formalizer. Yeah, great name, isn't it? And I did finally read the barrels to bite piece, where the GPU dollar is the new Petrodollar and stable coins are what's making that happen. I thought it was a fascinating piece. You'll find me at sy Tai LA or FinTech brain food.com and, of course, at tempo dot XYZ, noodling away on some of the blogs there, trying to make that documentation a little bit better every single day. If you haven't already, please, please do check out Our phenomenal guests, and we will catch you soon.