On Ep. 52 of Tokenized, Simon Taylor, GTM @ Tempo, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Eric Queathem, Co-Founder @ Velocity and Marieke Flament, 2x CEO, Angel Investor, Advisor, Co-Author of Euro Stable Watch to discuss challenges of Euro stablecoin adoption, banks' concerns with on-chain yield products and more!
On Ep. 52 of Tokenized, Simon Taylor, GTM @ Tempo, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Eric Queathem, Co-Founder @ Velocity and Marieke Flament, 2x CEO, Angel Investor, Advisor, Co-Author of Euro Stable Watch to discuss challenges of Euro stablecoin adoption, banks' concerns with on-chain yield products and more!
Timestamps:
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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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Music by Henry McLean
Unknown Speaker 00:00
Simon,
Sy Taylor 00:10
welcome to tokenized. The show focused on stable coins and the institutional adoption of tokenized real world assets. My name is Simon Taylor. I am your host for today, author of FinTech, brain food, and head of market dev over at tempo. Joining me is my friend and my colleague, my homie, the man of the hour, the man with the power. Kai Sheffield, how are you, sir? I'm
Cuy Sheffield 00:30
fantastic. I can't believe it's already been what 50 episodes like. We're just getting started. We got a lot more to do on tokenized. We appreciate everyone listening. Yeah.
Sy Taylor 00:39
And joining us today is Eric quetham, who's co founder of velocity. How you doing? Eric? Doing great. Thanks for having me. Guys, really good to have you with us. And also joining us is Marie flement, who has about six job titles, angel investor, writer of the Euro stable. Watch. You were CEO of the NIO foundation. You were CEO of a NEO bank called metal. You were CMO of circle. You've, you've done some stuff, so great to have you with us. You've got some context
Speaker 1 01:05
on this one. I do, and I'm actually also an advisor to velocity. So there you go. Fold up.
Sy Taylor 01:09
Oh, wow. I mean this, this could not be more serendipitous, could it? Before we get started in into the good stuff? I've got to remind everybody that, of course, the views and opinions of contributors are their own and might not reflect those of companies they represent. Please don't take anything we say is tax, legal or financial advice, or anything of the above. And I need to remind you, of course, that this podcast is sponsored by our friends at centrifuge, so thank you guys. 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. Story number one, the digital euro is here. Hurrah. So the ECB said it had reached agreements with seven entities responsible for components of the digital Euro potentially launching in 2029 they've selected several vendors for the central bank digital currency version of the euro. Also this week, I saw that Alipay is launching b, r, u, E, R, catchy, which is a ticker listed by the European financial regulator Esma, and that'll be issued in Luxembourg. And of course, if you're not familiar with Alipay and ant group and ant International, 1 billion customers of their wallet, and they do lots of cross border flows. So that one's super interesting. Marie, you're kind of close to this. We covered the other project you're involved with a couple of weeks ago. Do you want to contextualize what that project is as well? So we've got the full picture of what's happening in Europe. Yeah,
Speaker 1 03:14
sure. I mean to contextualize. I think it's good to see movement. I think there is still quite a bit of confusion between what the ECB wants to do, and what other projects might be doing. A couple of weeks ago, nine banks announced that they're actually doing a consortium to launch a Euro stable coin. That's pretty big, in my opinion. I think that's actually a very good setup, given how Europe is constructed, given also the history of the euro and how the Euro started. But to put things into context, 99% of stable coins are still in dollar. Those are the rails of the future. And I'm sure we're going to talk more about that, but those are the rails that are going to power real world assets, tokenization, but also, like aI agentic commerce and so on and so forth. And having no Euro presence is a very big deal, right? And we should actually all be very concerned. And I think beyond that, it's not just euro, but any country that doesn't have its own presence, then it means like, what are you actually going to do when those rails are powering the future? So it's good to see that there is movement to your first point on the ECB. I think there's been confusion into what the ECB is up to. And also, is the ECB actually supporting other stablecoin, or is it not I'm seeing mood changes, and there is quite a few news. For example, today, the Central Bank of France has actually started to talk more about a new stack of money, which could encompass stable coins and tokenized deposit and wholesale cbdc, which is something that I've been actually trying to push for, because I think that makes a lot of sense. So the moon music is changing. The digital urine itself. It's a retail cbdc. Do we need that? I would still question that. I think actually, for the ECB to focus on the wholesale cbdc is probably the right focus. And therefore, you know, God knows what will happen between now and 2029 right? It feels like it's a it's quite a few lifetime.
Sy Taylor 04:58
It's a little. Is off, Eric, I know foreign exchange at FX is pretty close to your heart, given what velocity does in the stable coin space, where do you see these announcements and which ones stood out to you?
Speaker 2 05:10
Yeah, look, I agree with Marike. I think you can see the momentum building in all of these different announcements. I think for me, you know, when I look at the kind of practical applicability to a lot of these announcements. For me, they kind of fall flat, like there's nothing in this that I think gets businesses around the world excited to hold a Euro back stable coin versus kind of what's in the market today. I think ultimately, you know, for me, I'm thinking a lot about the Treasury use cases that exist. And in a world where the regulatory framework doesn't provide yield or clear reward sharing and the economics don't look better than alternatives out in the market, I think you you'd have to really believe something unique is underlying in the technology to believe that there's going to be a ton of volume flowing into those tokens. And so I think for me, it's a good sign, right? Like everybody's getting more and more comfortable day by day in terms of bringing the world on chain. But ultimately, I don't think there's been anything that's kind of happened, you know, across Europe, unfortunately, yet that gives me a lot of excitement that it's something I can go sell off the back of kind of what we're trying
Cuy Sheffield 06:23
to build? Yeah, it's just so hard to design a product in 2025 to be launched in 2029 on the consumer side, it's just really, really hard. Most consumer product cycles, you're you're iterating, you're launching something. You're iterating. You're launching when you're saying, Okay, we have to hit what is the market going to look like in 2029 it's just really, really hard to imagine. So I'm interested to see what this interplay looks like between Euro back stable coins and the digital Euro. Like, if Euro back stable coins end up being tremendously successful, like, does that replace the need for a digital Euro? Does the digital Euro end up running on some of the same infrastructure? It seemed like there were reports months ago that, like, maybe the digital euro would consider being on a public blockchain, and then they kind of walked that back and see, like I was like, No, digital euro is not going to be on a public blockchain. So I think you kind of have to see how things play out over the coming years. Will they be interoperable together? How would you convert between a Euro backed stable coin from a bank or consortium banks with a digital Euro? I'm also fascinated by when they picked the seven vendors, seeing just companies like g plus d. This is a company from the 1800s which is an amazing story of they literally printed physical bank notes like that was the core business, and now they're more kind of digital security company involved in cbdc. So I think it's interesting to watch. It's just this pace at which the whole industry is moving. Anything that the date is 2029, is just, it's very hard to contemplate what the future is going to be at
Sy Taylor 07:59
that time. Yeah, that sort of procurement cycle that big public infrastructure projects tend to default to, maybe not compatible with the pace of market change, kind of at the moment. Yet, on the other side of it, one of the big inefficiencies in the stable coin market is true settlement. And to bring the big financial institutions in, today's settlement ultimately rolls back to a central bank balance sheet if you want zero risk settlement. And I thought Marie, that was what was so interesting about the project you're involved in, that nine banks got together to look at, well, how could they do something sort of as a quasi central bank like settlement, or at least as a clearing token, as some sort of stable coin that exists between all the other banks that allowed them to potentially be netting and settling transactions in a more efficient way. Do you want to talk a little bit about the role that might be able to play in the stable coin markets?
Speaker 1 08:52
Yeah, well, so I actually think you know, when we look at and a lot of what Eric said, right, if you look at the construct of Euro, or the project that exists today. There is nothing actually that has the volume that are needed to make any actually big movement, right? And it is actually linked also to how Europe is structured, right? The BC, for example, yes, it's central bank of Europe, but you still have central banks in every government. And for example, our bond market is not one bond market. It's like, it's completely decentralized. So when looking at that, if you think what could actually work to design a stable coin that might have the chance to actually have volume, and that might have the chance to actually hit half a billion customers, then it starts being powerful. If you can actually put banks together to build something that would actually have use cases that are enabling their flows, but also use cases that are actually more in the stable quantity. So I think that's where that could be very interesting. And again, it means we are not the US, right? Like Europe is not the US. And therefore you need actually to have a different structure and to do that quite differently. So I think that's where that could actually be very interesting. And Tai, to your point, I think you're right, like when thinking. 2029, it's like in so many lifetimes, like by then, who knows, right? Like the thing is evolving so quickly, and there's actually so many things that are completely changing that who knows. And therefore a part of me is thinking, Is this even a stalling tactic? Because, you know, there is within what DCB is doing, there's two things, right? There is the wholesale cbdc, which actually is being tested, is actually going in prod and going in sandboxes. And so there is real movement on that, but on the digital Euro itself, what we're hearing now is 2029 and by 2029 actually the leadership of the BC will be very different. And hopefully by 2029 there are things, for example, such as the consortium of the nine banks coming together that have made enough stride to say, well, actually within this stack of money, you don't need to have a digital euro, but you can actually have a stable coin that is sufficiently there, and you can have tokenized deposit that actually encompass what the banks need and might need to do. And you can have your wholesale cbdc. So my read on that is more along those lines. But again, what I think is very interesting in the consortium is more because it's so linked to how structurally we're built in Europe, which is very different from the UK, very different from the US, very different from what you see in Asia.
Sy Taylor 11:09
Yeah, because we're so used to stable coins being backed by Treasury bills, but Europe doesn't have treasury bills, like there isn't an ECB bill. There's lots of different debt markets from all of the 27 member countries. So it's entirely different. Eric, you talked a little bit about the corporate treasury use case. Talk to me about this second Linked Story, because I've seen Alipay and ant group and ant international just about everywhere lately. They've partnered with Connexus for GBP FX to euro and dollar. They partnered with HSBC to do the same. Now they've done this. They seem to be leading on what treasury management for the next decade looks like. What is treasury management
Speaker 2 11:51
for the next decade? Yeah, I think they've actually quietly been working on this for a number of years. I remember a conversation in my prior life where they came to us an organization, and said, Hey, look, if you guys aren't willing to settle in some form of digital asset, it will be hard for you to remain a vendor of us in the future. And that was three or four years ago, right? And so I think what you're seeing now is actually the second wave of what they've been quietly building, which is taking lots of learnings and functionality they built internally to optimize their global business and now starting to externalize that into different consumer products. I think every global business around the world is burdened with either speed issues in terms of getting money into the right regulated or unregulated entities around the world, having that capital available to meet their payable needs, moving funds into the right corridors for, you know, whatever purposes might exist, and then also just the practical cost of no matter how big you are as an organization, banking fees, you know, in many cases are egregious. I was at a kind of a closed door panel this week where an individual who used to work at one of the largest banks in the world said, look, at the end of the day, we're chasing FX, right? And so, you know, these businesses are sitting on what, in most cases, is decent solutions and doesn't have the right economic model to fit the global nature of their business, or they have the inverse of that, and they have what seems to be pretty good economics, or new solutions that have come to market related to tokenized deposits or other things, but actually the functionality in terms of where they actually need physical cash just doesn't exist, right? And so I think what you're seeing now is and these guys have, as I said, been working on this for a long time, is you're seeing this play out into not a edge use case, but actually the core mainframe of how they think about treasury management internally, and now how they want to expose that to consumers to create better products
Cuy Sheffield 13:57
and solutions. On this one, I think it's also going to be interesting to see the evolution of how stable coins are used within Alipay plus. And so Alipay Plus is a network of many wallets that they partnered with a new acceptance point that is then being adopted in markets across the world. And we've seen partnerships in the past. I think we covered on the show they're working with straight sex in Singapore using the X SGD stable coin. And so if you want to do wallet interoperability, if you want to be able to accept the grab wallet or an ollie pay wallet, or many of the other wallets they work with, there's that challenge of, how do you do settlement? And so could stable coins end up being a solution where someone pays with a grab wallet to an Alipay plus acceptance point, and grab could immediately settle in xsgd to Alipay. So I think there'll be a lot of interesting kind of back end settlement use cases that end up being important as some of these wallet networks look to scale into different markets.
Sy Taylor 14:57
It's fascinating how often Alipay. And ant group keeps coming up in these conversations. Kaia completely forgot about that one. And actually, if there's like a trail of bread crumbs here showing you what the future of treasury might be looking like with a billion users and the amount of cross border transactions they have, it's really interesting. And that story you told Eric of like, well, if you're not doing tokenization, then it's not going to be a long term partnership. I've heard that story several times from several large organizations as well. You're not the first that I've heard say that, and I imagine they're saying that to the G sibs as well. So if you roll that out to be true, then the pressure coming on tokenized deposits is not necessarily coming from stable coins, although there's a market cycle and there's a press release there. But I think one might argue that's going to blow over. What's not going to blow over is the pressure from global corporates and some of their largest corporates, who have seen whether it's through the press of stable coins, the promise of tokenized deposits, or whether it's ant financial forcing their banks to do it, and those banks now have products. What all of the banks are now trying to figure out is, all right, how does true cross border settlement work? And that's why I thought the initiative that Eric was involved in in Europe was so interesting, because it was getting you towards lower risk, more instant settlement, more capital efficiency. So I'm going to move us to the next story, because this one goes to the other side of the debate, the genius Act, which I think woke a lot of people up, but there is now it seems, just about everyone everywhere launching some sort of high yield product, except for Coinbase, who seems to be Rolling theirs back. So a couple of weeks back, we said there was a quote I can't remember who said it. He said, What Coinbase is doing now banks will be doing in five years. Well, interestingly, haven't you seen a flurry of other products offering high yield? So SG, forge society generali partnered with Morpho labs to offer 10% APY on Euro CV, trust wallet are letting you earn up to 7.4% on stable coin yield, and most notably, Galaxy one launched offering an 8% premium yield on cash in stable coins for accredited investors, although that's not necessarily using defi. Yield is in right now. Yield seems to be the thing. Everybody's talking about it. The smaller banks are lobbying against it. Eric, again, you spoke about the exciting business model of yield, but isn't there a risk all of this goes away in a different rate environment, like, is this a temporary phenomenon, or is this something that's going to endure?
Speaker 2 17:37
No, I think you're right. I think the current environment is probably one that doesn't last forever, but I think it's also hard to imagine that we get back to a zero rate environment. What I'm hearing and seeing from a lot of treasuries around the world, and you know I would classify these businesses as enterprise organizations, is they're looking for yield optimization and in more nuanced situations, right? So where they have a small amount of collections taking place and sitting for extended time periods, whether that's just a couple of days or being trapped for a couple of weeks to actually put that capital to work. And I think what they're finding now is the Treasury complexity of trying to do that off the back of a handful of banks, particularly in markets where they might not speak the language, or they might not have great relationships at that bank, and they're dealing, in some instances, not even with a actual human. To be able to get into a yield bearing product off the back of a USDC swap feels pretty easy and pretty easy and pretty straightforward, right to the current environment. And so we're seeing a lot of interest, even just for weekend carry, for folks to move assets into something that's yield bearing, and then bring it back into whatever the local currency is, post the weekend or post the bank holiday. And so I think what's interesting about that is you're getting folks comfortable with how fast money can move on chain, and how quickly they can make decisions with their capital. And I think what's going to be really interesting is what happens when the rate environment goes down, do they also then kind of reset their expectations that, hey, I'm actually fine for money to move in 24 or 48 or sometimes even longer. And I think what you're going to find is lots of folks will become almost in a way, addicted to the control they have at which they can put capital in different places. And even if the yield story starts to devalue a bit, which I think we'd all probably agree it will, over time, I think they're going to be used to a way that the world operates and the way money moves. And so I think it will be hard. I don't imagine a lot of what goes on chain coming off chain, just because of that.
Cuy Sheffield 19:49
Yeah, I think this is one of the most important dynamics happening around stable coins that's shaping the market structure right now. And and I would argue that many banks. Still haven't really wrapped their heads around what's going on. And as you mentioned going into the genius Act, there was this question of, oh, will stable coins pay yield? There's this provision in the bill saying that a stable coin issuer can't directly pay yield. That seems like a win for banks. Then the bill passes, then Coinbase continues to pay rewards to customers then beg say, Wait a minute. This is a loophole. Now we have to go and update the clarity act. But what we're seeing in the market right now is there are basically two ways that stable coins can earn yield. One is these revenue share incentive agreements from a stablecoin issuer to a distributor, and now it is circle paying Coinbase, Coinbase, then passing on some of that value as rewards. And we're seeing that becoming replicated over and over, across different deals in the industry, as well as stripe announcing open issuance, a big part of the value prop was, if you issue your own stable coin, you could then capture the yield, and stripes issuance platform will pass back the majority of that yield. And so I think that it's hard to see a scenario where that is going to go away. And as much as I think some of the banks have called it a loophole, it's just it's very hard to write something where there's no marketing incentive that can happen in any way. And like, I think it's a tough battle to win after the bill has already been passed to go back and reopen, so we'll see. But I think that that's going to remain then there's a second way to earn yield, which is kind of double dipping, even on top of that, and that's these brand new on chain credit markets that exist as another layer in stable credit. And so it's not just there natively. It's a customer has to choose to say, I'm holding USDC. I want to deposit my USCC into a protocol or into an application that's then going to actually lend that USDC to somebody else and pay me additional yield. And so that's where you get Coinbase saying, earn 10% APY on your USDC. It's almost like it's stacking the 4% rewards that they're getting passing back, plus another 6% and then many of these protocols are also enabling token incentives on top of it. And so we're just seeing more and more of these very high yield products. And I think that there's one way you can look at it and say, sounds too good to be true. This is going to go away. We've kind of seen this story before. We've seen these kind of lending applications in crypto that have blown up in the past. And then there's another way to look at it and say, this is actually the defi mullet thesis that we talked about like, five years ago. Simon of like, the infrastructure for these on chain credit protocols is getting hardened and mature enough in the user experiences you could actually create a product that looks and feels like a NEO bank, but in the back end, you're actually spinning up a self custodial wallet and depositing into Morpho. And I think those products are getting better and better, and then you've got a whole ecosystem of crypto exchanges that are all depositing into these same protocols and these pools, and that's creating a network effect that's growing more liquidity, that's bringing in more borrowers. And so I don't think that that's going away, and it's going to continue to be one of the most interesting use cases. And I think we're going to be in this world that you're going to have yield paid on stable coins from the underlying reserves, and you're going to have these new credit markets that people are going to deposit into. And there's different risks. There are different things that can happen there, but consumers are going to have more choice around what they want to earn on the stable coins they hold.
Sy Taylor 23:38
I get the banks worry when the Treasury quotes a stat that $6.6 trillion of deposits were at risk of flight from financial institutions. That's the kind of thing you set up and pay attention to. And also, if you're a community banker, then that's all of the funding you would use for lending, and that's like all of the way you make money. I get why the concern is there. But to your point, Kai, I think the smart banks here are the ones seeing the opportunity more than the risk, just as we saw sponsor banks emerge after the Durban amendment and sort of create the FinTech boom by partnering with non bank entities to sponsor them to have a bin range so that they could issue cards and holding their deposits and sweeping those deposits and then building credit programs together. I think there's an opportunity here for banks as well. We also see lots of banks getting into private credit. So banks take tranches of private credit funds. Banks are some specialist lenders at this point. Having a balance sheet is an amazing thing, especially in the on chain world, where the only type of lending is over collateralized. Today, banks are allowed to create credit that's a hugely useful thing, and something that the on chain market doesn't have. So nothing frustrates me more than people advocating for something that is again. To their own interests. I actually think going on chain is massively in the interests of banks. And remember, stable coins are programmable. They are a soup of innovation. If you hit one part of the pin cushion, yield is going to pop up somewhere else, like you can't get rid of the yield. And the yield that people might search might be even more risky than a marketing reward, so let's be careful what we wish for here. Interested in your views. Marik on how all of this starts to play out, and also from a European context, I saw a great stat that something like 5% of stablecoin users are in the UK, and a lot of the flows are sort of g20 to global South, g20 to APAC. There's a quiet, big usage of stable coins in Europe that people forget about, yeah, 100%
Speaker 1 25:47
which is actually linked to yield. So I think also sometimes the debate on yield get lost, because ultimately it's a customer acquisition tool. And so we are in a market which is highly competitive, which has hundreds of different projects coming all the time where network effects matter. And therefore, of course, there's going to be yield, and people are going to find yield in every possible place to make sure that you can actually get adoption and customer adoption, whether it's at the protocol level, at an end user level, and so on and so forth. So I think looking at it that way changes the paradigm a little bit on like, therefore, what it means and how you should use it, which means like, ultimately, this is a race to see what's more sticky and where actually there is the business model can actually hold it to get the maximum number of user and volume and so on and so forth. On your question on, actually, what's very interesting and what's at play? I think there is also a very important geopolitical angle, which is very often forgotten when, for example, I talk about Europe needing to have stable coins. Very often, what I hear is like, well, we don't need that in Europe. Our intra flow is very good. We have everything we need. We have SEPA. It's already very efficient. But that's not a problem, actually. The problem is that now you have options. And Eric, it's also what you said, like, now people understand how they can move money. They understand how they can actually put their money to work on their terms. How they decide it right if they want to do something riskier, but it gives them 10% they can do that right. And today they're basically told, No, you can't, and you can't, and therefore you only have to use those pockets and so on and so forth. So that's actually also triggering a whole lot of use of a currency which is not your currency, and therefore that's why in Europe, we have more and more people who are using also dollar denominated stable coins, because it means that with your dollar denominated stable coins in Europe, by the way, you can get more yield. So why wouldn't you put that to work? Right? I mean, if you do the whole math, given the effects rate of the dollar, maybe it's not a very good deal, and you should think about that. But nevertheless, you can put your money to work in, something that might actually give you better return than anywhere else in Europe or in the continent. So that's definitely not to be underestimated, which is why I think this geopolitical angle of how actually beyond the businesses who are themselves trying to secure users, we are going to witness something that is also trying to secure the most place for your currency, and a way to do that is actually through yield. Because imagine if now you could have alternative to the dollar that other also offer saving possibilities and yield to users so that they can expose themselves, for example, to the euro or to the Chinese yuan or whatnot. That's also how you gain users. So to me, ultimately this yield debate, it's really about customer acquisition. And there is beyond businesses wanting to get customers. There is also actually nations who are going to start thinking that way, to think, Well, how do I get the euro more use? How do I get the Chinese yuan more use? How do I get the dollar
Sy Taylor 28:35
more used? I think that sort of moving from defensive to sort of offense, a little bit of like my currency, I could have value on global markets. And how do I also not think just about intra trade, but global trade? And how do I become available to do that, there is a new form of money emerging, and we need to lean into that. I think it's such a great point. Don't fight innovation. People try and figure out how to use it for your advantage. All right, just before we move on to the next story, I got to remind everybody that we have some wonderful sponsors, so let's hear from them. 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 also brought to you by bridge, a stripe company businesses need easier global money movement. Bridge is the stable coin orchestration platform that makes it simple to receive store issue and spend using stable coins companies like X, Shopify and air Tai. Am already use bridge to lower their costs, simplify their global Treasury operations and expand their global reach. Learn how you can grow your business with instant global money movement using stable coins at bridge. Dot XYZ. Thank you to our sponsors. The next story came from, well, just about everywhere. BNY is testing its tokenized deposits. This is the world's largest custodian bank, $55.8 trillion under custody, has announced its testing blockchain payments for clients. Remember, custodian bank is kind of the plumbing behind the plumbing. They custody the assets and they manage all of the Treasury life cycles sitting around it, and broker dealers actually help buy and sell it, but they might not be holding the asset as the legal owner. That comes with a lot of overhead. So these guys are really, really crucial to the global financial system. And this testing of tokenized deposits, while we didn't find out too much about it, I think, based on some of the earlier companies, conversations, we might know why. Linking back to the Alipay story, Murray, talk to me about how seriously you take the tokenized deposits stories coming out of the banks and the financial institutions. Is this just another press cycle because crypto is hot, or is there something more going on than the last go around? Well, I think
Speaker 1 31:24
there is something more going on. And in particular, I'm very interested in the UK approach, and I'll mention why. So I think there is a question of survival, which is, okay, this is happening. And the first stories you were hearing were a lot about stable coins are going to eat the lunch of bag, and therefore, like, what's the role of a bank? And then you have central banks doing their thing. And therefore banks are really starting to put into starting to put into question, where, how do we partake in that? And actually, yes, there is a great technology. How do we use it to speed things up and lower cost, and so on and so forth. The UK approach, to me, is really fascinating. So in the UK, there are banks that have been strongly nudged by the central banks. So like, maybe you should look at tokenized deposit. Then, wouldn't it be great if you come together and do tokenized deposit, and please do tokenized deposit and start to figure things out. And a lot of that approach, actually. So one, it's actually the middle layer approach, which very British, if I may, but it's like, okay, let's not talk about CDC, let's not talk about stable coin, but let's talk about this thing which you could do using, actually DLTs and blockchain, and therefore, like, upgrade yourself if you want to stay relevant in the system, but also, like, push forward the innovation. And that to me, reminds me a little bit of open banking. You know, when open banking arrived and you had, like, a whole flurry of banks saying, no, no, no, and then they were actually forced and pushed to say, well, you should actually open your data, and there should be API to be able to do that. This tokenized deposits approach from the UK has to me the same feeling of like, how do you actually make bank be more relevant and therefore continue moving on that front so far, the only thing where I'm like, okay, is this gonna work? One, it's because, as we know, banks are large incumbents, and therefore, like, you need to move and to innovate, and therefore to do that pace. Number two, right now, there's a lot of headlines, but there is no volume. Literally, I was trying to look for volumes of tokenized deposit. I think there is like literally none today. But nevertheless, I think if you again look forward into what could make sense if you wanted to keep some sort of status quo, which is, central banks have a role, banks have a role, and then fintechs and new tech have a role. Then you could imagine a world where you have wholesale, cbdc, tokenized deposits, and then stable coin. And I know Simon, you did talk about like that stack, and what that would look like. So I think that's why I'm taking it seriously, because from experience and lived, is actually when banks start doing something in particular when they start doing something together, mandated by their search on banks or broader ecosystem in their country, things will happen and things will move forward. So I'm keeping an eye. I want to see first volumes come together. But I am also very interested in like the UK approach, specifically, because it's like forcing, again, core banks to innovate and to be on the front of that, to be ready for where other things are coming. That's
Sy Taylor 34:01
a great call out. And of course, you're referring to the regulated liability network and its launch now, of I think it's GBP Tai. So the tokenized British Pound and quant network, I believe, is the provider behind some of this, who's won the contract, and the founder of quant network is former VOCA link. And for those of you who are true payments nerds, like Eric, you'll know exactly what vocal ink does in the UK. They operate the UK's faster payment system, which is the instant payments rail, which in 2005 was the first instant payments rail in the world, and the UK might be the first major market to do tokenized deposits. So to your point, Marie, this was certainly early. There's certainly no volume yet, but it's meaningful that the banks are now sort of marching towards this. And as you march lots of banks together in a country with 60 million people, it's not going to happen overnight, but it's certainly happening. And if they got this right. And you could build the perfect on off ramp between this and stable coins, or that would be tasty. That would be really, really nice. All right, what are your thoughts on tokenized deposit so you like you believe it when
Speaker 2 35:10
you see it. Yeah, I think I'm in the same camp. I think things like automated Treasury operations and just some of the back office stuff that, unless you've really worked in a Treasury or a CFO organization, like a big, kind of very global, very complex business, you don't realize and I think this ultimately brings a ton of, like, true value. There's real costs that would come out of businesses if this is done right. And so I'm incredibly bullish on, like, the use case and the application. You kind of framed it quickly. You know, if it took Faster Payments, 10 or 12 years to really kind of become mainstream and build the full interoperability and connectivity across the network, like, maybe we do it twice as fast now, and it's kind of a 456, year journey, so I think it'll take time, but ultimately, I think the pull isn't yet there from the broader set of stakeholders across the ecosystem, but as they start to become educated and they come up that curve, I think you'll get more pull here than You did from consumers on Faster Payments who didn't yet realize how crazy it was that it took 24 hours for a payment for me to get to Marieke for lunch or a coffee we just shared, right? And so I think, in a way, you actually have a much more true market opportunity here, where you're going to get pull from a set of stakeholders who really want to capture that value, which will hopefully, you know, bring those across the industry to bring it to bear faster
Cuy Sheffield 36:47
on this. Simon, I feel like we we think about this a little bit differently in terms of you and I, and I know we've debated it a lot in the past on tokenized deposits. It remains to be seen to me if it makes sense for every bank, or most banks, to tokenize their deposits anytime in the kind of near to midterm, I think that's where I'm still on the fence of, is every bank going to do it? Should they do it? What's the ROI and like for a regional bank in a certain country, like tokenizing their deposits? How does that help? What does it look like. I think the two use cases that it seems to me, make a ton of sense, and I think we're starting to see in the market. One is, as Eric discussed, corporate treasury, and particularly intra company money movement, and the idea of, if you're a jpm, large corporate that has accounted jpm, you have accounts at jpm in the US and Singapore and London. Like being able to use Connexus to move money between those accounts, that makes a ton of sense, and being able to do that 24/7 being able to have more automated, programmable flows. And it seems that Connexus and jpm coin have been able to arguably, they're the most successful tokenized deposit that's operating at scale, that's solving a real problem for corporates. And so if you're a large bank like jpm, you have corporate customers, you have jpm divisions all over the world. Like being able to move between. That makes sense. The second use case, I think, is for the Reserve Banks, for stable coins. And I think this is where BNY, this makes a lot of sense to me, that they have been very forward thinking, and really credit to them, they've had a super long term view on the space. They've become one of the larger Reserve Banks, reserve custodians behind some of the major stable coins right now. So given that role, it's really important to be able to do 20, 477, day a week money movement in and out of a stable coin, to convert between traditional Fiat and account, and to be able to mint that stable coin seven days a week. We've seen challenges. If you can only mint five days a week, or you can only redeem five days a week, it's not as useful for many applications of stable coins where you want to be able to be able to go in and out. And so I think if tokenized deposits enable BNY to offer more efficient, more frequent money movement between a customer of BNY, and they're stable coin issuers who are customers of BNY, and you can then go from a BNY deposit into USDC and back to BNY deposit 24/7, that is super valuable, and I think will make these stable coin issuers more efficient in their ability to have on and off ramps. And so I think that use case makes a ton of sense. BNY has really been on the forefront. And so I expect that this will be successful, and I would expect that the first customers would actually be many of the companies that are looking to mint and burn USDC and other stablecoins at scale.
Sy Taylor 39:47
So the thing that gets stuck in my head is this idea that there are a lot of good closed loop blockchains right now, and despite the sounding of that, that sounds really crazy. But to your point, can I. City token services, HSBC token services. These things are all built on EVM compatible blockchains, funnily enough, and there's usually that one sort of client of theirs poking them to do this, which is probably ant International, but then many others who gratefully receiving it. They've speak to some of those banks with some MNCs, they're having a hard time selling it. And part of the reason they're having a hard time selling that internal closed loop blockchain is because it's not open loop. And corporate has 510, 15 different banks, and for each of those banks, they have to have a separate login and a separate set of accounts in different currencies for each of their offices, and then they also have to have separate SFTP batch file upload links to all of them, and all of that was probably integrated into their ERP system maybe a decade ago. And the really sophisticated ones have squeezed out a lot of efficiency from it, and they're getting great FX rates, and it functions at an incredible scale. But then when you have this experience to Eric's point earlier of instant 24/7 with one bank, but I've got 15 banks, you've only solved a tiny piece of my problems, and I wonder you can't sell this product. If all of the banks tokenized their deposits, then this would just get a whole lot easier. But now there's this weird prisoner's dilemma of like, well, if I do that, will I be the wallet of choice for this client? Will my deposits be in there, or will it be somebody else? Will that sort of really move the market? So I think that's kind of the interesting dynamic we're watching sort of play out in this space. So if you feel like you can win in that game, then I think it's very interesting times to be aggressive and lean into going open loop and look at the ones that are doing that. I would suspect they do feel confident of that sort of thing. So I do suspect we'll see more people doing token housing deposits. To your point, Kai, I actually sort of buy the regionals argument, because in that world, do they win or do they lose? And maybe they could win if there's a better version of correspondent banking that comes along, and if they can get instant settlement too, and they can still have some direct consumer and corporate relationship, that's a bit of a wedge. So we'll see, but we'll keep having that debate. I want to bring us to the last story this week. This was tether seeking $200 million for a tokenized gold crypto treasury. This digital asset Treasury would be used to purchase tethers X UAT token tokenized gold. It's in partnership with the ant Alpha platform, who are closely linked with China's bit main technologies, a major Bitcoin mining machine manufacturer, and tether owns 8.1% of bitmain. Tether is fascinating. Fascinating. The more you scratch at this thing, the more fascinating it gets. And it certainly seems like the price of gold is skyrocketing at the moment. Marieke, you mentioned geopolitics earlier. Is this just one random hedge from tether? Or do you think there's some strategic rationale here?
Speaker 1 43:07
Well, I think, as you say, tether is absolutely fascinating, and not to be not taken seriously, has to be taken very seriously on the geopolitical front. What I find fascinating is almost like tethers approach towards Europe or towards Asia versus actually towards the US. And I think what we've seen, for example, in Europe, is basically saying, well, Mika, we're not going to comply with and here I'm talking mostly about usdt, but we're not going to comply with it, so we're just going to let go. And yes, they've made some small investments into projects that should be able to actually do something with your stable coin, but broadly, they're letting it go, right? Whereas, actually in the US, therapist has been very different, and therapist has been to say, well, we will be actually genius compliance. And guess what? We're going to hire top notch people to be able to enable us to do that, which then begs the question, are we going to see two different versions of tether and so on and so forth? And more recently, you have this crazy fundraise announcement, which is like, is it 20 billion for like, half a trillion valuation, or something like that, which is like, Tai LA is raising an insane amount of money. And before you know it, as you start digging, exactly as you said, Tai man, they own pieces of everything. And they own pieces of, like a whole stack, which goes from actually energy to mining to then, you know, even like things that are much less thought about, but like startups in everywhere, in every pocket and so on and so forth. So definitely an empire that is actually, in a way transcending borders, but also in a way very, very aligned itself with, like, some very big countries. So I think, you know, this new announcement on tokenizing gold. I think we've seen quite a few times that gold is trying to be tokenized before it never really picked up. I mean, are they the one who can make that happen? More seriously, are we now at a place where it's actually more ready to happen because gold price is high and so on and so forth? Maybe we'll see. But I think, yeah, to me, it's more like tether is the gift. Keeps on giving, not without risk. A part of me wonders, what happens if such a big player has actually a very serious issue, and then how much everything could be affected? Because here we're talking about something that's it's a tentacle. It has actually its arms into so many different things. So what could happen if something bad happens to such an actor? But yeah, it's a it's definitely the gift that keeps on giving. So very interesting to look at and not to be underestimated, given the spread and the depths of what they're doing.
Sy Taylor 45:28
And Eric, where do you see tether in your own business? Because I imagine, when you think globally, you know there are flows where tether is the default and often the option, right? Like it's not even the default, it's the best and only option.
Speaker 2 45:41
Yeah, 100% I think it comes down to where the liquidity pools are right. And you can see this where tether trades at a massive premium. You know, it's all down to how you can source that liquidity, and what it would cost for me to actually get out of a capital controlled currency into something else that allows me to trade into another asset. And so I think if I compare the kind of duopoly in the market today, I think tether is actually serving a real purpose in a lot of markets, and the fact that they're not, in most cases, providing any sort of yield is okay, because the business model is actually solving a real issue. I think when you look at the other side of that coin and somebody who's, you know, moving us d to USDC, or something that effectively trades at cost or at very little premium, I think it's, it's hard to imagine that is the future state of the utility. And so I think they've positioned themselves in a way that makes it impossible for anybody who wants to do something with stable coins at scale to not use and to not be a part of in a way. I think what they're doing in the US personally is just actually creating an on ramp onto usdt, and, you know, a compliant way for folks to access the broader network in a compliant manner. So look, I think they are, and they will continue to be the backbone of what happens in stables. And I think they're obviously probably on like the 100th interesting thing they could do, which is the announcement you just talked about. Part of me believes that if they really wanted to, they could actually start to vertically integrate and become somewhat of a global bank, right? Like they provide more stability and access to liquidity than, you know, most institutions around the world at this point, right? And so I'm not sure where they'll go, or if they have those ambitions, but certainly, they've built such a unique and scarce asset to many parts of the world that most of us don't interact with daily. But you see in global trade that it's hard to believe that they don't remain just incredibly dominant in that space.
Cuy Sheffield 47:51
At this point, it's almost like the entire show could just be news from tether with just how much is happening to try and follow. I think one takeaway I have is it's fascinating to think back to when stable coins started. Stable coins started to emerge within the crypto ecosystem. It was almost like there was this contradiction, particularly from Bitcoiners, where they were like, is it the point of crypto getting away from dirty Fiat and central banks and so it's like, it's all about like, let's create this new currency and Austrian economics and fixed money like that was like the mindset that people had. But then it turned out that one of the most successful products coming out of crypto were dollars that were just tokenized dollars. And I think while some people really struggled with that, and it seemed like a contradiction, it feels like tether and Paulo, at least from what you hear from him the whole time, has maintained that he has a deep belief in Bitcoin and gold as future scarce monetary assets. And tether holds billions of dollars of Bitcoin. They hold billions of dollars of gold. They've invested in Bitcoin miners. They've invested in gold miners like so he still has that very kind of Bitcoin native mindset and philosophy. But he also recognizes how much demand exists for dollars, and how being able to have a stable coin product for people who want dollars all over the world is the killer product today. And then I think he also they seem to be playing a multi decade game where dollars are the product right now, but who knows 50 years from now? Like they have a deep belief in gold, whether it's tokenized or physical, and as well as Bitcoin. So I think it's not necessarily as much of a contradiction as it seems. And I think tether has been very successful being able to hold both of those beliefs at the same time,
Sy Taylor 49:43
five or 10 years ago, it would have been unthinkable to suggest that the full faith and credit of the United States government was questionable, and since then, it's had a couple of downgrades by ratings agencies of its sovereign debt. And 510 years ago, it would have been unthinkable to say, we move. Way from the fiat system towards something gold backed, or something along those lines. Now we actively see central banks buying gold at scale, and that's not uncontroversial, like it's entirely different set against that context. What tether is doing is, you could speculate for days and weeks, but actually it just looks like prudent treasury management on the surface of it, but to your point, there could be a multi decade game here. And my fear is that sometimes people look at these things with the experience of the past 20 years, not the sort of projection of where we might go. The credible thing to do, often is to learn from experience, and the credible thing to do is to focus on these things that we've all believed for a long time, and maybe the facts are different on the ground now, and I think that's something certainly that we're going to keep an eye on. Well, listen, I could have this conversation with you guys forever. What a what a great episode. I really, really enjoyed it. Thank you so much for being involved. Thank everybody for listening. Where can people find out more about what you're up to? Over at velocity, Eric, check
Speaker 2 51:04
us out velocity. Dot XYZ, the only platform that is building for global CFOs.
Speaker 1 51:09
Heck yeah. Marie, how about you? You can check out Euro stable, watch or find me on LinkedIn
Speaker 3 51:15
and Kai on x at Kai Sheffield and visa.com crypto.
Sy Taylor 51:20
You'll find me at sy Taylor on x and LinkedIn, and you'll find me at FinTech, brain food.com or tempo dot XYZ. And if you haven't already, go ahead and subscribe. Leave us a like. Send this show to friends, spam them. We appreciate you, and we'll see you soon.