On Ep. 37 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Alonso de Gortari, Director of Product & Chief Economist @ Mysten Labs and Eric Saraniecki, Co-Founder & Head of Network Strategy @ Digital Asset to discuss Digital Asset raising $135M for Canton, Fiserv announcing a stablecoin and more!
On Ep. 37 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Alonso de Gortari, Director of Product & Chief Economist @ Mysten Labs and Eric Saraniecki, Co-Founder & Head of Network Strategy @ Digital Asset to discuss Digital Asset raising $135M for Canton, Fiserv announcing a stablecoin and more!
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This episode is brought to you by Visa
A world leader in digital payments, Visa is bridging the gap between traditional financial institutions and innovative blockchain networks, helping players in the payments ecosystem navigate the ever-evolving world of tokenized fiat currencies with confidence and ease. Learn more at visa.com/crypto.
This podcast is also presented by BVNK.
BVNK is the leading provider of stablecoin payments infrastructure—helping businesses move money faster, settle globally, and even launch their own stablecoin products. Head to BVNK.com to learn more!
This podcast is also supported by Canton Network.
The groundbreaking Layer 1 public chain where traditional finance and crypto are converging. Visit canton.network to learn more.
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We’d also like to remind you that the views or opinions of our contributors today are their own and do not necessarily reflect those of the companies they are representing. Nothing we say should be taken as tax, financial, investment or legal advice, do your own research!
Music by Henry McLean
Unknown Speaker 00:00
Simon Taylor,
Sy Taylor 00:10
welcome to tokenized. The show focus on stable coins and the institutional adoption of real world assets. My name is Simon Taylor. I'm your host for today, author at FinTech, brain food and head of strategy over at sardine. And joining me, we all reunited. My co host, my friend, Kai Sheffield, how are you, sir, it's
Cuy Sheffield 00:30
good to be back together. I miss you, man, it's not the same doing the show without you. We've been doing like every other one. So it's fun to get back together.
Sy Taylor 00:37
Heck, yeah. Long may this continue. All right. And also joining us today is our Director of Product and chief economist at mist and labs. Alonso. Alonso, please teach me how to say your last name, sir,
Speaker 1 00:50
it's Alonzo degroteri. Great be here, guys. Thank you for the invitation.
Sy Taylor 00:55
You're welcome to be with us. And would you do me the honor of explaining who mist and labs is and what you do there, just ever so briefly,
Speaker 1 01:02
for sure, missing Labs is a company that's basically trying to revolutionize the way the internet works. I wake up in the morning and I use Gmail, send a couple of emails, I log into Instagram, see what my friends are doing, I go to my bank of america account to send some money. And then you realize that you don't own any of those digital assets, right? Like you use them every day, but you don't really own them. And so I think what we're trying to do is trying to do is sort of change the pipes of the internet so that the type of products we create can be the rails in which people can unleash the ownership of these products. And so that includes, sort of our premier products suite, which is layer one, a programmable blockchain in which you can do pretty much any type of service for the digital internet. But also our ancillary products that sort of built on top of build on top of Sui to offer additional services, such as Walras, which is about programmable storage, deep book, which is about having the most efficient trading hub for any type of digital asset seal, which is about being able to encrypt data and give some folks privacy in the type of products, et cetera. So in general, we're an infrastructure company. We're trying to sort of really make web three work for everyone. Rather, we're trying to make the Internet work for everyone. Heck
Sy Taylor 02:06
yeah, I was gonna say that's no lack of ambition. Thank you, Alonzo for joining us before we get into the show. We just need to remind everybody that this podcast is sponsored by our friends at bvnk, and if you've been listening to this podcast, you've probably heard us say every business needs a stablecoin strategy, and if you're looking for the best place to start, that's bvnk. Bvnk is the leading provider of stablecoin payments infrastructure, helping businesses move money faster, settle globally and even launch their own stablecoin products, all with licensing and compliance, so you can build with confidence. We're proud to partner with bvnk on tokenized to learn more. Visit bvnk.com audience. Just one last bit before we get into the first news story, I need to remind everybody that the opinions of contributors today are their own and might not reflect the companies they represent. Nothing we say should be taken as tax, legal or financial advice. It's not fashion advice, it's not sports advice, it's not any form of advice. So please do your own research, folks, and with that, let's jump into the first story. This story came from everywhere, and it's about digital asset. They are a builder of the privacy focused blockchain Canton, and they've raised over $135 million but instead of me telling you about the story, we're actually joined by the co founder, Eric, who's the head of network strategy over at digital asset. Eric, first of all, congratulations. Welcome to the show. Tell us a little bit more about this funding and what it's for.
Speaker 2 03:43
Yeah, thank you very much. Thanks for having me again. Nice to be back. So the funding, first and foremost, I see it really as a strong endorsement of the need for privacy. We've seen that been a really large topic in this space. I think Vitalik has written somewhere in the neighborhood of three or four posts recently about it, and it's being driven a lot behind the proliferation of stablecoin demand and the new entrants into that space really understand that privacy is a key, key enabler to getting into things like payroll or B to B payments or international remittances. And so it's awesome to have a huge group of existing investors re up and reaffirm their commitment to the ecosystem. New investors step in and say, Yes, privacy is a foremost need for the expansion of these digital assets and stable coins and to expand our ever growing footprint of community both capital markets tradfi And defi and crypto native. Heck, yeah, congratulations again.
Cuy Sheffield 04:42
It's been fascinating. Just see the journey. I think we had you vol on maybe the first ever episode of tokenize that we did, and it was close to a year ago. So you were helping institutions with tokenized assets before it was cool. Now, every day, every institution's like, what are we doing with tokenized assets? I'm curious what you're seeing in terms. Terms of deposit, tokens, stable coins. In the recent push, with all of the news and excitement about the space, what are the types of products that the institutions that are coming in the past few months are looking to build on Canton where privacy, some of the configurability that you have is becoming a really important
Speaker 2 05:19
feature, I would say it's less net new and it's more the convergence of these things, you know. So we've always been building for this destination where these two worlds come together. It's often been presented as a private or public, transparent or privacy, Trad fire, crypto native. And we've always disagreed with those, and consider them a false dichotomy. So you know, if you think about stable coins. You're talking about a globally available 24 by seven always on universally accessible product. Well, what actually enables that under the hood? Capital markets in the United States, Monday to Friday, Fedwire repo, reverse repo, Treasury markets. So you have like this really interesting disconnect in the cadence between what enables this product and how the product's getting used. And so the things that you see happening in Canton are really eroding those boundaries between those two worlds, 24 by seven repo, connected to the creation and redemption of the stable coin, or the instant liquidity of cash equivalents and cash itself. So it's really how these things interact with each other, and it's been like this very, very slow build up to get here, where it was just about getting these assets into these ecosystems and making sure you can turn them on and enable it, but the whole next wave is about putting these things together, leverage, lending, composability, interaction, all that sort of stuff. That's where the next wave is really coming. And the people that really get it are well prepared for it and are prepared to move forward, and the others are trying to catch up and figure out how they can participate.
Sy Taylor 06:47
You've talked about privacy there. You've talked about people being ready for it. I think Alonso, I know privacy was something that you mentioned in your intro there. How do you think about privacy at mist and labs, and what are your thoughts on that as a focus area, as well as kind of just upgrading our infrastructure money to be able to keep up with our infrastructure of the internet.
Speaker 1 07:07
Yeah, for sure, privacy is one of those things that people talk a lot about, but I do wonder whether it's sort of the missing piece that we need in order to get these products adopted. When you think about privacy, let's go back to the retail world. A few years ago, I used to work at Facebook, and this was sort of the days of the Cambridge Analytica and all the concerns about monetizing user data through ads, feeds and all these kind of things. And there was a sort of very negative sentiment towards in the United States, towards companies like Facebook, mainly driven by these privacy concerns. But then again, like, I'm originally from Mexico, and if you go to Mexico, nobody really cares about privacy. Like, that's just the reality. People care about products that work, right? So people, when they log into WhatsApp or Instagram or Facebook, they're just happy to have an app that helps them sort of hang out with their friends and do stuff. And so I think, when I think about why stable coins and payments haven't been adopted by regular people, people such as my mother, my friends in Mexico City that are not crypto native, I've never heard that privacy is really the reason. I think it's just the products are not there. So I think at misting what we're trying to do is we're certainly trying to build the infrastructure and the features that deliver privacy to folks. In particular, we have a product called seal that basically gives a lot of flexibility for builders and Dapps to ingrain privacy into the apps. And basically gives you the flexibility to see, say, let's say you source some data on chain, on walrus, and you're using sui as a coordination layer for it. What are the restrictions with which people need to follow in order to interact with that data? Let's say you're a news service, and you're primed some news, and you want to have the subscription service, then only people with certain credentials can access that data, and so the data is private for some but not for others. That's just one example of sort of the design space in which like privacy can be implemented. But I think the way we see it is really the issue about I think adoption of blockchains for both retail and institutional financial services, the privacy angle is important, but I think what we're missing is really the products, right? Because if I'm a financial institution, I think blockchain is really a productivity increase. For me, it's like better and more efficient rails. Is privacy important? Yes, for sure. But is that really what's missing? I think not. I think what sort of the bigger question is like, how do we crack that egg of building products that people actually want? Fascinating,
Sy Taylor 09:10
if
Speaker 2 09:11
you'll allow me to disagree, I'd like to ask the audience, how many people would be comfortable making their bank accounts public information or exposing what they get paid in their company to everyone else around them. So you're not wrong Alonzo, but the 99.9% of the use cases that are being presented for the next wave of adoption for stable coins don't adhere to the space that you're describing. They're talking about corporate treasuries. They're talking about payroll. They're talking about things that are highly sensitive information and generally, if there's money associated, money associated with it, that's highly sensitive information. And so it's not really a or b. There are many reasons that the stable coin infrastructure is not as widely adopted as we'd all like it to be. Here. We have a tendency to think we've hit this radical product market fit, which we have within the casino. No but not outside of it. And you know, there are many reasons why, but privacy is definitively a threshold issue for most of the use cases being presented today. It'll be
Cuy Sheffield 10:10
interesting to see just the difference between perceptions of privacy for retail consumers and institutions. It's not clear to me, for most retail consumers, is there an understanding of the lack of privacy that stable coins have? I think a lot of people that are using stable coins right now, they just say, hey, this way I could access the dollar. Never been able to access the dollar before, and there haven't really been any events, any negative repercussions, where someone's address was tracked and then there was some downstream effect from it. So it feels like, anecdotally, people either don't really understand that it's not private, or they don't necessarily care, because this is a way to access dollars that they'd rather have, dollars that aren't private than have a local currency. That is, I think, institutions, it's a very different story. And what I found particularly talking to banks, a lot of them, as they've come in and seen all these headlines around stable coins have said, Okay, we we gotta get up to speed, and we explain to them, like, you realize that every single transaction that's happening is public. You could see it. It just it seems like such a crazy thing that they're like, Wait a minute. Like, you know, what does this mean from a regulatory perspective, what the bank requirements and obligations are, I think, even looking at things like now that you've got a deposit token with jpm that's on chain, and we're just looking at the smart contract to see how much of those deposits existed. It's a new world that's different, if you have to get accustomed to non private transactions. And so I think that there is a growing amount of demand from many institutions to say, We want all the benefits of programmability, flexibility, speed, but we don't want to have to just say, hey, there's nothing we could do now, everything we build isn't public. And so trying to find a way to balance those two together, I'm really excited to see how that plays out.
Sy Taylor 11:55
Yeah, different payment types have very different requirements. Different user groups have very different requirements. Eric and I'm interested in some of the funders in your round, the backers were BNP, Paribas, but circle ventures, but Citadel, but the DTCC, but the two financial so you've got a real cross section here of investors that sort of span the spectrum of like, very, very stablecoin, native, digital asset native, two very, very traditional asset native. What is it that you think is starting to happen in the institutional space with stablecoins that maybe is not as obvious in the sort of last mile global dollar conversation? I think
Speaker 2 12:36
there's line of sight into being able to use it in a capital markets context, and that was never clear before. So that's just kind of activated people to be interested. But then again, just five years ago, in crypto, it didn't have enough critical mass to be an interesting customer to some of these institutions, and that has fundamentally changed. There isn't a large custodian or bank or broker dealer on Earth that doesn't in some way, shape or form. Want a service circle as a customer, and when they show up and they're like, I want to expand the ways in which my product works, and I want to empower more of capital markets for this to work for our customer base, they are a big voice and a material voice where they may not have been as material voice in the past. So it's really, I think the crypto market has become quietly, quite institutionalized as we've gone through the past few years. And there are a number of what were always crossover participants, or have become what I call crossover participants, meaning, think about someone like a Cumberland who is also a Dr W right, like the people that live on both sides of the fence, and increasingly, these crypto native firms, like a circle, are living on both sides of the fence, like I said before, they are entirely enabled by old school tradfi Capital Markets. That is the engine behind the stablecoin. When they're buying
Sy Taylor 13:59
repo or when they're buying treasuries, they're having to buy that from somebody, so they become a capital markets participant, and a major capital markets participant.
Speaker 2 14:07
That's right, a major one is really what I think has started to tip the scales here, is that the scale of Coinbase and circle and tether and the large institutional traders is not something you can ignore if you're in a capital markets context, especially as they expand beyond just maybe putting cash in the bank and into treasuries and into repo and into lending. I mean, look at what Apollo is doing with their on chain credit fund, and then what gauntlet has done that by levering it. Increasingly, Bitcoin is the next entrant into high quality liquid assets, joining things like treasuries and money market funds and as a whole ecosystem of capital markets like defi, gets built around that that is expanding and pulling in those institutional participants into that ecosystem. It was retail that led the charge. But I do believe that the next wave is overwhelmingly institutional and. Something that looks extremely Trad fi, and they have a whole set of requirements that are just immovable objects about doing things at scale. And yes, we have really great adoption and market caps in crypto, but it is a absolute, I don't know, fraction of the capital markets ecosystem. So depending on who you talk to, when you say, oh, there's a few billion dollars of TVL on this asset. Looks huge from one perspective, and it looks minuscule from the other. And it's really that's what gets us excited about the Canton ecosystem, and our investors about the Canton ecosystem, is that just turning on one or two of these use cases that we have in the network end up being 100 200 500 times bigger than all the other networks combined in terms of RWA daily volumes or TVL. And that's even just a start.
Sy Taylor 15:46
You said something that blew my mind. Would you just take a minute on Bitcoin entering the conversation for high quality liquid assets? Because as somebody who's had exposure to capital markets, that was like a mic drop moment for me. But if you're not familiar with high quality, liquid assets and the role they play in capital markets, which a lot of our audience skews payments right like so you may not have that background, just kind of unpack what that really means.
Speaker 2 16:12
Yeah, I mean, these are the things that are used for collateral in capital markets. If you want to trade on the exchange, or you want to post money at the clearing house and you want to get credit to be able to trade, or if you want to use it as collateral in a lending context or a leverage context, you want to use the highest quality collateral that you have, because it means you can borrow the most amount of money against its notional value. And those are usually the lowest risk, deepest, most liquid, liquidly traded assets, short term US Treasuries, highest quality collateral you can find on Earth and so generally, sometimes called cash or cash equivalents, you know, so like these things that are as sturdy or as good as something like a cash asset, but in certain other contexts, are safer Because of bankruptcy remoteness, but bitcoin is increasingly getting used as collateral and the depth and liquidity of the markets now thanks to ETFs and the single name treasuries and just how deep the over the counter market is, the perps markets, the evolving and growing and deepening derivatives markets and over the counter derivatives markets, it is making Bitcoin a really safe asset to lend against or use as collateral in a number of contexts. And I know of a couple different not going to name who they are, but a couple different scenarios where there are nation states using their Bitcoin to borrow money to build a power grid, for example, and it's just getting used in ways that you I would have never imagined back in 2009 2010 when I started getting involved in the space. And you, you need to stop thinking about it as this disintermediating peer to peer Cash System, and it's much more increasingly becoming the backbone to new forms of capital markets in emerging economies or where you might not have treasuries easily available to you. So I just think that this whole crypto space in general is trending extremely institutional, and the next wave of adoption is definitely coming in use cases along those lines,
Sy Taylor 18:19
Eric, you blew my mind. Thank you. I appreciate you blowing my mind. That was fascinating. I do know you have to head out, and I do know we've got to get to the next story soon. But where can people find out more about you and digital asset and all things Canton? Where
Speaker 2 18:34
do they go to do that? The best place to go is Canton, dot Network.
Sy Taylor 18:37
Thank you so much. All right, Eric, thank you for joining us today, sir, I hope we get to catch you in the not too distant future. I am going to take a little pause here and while we hear from our sponsors, and we'll be right back.
Unknown Speaker 18:50
Thank you very much for having
Sy Taylor 18:54
me 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 brought to you by Canton network. Ever wonder where real tokenized asset volume is going? Canton network the groundbreaking layer one public chain where traditional finance and crypto are starting to converge. Why? Because Canton is the only public network with privacy, no workarounds, no compromises. This is 24/7 markets on demand, financing with real yield, where value moves as freely as information on the internet. This isn't just another block. Shane, no, this is where the serious money is flowing to solve real market demand and risk. Visit Canton dot network to learn more. All right, thank you to our sponsors. The next story came from the Wall Street Journal, and it could have come from just about anywhere. There was a story about a company called Fiserv, who provide payments and banking infrastructure to more than 10,000 banks around the world, have announced that they're going to launch a stable coin called fi USD. The token will apparently launch later this year, and they're collaborating with Paxos circle Solana and PayPal to make all of this happen. To give you an idea of the scale of Fiserv, they do about $19 billion in annual revenues. They provide services to about 3000 banks in the United States alone, and they have 6 million merchants. This is a very, very big company. They also plan to work with deposit tokens, not just stable coins, so potentially a very big entrant and a very big wedge for financial institutions to get into the space. Apparently, the partnership with PayPal is to make py USD interoperable with fi USD, and given the Paxos usdg sort of consortium that exists, there's certainly an interoperability conversation to have. But Alonso, I want to come to you on this one. What are your immediate reactions when you see stories like this?
Speaker 1 21:35
Yeah, no, I think it's fascinating, kind of natural, right? Like to tell you a different story. A few years ago, when we were designing Libra at Facebook, the original Libra design was basically based on a basket of currencies that included things like the UK pound, the dollar, the Singaporean dollar, the euro and the Swiss franc. Now, at that time, the Euro had negative interest rates, right? This is at the time of COVID. Rates were very low and actually like building a stable coin that was based on euros was very expensive because, you know, if you actually built a reserve, you had to pay money, essentially, to the central bank, given the negative rates. So it's not a good business at all. And if anything, it was, like, very complicated. We have to figure out what were the right weights in order to sort of offset those losses with, you know, the small but positive rates that you had in places like the United States now, today is obviously a very different world, like rates are much higher, at least for now. And I at least for now, and I think companies like tether and circle are printing a lot of money, but things could change. But it makes sense that, you know, if you are going to offer stable coins on your platform, you might as well pocket those incomes yourself at least. You know, for as long as we live with non interest bearing stable coins on the part of interoperability, I think it's an interesting question. I have to be honest with you, I don't fully understand it, because to me, stable coins are just assets. Are just assets. Like I live in the United States, my banking accounts are in dollars. My credit cards are in dollars. My income is in dollars. Get I go to the to Europe, I pay in euros. I take euros out from an ATM I pay my credit card using euros over there. Get invoiced in dollars. It's fine. I never think about interoperability. These are just assets, euros or dollars. Of course, there are fees that I need to pay in order to change one asset to another, but that has nothing to do with the assets themselves, right? It's just like, if you go to the supermarket instead of using dollars, you buy things like with peanut butter or whatever. So when I think about people issuing different stable coins and making them interoperable, for me, it's really about the rails. Like, once you're on the same rails, like you can have 1000 stable coins. You can just trade them against each other. I guess, like, the user experience could be a little bit clunky, but there is no really notion of interoperability. They're just assets. You can trade one into another, and if they all sort of created the peg, that should be fine. Which leads us to the question of, like, back to this sort of central bank digital currency conversation, if we can talk about but those, I don't know, this is sort of, it's a little bit funny to me when people talk about stablecoin for operability, and I don't know, Kai, I'm sure you have other thoughts,
Cuy Sheffield 23:44
yeah. So the first reaction I have this is, we've been saying on the show for the past year, like every bank needs a stablecoin strategy. And I think what we're seeing is now this next leg of every bank infrastructure company is looking to help banks with their stablecoin strategy. And so I think, I think I think it's a really smart, natural move for someone like Fiserv to make with the reach that they have in the role that they play as a technology provider for 1000s of banks across the world. And if banks are gonna wanna integrate stablecoins, they're gonna need to figure out how stablecoins can fit within the existing systems. I'm fascinated by just the relationship between stablecoins, blockchains and core ledgers. And when I think about core ledgers today, and like Simon, you know this much better than I do, I look at core ledgers as they're technology solutions, and they're not networks. A core ledger is it's a vendor. It's software that you use to track your Customer Balances, but they haven't, historically, really had this network effect, where the more banks that use the same ledger provider now those banks can transact between each other. When I think about a blockchain, you could say that a blockchain, in some ways, is an open source core ledger and any wallet that builds on top. Of a blockchain can easily transact between wallets because it's like they're all sharing the same core ledger. And so it seems like a natural progression to think that any core ledger provider that today is just in the software as a service or technology business would want to get into a network business and enable clients of that same core ledger to transact between each other. I don't really understand why you can't do that today. Normally. I don't know if it's just because it's older, antiquated tech or but it seems to be that enabling a stable coin connected to a core ledger could enable that. I think the question is, well, what about banks that don't use that same core ledger? And so if you got many different core ledger providers, you've got different enablers. And so I think it's hard to have a single global stablecoin that is issued by one core ledger provider if there are always going to be transactions that have to go between banks that use different ones. And so I think we're going to see a lot more interesting intersections between banking cores and stablecoins blockchain. So Simon, how do you think about that distinction?
Sy Taylor 25:58
The thing you have to remember is that a banking core is an upgrade onto a classic, old fashioned ledger piece of paper. And the thing with that ledger piece of paper is it had assets and liability to draw a big line down the middle, and for every payment you update a balance up or down. It's basic accounting, and that's what the mainframes do. But the mainframes had to account for. Well, actually, this is a check coming in, and this is the laws around check clearing. And then this is how we clear it with all of the other banks. And then these are the rules about it. And what ends up getting baked into those mainframes are decades and decades of edge cases and rules and laws and so often, what you see is that the risk of changing my core provider is like having open heart surgery if I had 16 hearts in 16 different countries, all happening simultaneously and the doctor was drunk. This is not something you want to do ever as a bank, unless you really, really, really have to. And so that is like, I don't touch it. That's going to be around forever. And all of my existing business and all of my existing customers sit on that thing, and they're probably going to sit on that for as long as I can possibly imagine. But then somebody comes along and goes, well, I've built this giant global ledger for the world, and anybody can have a wallet directly on that ledger. But the problem with that is they have to manage their own keys. Self custody is great, until you can't manage your own keys and somebody holds a weapon to your head and says, I'd like all of your money, please. So the role of a financial institution is still important, even in that world, the protection is still important. But the problem that we had in the traditional core system was reconciliation. We had to figure out, because these mainframes were shut overnight, how on earth I was going to reconcile all of these transactions with all of the checks, with all of the cash coming in the branches, with all of the card networks, with Swift with everything else, and so that creates this massive operational burden. And then along comes stablecoins and goes, I've taken care of all of that. All you need is compatible software. And that sounds great. The problem is, which compatible software on which network with which flavor of dollar? And so now we're recreating the problem, but in a different way in the crypto space. So core ledgers could have been network businesses, but they never evolved into it because they grew so much into these idiosyncratic solutions for every individual bank that have been tiny, tiny customizations over decades and decades and decades that have compounded. There is no single instance that's brand new that looks like all of the other instance. If I have 10,000 banks, there are 9999 that have a slightly different implementation, unlike where, if I access Solana, if I access sui if I access Aptos, any of those networks, everybody who's using it is using fundamentally the same network and the same ledger, and that solves reconciliation. It solves all of those issues. That's huge, but it's also not immediately backwardly compatible with the rest of my business, with all of my deposits, with all of my customers, with all of my revenue. So this is where the core providers have a really unique opportunity. Alonzo, I see you nodding. Is that making sense? Is that resonating?
Speaker 1 29:23
No, I think it makes a lot of sense in actually learning a lot about the little history about banks that you're telling No, I totally agree. But I think the thing is, the opportunity lies in the people that want to create new models, and sort of this is why we talk about blockchain as a productivity gain, right? Like you're talking about these very bespoke models for banks that depend on all these little details about how they've evolved over many, many years, often, many struggling to talk with each other because of all the decisions they made throughout this path and going to the sort of this idea of having a stable coin on a global, permissionless layer, that sort of forces standardization on everyone, so that everyone can sort of be in a better place that is. The productivity gain, I think at the same time, you always reminded me of the idea of the innovator's dilemma. Will people disrupt themselves before they're disrupted? And I think this goes back to the privacy question that I was mentioning earlier. We're speaking so much about like privacy is so important. This is how traditional financial markets work, and I agree with that. The question, I think the mistake we make is, Will financial markets in the future work like that too? Is privacy really gonna be that important the future like you have innumerable hedge funds, prop shops, banks that make so many profits off trading off so many things that happen to financial markets that's so obscured by how the system works. Is that a good or bad thing? I don't know. I don't know if it's my place to decide that. If it's true, the people that voted an election to decide that, whether it's trade leaders. But you could imagine in a world in which a lot more transparency, a lot less privacy in certain markets could be good for the world, that may or may not happen. But the point is, privacy by itself, the fact that it existed before doesn't mean that it's going to necessarily be as important as it was before in the future, at least not in all applications, but there will always be parts where it is important, for example, as they were talking about, like, on the income side. So I think when you talk about stable points, it's kind of the same idea. There is all this history of banks having all these problems and being facing huge difficulties for upgrading. But if you really think about blockchain as an increase in productivity, maybe it really is just to the incumbents will die, and we'll need to cut new flares that can sort of harness this technology and provide the services that they can deliver.
Cuy Sheffield 31:19
It seems like it's, I mean, right now, it's just, it's all about trade offs. And if I'm building a product that has the functions of a banker, I want a customer to be able to store value, send and receive value, whether it's a FinTech or a NEO bank, like, what is the infrastructure stack? What choices do I have? One choice is I go to an established core ledger provider that enables me to configure it and have all of these different systems that many different payment rails that are all connected together, that complies with all the requirements like that's the traditional way if you're going to build a product. The other option is you build a ledger yourself, which seems to be getting easier than what it was before. And you've got a number of fintechs and Neo banks where that's been part of their differentiation is, instead of sitting on top of a traditional core, they said, we're just going to build our own modern, cloud native core. And then now there's this third option that is, I'm just going to use a blockchain as my core. And the third option, a blockchain as an open source core, is arguably the lowest cost, most efficient way to build something. You don't really have to pay for the core. It's these 1000s of nodes operating, of running sui validators across the world that are actually like the ones that are funding the infrastructure costs for your your core. I think the trade off of that is, well, now you got to figure out private key management, which is really, really important, and that's something that either you're going to do yourself or you're going to put onto your customers, and they've got to be able to manage the private keys. And then today, the trade off is privacy that you know, if you share this global core with everyone else, and people will be able to see how much value you're holding on your platform or your customers have. But there's potential paths for that to be addressed. But I think the biggest benefit is interoperability with everyone else who builds on that open source core. And so there is this network effect that every new FinTech, every new neobank that builds on top of a blockchain as the core creates more value to the blockchain network that then enables more transactions between those partners. And so be fascinating to see how, like these modern blockchain, native stablecoin focused, neobank products end up growing and competing with traditional products that are still based upon a traditional core that are then bolting on and adding stablecoins as another feature, but still relying on the core as the way that balances are managed. Yeah,
Sy Taylor 33:51
and I imagine a world in which both of these things coexist is the most likely outcome. Payments infrastructure, banking infrastructure is like sedimentary rock. It very rarely goes away. Even violent explosions tend to just create a new layer of sedimentary rock. The volcano leaves new layer of ash, great. And occasionally there's a tectonic movement, and it all gets moved around, but a lot of that infrastructure is still sitting there decades and decades later, and that sort of creates this path dependency in financial services, and this parallel financial system removes that path dependency, but we will still have all of the assets in all of the world that need to get into this parallel financial system, at least for a little while yet. And I think that interim period is really, really why every bank and why every infrastructure company does need a stablecoin strategy, because, if nothing else, serve that demand. But it strikes me that this genie is not going back into the bottle quietly, if anything, it's accelerating in momentum. So it's your fiduciary obligation to figure out how you move into that world and how it could benefit you and your customers, and do so in a safe and. Responsible way. So it's gonna be fascinating to watch. Kai, have you seen anything else in this story about people issuing their own stablecoins? Because I know we've seen that come up a lot in the past couple of weeks, and you weren't on last week's show. What's the rationale you think for everybody issuing their own stablecoin at the moment? Are people just looking to learn? Is it something else? What are you seeing in the market?
Cuy Sheffield 35:21
I think people are starting to realize that stablecoin issuance might be pretty easy technically, but distribution is really hard. So I think it's companies that have some unique distribution are saying, let's try and issue a stablecoin and see if we're able to successfully take the existing distribution we have and be able to embed a stable coin inside of it, and so I think we'll see many different approaches to do that. I think there are a bunch of open questions. And even in this instance of who's going to be the licensed issuer, is it Fiserv that's going to go and are they going to get a charter with the OCC and become the issuer? Is Paxos going to be the issuer? And it's like the white label model, like p, y, U, S, D, but then Paxos also has usdg. And so what is it if you end up using a provider who also has a competitive product, and then how will the interoperability between circle was in the announcement as well? And say, I think there are a lot of details that still need to be sorted out about what the product will look like, and who is playing which role? I think that it's also interesting that talkus Georgia couples, who came from jpm, was a major leader in terms of the blockchain, onyx, Connexus business there is now the COO at Fiserv, so he's got deep experience in being able to implement institutional solutions like we've seen with jpm. So I I absolutely see the use case of between Fiserv clients. I think that is a very logical thing to do. To say, can we have fi USD enable transactions between Fiserv clients? I think the question will be, if someone's not a fi serve client, how does that interact with the broader ecosystem? Does fi USD go outside Fiserv or is it interoperability, where you convert, if you're a Fiserv client and you want to send a stablecoin to someone who's not a Fiserv client, you send it in fi USD, but then it needs to be converted and lands in USDC. And then who does that conversion? And like, there are a bunch of those questions that I think are still open here. Yeah, that
Sy Taylor 37:17
closed loop clearing of dollars amongst my existing large client base. It's sort of the treasury management use case, but applied somewhere else. Alonzo, where do you stand on the stablecoins of power law? Do we need less of them? Is everybody gonna get their own stablecoin? And we can insert the Oprah meme, like, where are you at
Speaker 1 37:36
that? I think it's very hard to predict what's gonna happen in the future, but I think ultimately what matters is, sort of, how can these companies use stable coins to offer better products for their users? Right? Like, I think Tai when you were saying, like, you know, privacy is important, but there's another thing. Like, how do you manage keys for your users? To me that's a way bigger important than the privacy issue, because I think that's fundamentally a very, very difficult thing to do. I mean, not to do a plugin for Sui, but I will we have ZK login, which basically enables anyone to use that self hosted wallet, logging in with their traditional credentials, such as your Google account, and at that point, it becomes very friendly to people, because if you have a Gmail account, you can use your sweet wallet. You don't need to think about mnemonics or your private keys or anything like that. There's a lot of things like that that are going on the user experience rail that I think is sort of what really, really needs to be harnessed for adoption in terms of whether there's going to be many or just one stable coin. I mean, I don't know. Like, if we end up in a world in which, like, every bank has their own stable coin, and then we just have really, really good facilities for swapping one stable coin to another, maybe they just swap, you know, one for one, and there's no trading fees, and, like, the technology is there to build it. Like, fine, it like, fine. It doesn't matter, right? Like, you maybe you pocket the interest as the issuer, but that's fine. It's, I think, the new shiny object. If your goal, instead of is, you know, you're going to be the stable coin issuer, because you want to take the whole market and you want beat circle and tether, then that's going to be much more difficult. But I think ultimately, it really by, like, what are the productivity gains that these stable coins give you? If you're into cross border, you want to get rid of corresponding banking for sure, stable coins are very, very useful, right? Like, you can get rid of that problem, there are still a lot of last mile problems, like the on and off ramps, like those are very, very complicated to solve. I don't think even like the rails or the stable coins themselves are the issue. It's just like, how do you get money in and out of the system? And so I think those are the really fundamental problems that we need to figure out in order to make stable coin adoption bigger, whether companies issue or not their stable coins. I think, honestly, it's a sort of side order that everyone's just very excited right now because circle did their IPO, and people are saying there's a lot of money in here, and it's very exciting. But I'm not really convinced that's the problem. The problem is like, how do we make users adopt stable coins for regular use cases, such as, like, even my mother uses stable coins on a daily basis, whether it's in dollars that's in Mexican paces or whatever that, to me, is the fundamental question. What we're trying to do with sui is sort of improve the user experience, so adapt builders and users that interact with sui can have an experience that is as similar as to if you were using Venmo or cash app or anything to trade money, but fundamentally, like you still need to do a lot more things as an industry to make sure that these services are valuable for people.
Sy Taylor 40:00
Yeah, yeah, we got a ways to go, that's for sure. Well, speaking of user experience, there's another story this week from just about everywhere, which is visa expanding stablecoin settlement across the seamia region. So Europe, Middle East and Africa and sort of Eastern Europe as well. They partnered with yellow card. I mean, I could again read out the story, but we got Kai right here. What's this about?
Cuy Sheffield 40:24
Yeah, so I think one thing that we have felt pretty deeply for a long time when we've looked at the stablecoin ecosystem is that the biggest opportunity is really coming from emerging markets, and that is where the largest product market fit is for stable coins to be used that are 10 times better than some of the existing financial infrastructure, and that there are real problems for cross border payments, for dollar access in many of these markets. And so I've been fascinated by the on the ground adoption that's happening across the African continent. We've gotten to know Chris Morrison and yellow card really well over the past few years. And what stood out to me about them was that they're talking about the type of clients that they're serving right now. They're shipping companies, they're food manufacturers, they're commodity traders, like they're they're not just serving crypto companies most of the remittance players that are looking to be money in and out of Africa. And I think what yellow card does is they solve a really important problem. If you want to use stable coins in these markets, how do you have liquidity between local fiat currencies across 20 plus countries in Africa, in and out of stable coins? And so they've been able to build a really impressive platform working with businesses enabling stablecoin conversions and payments across the continent. And so as we really look to double and triple down on stablecoin adoption and use cases in emerging markets like Africa, our goal is, how do we partner with the leading players there? And so what we're doing is we've onboarded yellow card into our treasury platform. So visa is going to have an account at yellow card, be able to use yellow card directly to move between stable coins and local currencies in Africa. And then we're also starting to look at different ways that our clients can start to use yellow card. And I had the privilege of being able to spend time at our client conference with some of the largest banks in the same year region, some of the largest banks in Africa and Middle East, and many of them are pretty excited about the opportunity that stablecoins pose. They see them on a day to day basis in their market. But they need enablers. They need help to figure out, how do we onboard and on and off ramp into stablecoins to then be able to get the benefit of them using visa products. And so, for example, we've been enabling clients to settle with us in stablecoin, starting with USDC, which solves a real problem, because if you need dollars as a bank in Africa or Central Asia, traditionally, you have to go through your correspondence to get that. And that can be expensive and challenging. And just to settle card volume that you have, we want to make it easier for clients in these regions to get access to dollars. And we think going through yellow card, getting USDC, and then settling in USDC could be a much easier, more efficient way for many clients to settle with Visa and dollars. And so we want to have partnerships with all of the leading providers who can make it as easy as possible for our clients, for banks in the region to start to get into the stablecoin ecosystem, and yellow card, we're excited to really get started with them. A lot more to come, but it was great to get to spend time with clients. And Chris joined us at the conference to talk about what yellow card's building and how they can help visa banks.
Sy Taylor 43:35
And it's a massive and growing region as well, in terms of Yes, card volume, but even GDP, see Samir is the fastest growing part of the world, and you see this with markets like Turkey, markets like the GCC countries in the Kingdom of Saudi Arabia, in the United Arab Emirates, this is a real growth engine for the global economy. And so the adoption there and the ability to have differentiated rails, and also those markets I named also become hubs for the entire region into Africa and North Africa and beyond. So then there are the local banks that they need to work with and an alternative correspondent banking rail and an ability to offer consumers a new product. Makes makes some sense. Alonzo, what are your thoughts when you saw this story? No, I
Speaker 1 44:18
agree with Kai. I would say, like, I think emerging markets are a little bit of an interesting story, because in some cases they're very behind. In some cases, they're much more forward looking than even the United States. So think about real time payments. You know, I'm from Mexico. Like in Mexico, you can take anyone's basically telephone number and send them money instantly, right? And in the US, you still have products like, you know, Venmo, or cash app to send money to each other, Zelle or whatever, like, it makes absolutely no sense. Like, why don't we have this service in India? We also have, like, very, very quick peer to peer transfer systems that work, like, holistically across the whole ecosystem. On the other hand, there are places where emerging markets are very behind, for example, in terms of their assets. The Mexican peso is a much weaker and more risky asset than, you know, the US dollar. Or Mexican sovereign debt is a potentially much more risky asset than US Treasuries, or at least they weren't soloed recently. And so there's, you have this sort of like, interesting mismatch in there. In there, there are parts of the technology in which, like, those countries are much more advanced than the US, and we're like in Venmo and Mexico wouldn't even be needed because you already have it. And so having stable coin rails for domestic payments could be important, but it's not like the huge advantage that you would have maybe other places like the United States. On the other hand, cross border like remittances. Mexico us is the biggest corridor in the world, and cross border is completely broken by the same time, I go back to our original question, right? Like, if you think about emerging markets being important, people have been talking about cross border remittances for over 10 years. When we did Libra, that was one of the main focuses, and they are teams that have been making progress on this, on especially string quarters. But why isn't this slam dunk like this? Is why, I think, like this is the fundamental question, right? Like, why aren't 100% of remittances on stablecoin rails using sweet Ethereum, Solana, stellar, whatever, whatever your chain is like, why that, for me, is the question, right? And until we get to answer that question, everything else is kind of irrelevant, because ultimately it's the user and the adoption that matters for these products. And so I'm really excited about visa trying to sort of make inroads into, sort of eat up these markets and sort of spread this technology. But we need to do more things in order to do increased product adoption, or else, like this industry is not really making a difference.
Sy Taylor 46:21
Oh, absolutely.
Cuy Sheffield 46:22
Just on that question like, why is the vast majority of the remittance market not using stablecoins today? I would argue number one is liquidity. It's just a lot of remittance flows still need to have some on and off ramp into Fiat. I think that there's a world where, if everyone has a stable coin wallet, and they're willing to receive stable coins and transact in stable coins, and you've got this kind of whole ecosystem emerging, then I think stable coins solve a really big problem and become very widely used. And the best solution if you don't have to off ramp them, then it's great. Send someone a stable coin. They get it immediately. As long as you're in a world where most consumers still need an off ramp, they still need a local fiat currency, they still need an existing payment method to pay for their groceries or their lunch or to pay their bills. I think that is the number one barrier of the liquidity that exists between stablecoins and particularly many of the longer tail fiat currencies, which is a really hard problem to solve, I think banks can play a big role in solving that. I think banks haven't been able to because there hasn't been regulatory clarity. And so it's like, if you get regulatory clarity, then you could get more bank involvement, to get more bank involvement, then you get more liquidity. If you get more liquidity, and then stable coins, as a technology starts to work better for remittances, or you just have massive consumer adoption of wallets, and if you have this whole ecosystem where you don't have to off ramp, then it becomes more useful. But I think that that's further away, and we're excited to figure out, what can we do to help grow the liquidity, grow the participation of banks, to make these seamless on and off ramps that are gonna be important, as long as the average person still needs some Fiat back in their bank account. It's a little bit
Speaker 1 48:03
of a prediction question, which I think are, like always difficult hands, because who knows what's gonna happen. What do you think is more likely that we figure out the off ramp question sort of just make it very seamless for people to be able to off ramp from stable coins into cash and then, you know, everything is very integrated with the domestic economy or whatever. Or do you think it is more likely that merchants and everyone else will just come on and have a wallet themselves, and then the off ramp ceases to become important, or it could be both, I suppose.
Cuy Sheffield 48:27
I think you're gonna see some of both for sure, and both forces are gonna happen at the same time. I think one of the big open questions is, how do central banks and regulators respond? And I think if you ask them, you give them the option and say, If stable coins are going to exist, and there's no like putting stable coins back in the box, do you want to have stable coins deeply integrated into your existing financial rails, with the ability to do seamless on and off ramps into your local currency, where you still get the benefits of stable coin speed and flexibility going cross border, but there still is conversions. It's your local currency, and use of your local currency that is the option that they would prefer. Versus a world where if everyone just adopts stablecoin wallets and uses $1 stablecoin For everything that they do, I think that that poses a risk to many governments and central banks and regulators and so yeah, as much as I think that consumers will vote with their wallets, and I think you'll see more consumers and businesses seek out and look to get access to wallets and stable coins, I think particularly for businesses, for institutions, for merchants, having a world where you could seamlessly intertwine these two things and still have a role for local currencies, a role for local payment systems, I think is going to be much more preferred and important infrastructure to exist for governments to get comfortable with this happening, versus an entirely parallel ecosystem that emerges outside of them?
Sy Taylor 49:49
Yeah, it'd be fascinating to watch. I do think that there are now, in my conversations with policy makers taking that perspective that stablecoins aren't going away. They're about to get. Legitimize so how do we win in this scenario, or how do we play not to lose in this scenario? How do we make the most of it from a policy objective and a mandate standpoint? And certainly there's a lot of work on functional equivalence of policy between global regulators to try and make that happen. I think the kind of days of this is a threat to our sovereignty. It needs to go away. Have now largely gone. I think there is still a worry about sort of a sovereignty risk if certain very large, big tech actors came into the ecosystem, but a lot of the genius actors worded in a way where you know that would become potentially a lot harder, at least in the United States. But I would echo what Kai saying there that I think it's a how do we adopt it thing? Well, listen, cari, thank you for sharing that. Alonso, thank you so much for being with us. I do want to make sure that before we get out of here, people find out more about you. Alonzo, where can they learn more about you and everything you're doing at mist and labs? How do they find you?
Speaker 1 50:54
Well, I don't know if you want to learn about me, but I think people should definitely learn more about myston. I mean, we have a suite of products. I think we're one of the few blockchain labs that don't just focus on earlier one, of course, like suite.io is the first place to read about suite. But more importantly, I would just say, like, go to the Android or iOS App Store, download the slush wallet. Play around with suite. I think you'll fall in love with it. Even I think a wallet experience is far superior than what you have in other ecosystems. But suite is only the shrink point. Go to walrus dot XYZ, and you can start sort of feeling what programmable storage looks like. If you're familiar with, you know, Google Cloud or Dropbox or these type of, sort of centralized storage solutions. I think walrus will give you some neat surprises, and then, just more generally, for to learn more about the company and everything we're doing, instantlabs.com has all the answers for you. We're essentially a team that was built at Libra Facebook back when Facebook wanted to create Libra DM payment system. And we sort of soon after that project done, and went out and created missing labs and all these products. And we really do want to revolutionize the revolutionize the internet, so hopefully we'll be able to do a little bit about that.
Sy Taylor 51:57
Love, the ambition. Good luck with everything. Tai, where do people find out more about you and what
Cuy Sheffield 52:01
you're up to? Over at visa on x at Tai Sheffield and visa.com/crypto
Sy Taylor 52:06
you'll find me at sy Taylor, just about everywhere. You'll find me at FinTech brain food.com and sardine.ai you'll also find us wherever you get your podcast, and we hope you'll tell your friends about it too, or anybody who might find this subject fascinating. So tell a tradfi friend today, and if you want to help others find the show. If you're watching on YouTube, please like, subscribe, do all of that sort of stuff and leave us a review in your podcast client. It really does help with all of those nice algorithm stuff. So thank you very much for watching, listening and all of the above. We will catch you next time.