On Ep. 60 of Tokenized, Simon Taylor, Head of Market Development @ Tempo and Cuy Sheffield, Head of Crypto @ Visa, are joined by Rachel Mayer, VP of Product @ Circle and Nick van Eck, CEO and Co-Founder @ Agora to discuss killer features of tokenization, the growth of stablecoins versus other tokenized real-world assets and more!
On Ep. 60 of Tokenized, Simon Taylor, Head of Market Development @ Tempo and Cuy Sheffield, Head of Crypto @ Visa, are joined by Rachel Mayer, VP of Product @ Circle and Nick van Eck, CEO and Co-Founder @ Agora to discuss killer features of tokenization, the growth of stablecoins versus other tokenized real-world assets and more!
Timestamps:
Tokenized is sponsored by Visa
A world leader in digital payments, Visa is bridging the gap between traditional financial institutions and innovative blockchain networks, helping players in the payments ecosystem navigate the ever-evolving world of tokenized fiat currencies with confidence and ease. Learn more at visa.com/crypto.
Tokenized is presented by Bridge, a Stripe company.
Just like the internet made information global, stablecoins are making money global. And Bridge, a Stripe company, is the infrastructure powering that shift. Built for speed, scale, and simplicity, Bridge helps businesses send, store, convert, and spend stablecoins instantly, all without borders or having to navigate the complexities of crypto. Learn more at bridge.xyz
Tokenized is also presented by Centrifuge
With over $1 billion in total value locked, Centrifuge works with major institutional partners to tokenize and distribute their funds — and with capital allocators onchain to invest and manage yield. Through every crypto cycle, Centrifuge has been building — and today, it’s the market leader in tokenizing real-world assets. Learn more at centrifuge.io
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We’d also like to remind you that the views or opinions of our contributors today are their own and do not necessarily reflect those of the companies they are representing. Nothing we say should be taken as tax, financial, investment or legal advice, do your own research!
Music by Henry McLean
Sy Taylor 00:00
Simon, welcome to tokenized. The show focused on stable coins and the institutional adoption of tokenized real world assets. My name is Simon Taylor. I'm your host for today, author at FinTech brain food and head of market, Dev over at tempo, welcoming back my co host, a man surely just about getting over eating too much Turkey at Thanksgiving. It's Kai Sheffield. Kai, missed you last week. Killer episode, but I'm glad you're back in the saddle. How are you feeling?
Cuy Sheffield 00:36
Man, it's good to be back. I miss being on the show. It feels like it's been months. There's just so much news happening, it's hard to keep up.
Sy Taylor 00:43
Well, this is a good forcing function, and we have some incredible guests. Let's be honest. First up is Rachel Mayer, who is VP of product over a circle, focusing on arc. How you doing? Rachel, hey, nice to see you guys doing well. Thank you for being with us and joined by the returning Nick Van Eck, who is CEO and co founder of agora. How you doing, Nick, I'm doing great. Thanks for having me. Guys. All right, before we get into the content, I got to remind everybody that views and opinions of our contributors today are their own and might not be the views of the companies they represent. Please don't take anything we say as tax, financial investment or legal advice. And I also need to remind everybody that this episode is supported by our friends at centrifuge. Tokenized is brought to you by our friends at centrifuge. Centrifuge exists to bring institutional grade finance products fully on chain. Centrifuge is a full lifecycle defi platform, from asset creation and structuring to defi integration, and it's cross asset by design. What that means is they work across private credit, ETFs and equities, making your financial products much more accessible and much more efficient. This is the tokenization you keep hearing about, unlocked for all asset classes by centrifuge. Oh, and a quick shout out to every listener that's shown us some love on social media and their Spotify wrapped. We appreciate you. We're certainly in some good company. Amazing see how many top fives we're in. So please, please keep sharing those. All right, let's go to the first story. This was like maybe less news, but I still saw it everywhere, which was indie economist Larry Fink and Rob Goldstein did an op ed on how tokenization could transform finance. It came in the same week that Bitcoin ETFs have apparently become blackrock's biggest growth revenue source, and there's some incredible quotes in this piece. One here is, if history is any guide, tokenization is roughly where the internet was in 96 and it won't replace the existing financial system anytime soon. Think of it instead as a bridge being built from both sides of a river converging in the middle confusing sentence. But I guess tokenization has gotten tangled up historically in the crypto boom, which people viewed as speculation, but traditional finance is starting to see a lot, lot more there. Nick, I guess you have some proximity to the world of traditional finance and asset management, and know that world well, what do you think about comments like this? Does it track for you? And what are you seeing in the market? And why do you think they would pen an op ed like this in The Economist like, what's the goal there?
Speaker 1 03:21
Yeah, I agree with what Larry says. And I actually the comment about building on both sides of the river and coming together actually makes a bit of sense to me, because as an operator and someone that's been in this space for a while, you see so much progress under the hood. You know, whether that's coming from incremental infrastructure providers or new entrants in terms of companies that are coming into the space, but you're really going to only achieve the dream of tokenization when everyone is ready to go. And so I understand the sort of metaphor that he's using there. I think when it comes to the tokenization of assets, it's really collateral mobility and settlement times, and having an improvement there is going to drastically change the velocity of capital and how efficient some of these markets are, and it's just early days. What I tell people is, I spent my whole career before starting Quora investing in enterprise software and enterprise software infrastructure. That transformation has been ongoing for 2030, years. We had a shift to cloud from on prem software and human driven workflows. And I think it's going to take, certainly as long when it comes to tokenization, and we're really in the early innings of that. Just today.
Sy Taylor 04:33
Rachel, curious about your thoughts, definitely collateral mobility and that settlement speed is something that comes up a lot. Are you seeing that day to day. Are you seeing it on the institutional side, and you've been in the space for a while yourself as well. Does that bridging metaphor make sense of like the institutions coming one way and the crypto natives coming another? Totally?
Speaker 2 04:52
That's a big part of the strategy that we're building on arc is connecting the best of defi, which is at the fringe of. Of on chain, internet innovation with the TRad, five partners that are bringing the real world assets, the institutional credibility and the real, quote, economic activity on chain. But first, you know, when I read this piece, I just wanted to acknowledge, like the very public pivot that Fink and Jamie Dimon have done. We know that it's a pivot, but for them to pen this in this way, it's them admitting that they were once wrong and now that their position is that net new value is coming on chain is a mainstream position, and so they're really saying something profound to me, which is the next wave of financial markets is going to be built on public infrastructure that is shared, and that's exactly like the space that we're all here to design for with blockchains built on arc and stable coins like USDC, it really validates that opportunity. I do think what you said is the instant finality is number one. It is the killer feature of tokenization, because it does lower the settlement window. It introduces less risk into the system, and that fast finality is what tokenized assets were built for. But I think the second, like killer takeaway, is that they're really trying to democratize access to the private markets, and tokenization really broadens participation, right? So this has been the throughput in the narrative, always, there's funds that BlackRock and others create, like private credit funds, real estate funds, hedge funds, like AQR that do tax optimization. I think once you tokenize them, you start to break down the ability to access them, vis a vis token, and lower the barriers of entry, especially through internet access, anyone in the world can access a token. So it's really connecting the old and the new, as you said, and it's really how circle and arc really think about traditional financial services becoming more digitally native systems.
Cuy Sheffield 06:55
Yeah, I agree with Rachel first, you have to respect the ability to admit that you're wrong, and I was looking back, and like, Larry Fink went as far as to say that Bitcoin is an index of money laundering and thieves. And so he wasn't even just, like, mildly skeptical. He was, like, actively thought that Bitcoin is worthless. And so it's always really interesting, and I have a lot of respect for people who can go and say I was wrong. I've changed my opinion, and this is why, and like, this is what I've seen. I think it's also just really interesting to think about where we are in the moment of time with tokenized assets outside of stable coins. And so when you look at the data, we're at close to $300 billion of stable coins in circulation. And then there's somewhere around 20, I think 20 to 25 billion of tokenized assets that are non stable coins, whether they're treasuries or other types of assets. And so it's almost like, when were we at 20 billion in stable coins? It was in 2020 it was like late 2020 and so it's like there's this five year lag that stable coins have just grown exponentially, and we haven't even really started to see other types of assets start to grow with that same curve that stable coins grow over. Now maybe it's different. There's more regulation around how you're actually representing a security or some of these other assets on chain. It's more institutional markets versus retail customers all over the world. And so it might not have that same type of growth rate, but it is a massive, massive addressable market. And so if you think five years from now, in 2030 what's going to be the total market cap of tokenized real world assets, outside of stable coins, I used to be a lot more than 20 billion. And then it's the question of, well, who's the best position to be able to benefit and play a role in growing it? And it seems like BlackRock and some of the moves that they're making, they see this as a major growth factor for the company. And now, isn't it like the Bitcoin ETF is one of their most profitable or revenue generating products that they have, and so it was the most successful ETF launch of all time, yeah, like for a company that size to have crypto as not just an innovation aspect, but actually a growth driver of the bottom line this early in the space, that's really important to acknowledge. I think others will
Sy Taylor 09:15
fall I think that's the big change. This is driving revenue that's meaningful for a company the size of Blackrock, and that, yes, they launched an ETF. And what I think is interesting about that is they brought the on chain world into tradfi. They put it in a very familiar wrapper so you could access it. But with Biddle, they took something that was a traditional asset class, a money market fund, and brought that on chain. And then Nick was saying something interesting about collateral mobility money market funds. They're very well known product. They're great but they're not as mobile as a token. So the Blackrock Biddle token is quite limited in who it's available, but there are other tokenized money market funds and that can go anywhere a stable coin can go and on any blockchain network, so that. Lateral mobility piece, Nick I'm interested in, who's using that today, and what early signals are you seeing for the non stable coin products that are kind of adjacent to stable coins that could gain that sort of traction that Kai was talking about.
Speaker 1 10:14
Yeah, so I'll walk through like a very simple, even personal anecdote that I like to use, which is, number of years ago, I had assets in my fidelity account. It was Tax Day in April. I was like, okay, like, I'm gonna sell some of these positions so I can pay my taxes. You know, in a couple days between when I made that sale on fidelity and that cash actually hitting my account is three days, right? And so you basically remove that window, not just for personal financial sales, but also corporate cash management movement, and that dramatically improves people's working capital and their capital efficiency, just in that like one little micro scenario. Now think of someone, and I think stable coins are a perfect example of this. We hear all the time, and I'm sure circle is very active in this as well, for payments companies that are moving money cross border or multi jurisdiction, and they're like, hey, you know, I sent the wire. It's going to arrive in two days, three days, 10 days, but I'm good for the money. Can you lend me capital, you know, at a basis point a day, or half a bit per day, or whatever it is. Well, when you have everyone finally upgraded onto stable coin rails, whether it's tempo or arc or whatever, or eth, that problem entirely goes away. But for this moment in time where people are still sort of on the old world rails, and before we really fully transition to the new world rails, like this bridge, the two sides of the bridge coming together, that's still a meaningful problem, and you get rid of that across the global financial system, you have huge improvements. And so I think, like, that's what's some of the things that are really exciting that'll come from instant settlement, and then also just improve collateral mobility, not just on, sort of like a personal financial side, but also on, on the business side. And then, of course, trading firms are gonna be thrilled about
Sy Taylor 11:59
this too. Well, yeah, you take that efficiency for you paying your taxes, and you multiply that by the amount of leverage and scale of some of these institutional firms, and no wonder others are coming in as well. I saw Goldman is going to require an ETF issuer, innovative capital for $2 billion now this doesn't explicitly mention crypto, but them moving into ETFs is interesting as a broader category, and of course, they've been in that space for quite some time. And of course, their most successful ETF product launch of all time surely didn't go unnoticed by Goldman, Rachel, I'm interested in the broader sentiment you're hearing from institutions as they're looking to come into this space. Has regulatory clarity been the unlock? Has Product Market Fit been it? And what are the things that they're still worried about and stuck on?
Speaker 2 12:48
Yeah, absolutely. I think the genius Act, as we all know this past summer, was a huge unlock for regulatory clarity. You're seeing it all throughout the industry. So more companies are issuing their own stable coins, and we're going to talk about that in a little bit. Companies are now more comfortable adopting stable coins on their balance sheets and for payments use cases, and it's just, you know, a boom for innovation in the case of Goldman, I think it speaks to what we were saying, which is the wrapper is the ETF. That's the like regulatory standard, but tokenization is the rail, and so Goldman is probably entering strengthening its ETF business by highlighting that the wrapper remains familiar to investors, but companies like circle and arc will provide rails, whether it's arc or tempo, will transform how those wrappers settle, distribute and tokenize. I think some of the still barriers to adoption are some of the things that we're trying to solve with arc for these institutions. And there's three things. Number one is using volatile native tokens as gas still is a barrier to entry, so it's great that you have wrapped tokenized private credit fund on Ethereum, but then the corporate treasurer of that ETF issuer needs to have Ethereum, needs to account for it on this balance sheet. Needs to have all these things and then abstract it away to their end users who are not used to Ethereum, when the end use case is probably invest in a tokenized asset through dollars. And so that's where, you know, stable coins as gas on public networks, really, really solve some UX issues. Then I think the second bears, their adoption is just unclear definitions of finality. So layer ones definitely solve, like, very clear definitions of finality. But layer twos, and I don't know, I've seen it like when I've tried to explain finality to a bank CFO, like their head just kind of explodes like, what does this mean? You're inheriting security, this prover, the sequencer, and they're just like, What are you talking about? But for layer one, especially for arc, you have fast second, deterministic. Finality. It's irreversible thereafter. That's just very clear to understand. And then I think the third barrier to adoption, which we'll see as the growth curve of these assets starts getting adopted, is privacy. So it's all great and dandy. When it's a stable coin, it's treated like cash, but when it's an actual financial instrument, like an ETF, where people don't really want to know that you're invested in it, or the issuer doesn't really want to know that they have X amount of investors and daily inflows and whatnot, that presents some challenges. So I think privacy enabled blockchains will be an unlock for tokenized assets.
Speaker 1 15:36
Yeah, and I'm thinking I would add these are some technological feature necessities that these enterprises need. There's also, like the human and sort of like business element, which is for the first time, they're touching assets, where if there is a hack or you mismanage the keys, like the money's gone, that is like a totally new experience for every business and every individual on the planet. And so we talk to enterprises like, okay, problem number one is, how do I touch and manipulate these assets in like, a safe way? So, like, we're like, the wallets or the key management software that I'm using? The second thing is, like, okay, what are like these policies and procedures? So all regulated financial service firms, and most firms have risk controls. They have cybersecurity controls. And again, this is an entirely new asset and technology class, and they, at least, we find, oftentimes, do not know the right questions to ask the first time around. And so you have to do a bit of guidance with them, and like, Hey, these are the things that you should be considering about with, like role based access control or key management or your cyber policies, like maybe working with a hexagate to monitor, like, incident response, like, it's a totally new world. And so beyond just all of the technical challenges that Rachel mentioned, that they're helping solve, but also some of these newer networks are solving, there's a lot of like, just like, practical business challenges that need to come first before these enterprises can actually adopt a tech. But to Rachel's point, I would say genius is what made them start to take this seriously. They're like, Okay, this is real. Now I need to start solving these technological problems, but also, like practical business problems, to start using these assets.
Sy Taylor 17:16
I mean, Kai, I don't know how much of your job has been explaining some of the differences in wallets versus accounts, and some of the gnarly challenges that come with that. Frankly, there's a big education job to be done, for sure, but also the practical issue of, I'm a bank, I feel a sense of responsibility, and probably have some legal liability to make sure my customers are protected. I'm a financial institution. I know how to do it this way. This is like a whole different galaxy where physics just works differently. I got a lot to learn. How are those conversations going for you? And are you seeing a difference in different banks you speak to?
Cuy Sheffield 17:51
Yeah, I think that that is the work that needs to be done that's going to determine which banks are successful and which aren't. And I think it's very easy for bank CEOs and executives to say, we love stable coin, like we're all at unstable coin, like it's usually singular. Again, like stable coins more than one. That's my favorite. It's very hard to like, write the detailed cyber risk policies around how you're going to approach key management and what the vendor onboarding is going to look like, and is it going to be on prem? Are you going to use HSMs? Are you going to use MPC like, those are the things that are so much harder and it's going to take time. I think that's what we're realizing, is we're kind of going down this progression of engaging with banks on use cases. And we've been doing that really over the past year of just before they do any work, they need to start with a use case. What do we actually want to do with this? And then I think what we're seeing is it goes from Okay, now we have a use case, there's something that we think is interesting, that you could do now. It's the real meaty work of, how do we do it in a way that meets the obligations and expectations that people have and regulators have of that bank? And I think we're also seeing like the industry has come a long way, but there's still, there aren't that many companies that have, like, very deep crypto native technology expertise and have spent a lot of time building trust in relationships with banks, and know how to work with banks and will handle a two to three year sales cycle. Like, that's, that's, that's hard for a startup to do. Like, I, I feel a lot of pain for like, there are companies that have, like, great products and technologies, but it's like, Do you know what it takes to sell to a bank? Like, do you want to be in that sales cycle? And I think that's something like, it's gonna take to succeed, but it's gonna be a very long term game.
Speaker 1 19:51
And then I would also say, like, I tweeted about this, like, a few months ago, is there's also, like, a slippery slope on the talent side, where it's like. The most forward leaning crypto native, so to speak, people at these organizations, like a jpm or somewhere, we often find we're talking to them for six months, and then they go leave and start a company in this space. And so then it's like, you have to do the work of re educating people all over again. And it's great, right? That I think a lot of people are leading these organizations and building net new companies in this space, because they're bringing a lot of traditional financial services or payments expertise, but it also slows down the adoption cycle within these enterprises, because then it's like whole changing of the guard, and it's like starting from zero again.
Sy Taylor 20:34
Do you know I'm Nick Milanovic, who runs this week in FinTech, arguably the center of the Financial Services FinTech community as a newsletter and as a brand, put out a tweet earlier today saying that all the smartest people he knows is going to join stablecoin companies. And that's a problem, right? Because if the talent is not inside the organization, brought to you by our friends, so global leader, V Taib, use a smart contracts and cryptography to help banks bring fiat currencies on chain. Vtap allows financial institutions to issue Fiat back tokens, improving financial efficiency and enabling programmable finance. You can check out the links in this episode's description to express your interest in vtap, this episode is sponsored by privy a stripe company stable coins. Can move money anywhere, but only with powerful wallets at the core, trusted by more than 100 million accounts across 180 countries. Privy powers secure customizable wallets that enable you to go global from day one, from fintechs to consumer apps, it's the infrastructure making the future of money programmable. Start building with privy. Learn more@privy.io thank you to our sponsors. I don't know if you guys saw this story, but it certainly caught my eye that European banks have now named their Euro stable coin venture. It's called kivalis. Looks a little bit like Cialis, but I think it's Latin based. But the banks include ing, BNP, Paribas, Unicredit, Kai she bank, and six others. They're applying for Dutch central bank authorization and micar compliance and targeting an h2 2026, launch. So this is pretty aggressive. They've got the former CEO of Coinbase Germany and a former Bank of England deputy governor as the chair and CEO as the Coinbase guy. And the goal here is really interesting, because there isn't a single European bond market like there is with US Treasuries. So what you end up with is actually, whilst the sepa, SEPA instant isn't widely adopted, so there isn't instant payments that are widely adopted across the region, so you end up with this fragmented liquidity even inside of Europe and the ECB. So these banks having this settlement token ends up being a really useful use case, Kai, I'm going to come to you first on this, because you've been working with a number of European banks and seen some of them lean into the space. Would you say that Mika being early unlocked a little bit of momentum in that slide earlier on? And what are your thoughts on initiatives like this? Yeah.
Cuy Sheffield 23:16
So firstly, I think we're going to see a lot of bank consortium stable coins over the next five years in many markets across the world, I think there's this question of, it's a trade off of on one hand, consortiums are hard to build. It's hard to move quickly. It's hard to figure out the governance. You have many different people around the table who oftentimes are competitors, and they have very different interests, so there's a lot of hard work, but if you get it right, and if you can align those interests, I think that they can be incredibly powerful and have the potential for a lot of adoption. On the other hand, I think the other approach is to say, well, this technology is early. The best way to learn is just by getting a product in market and starting to use it. And so then you see banks like BBVA, where they're saying, let's issue a stable coin. So we're excited to hopefully launch that with them in the coming months, and they're a bunch of things that they want to do with it, and not having to wait for a consortium, and being able to get live and experiment in their own use cases, I think makes a lot of sense. I think we're gonna see both approaches of consortium based stable coins that take longer to get to market. I think some consortiums can be very successful. Others will struggle with the governance and aligning interests and being able to get a product to market. I'm most interested to see what the use cases end up being, and how much is it all of these banks in the consortium end up looking to use the stable coin for different things. Are there some banks who like the idea of being in the consortium but aren't actually ready to, like, use the product? And so it's more about, okay, your brand is there, but there's not like, a. Credible path of, do they have their wallet infrastructure set up? Is the consortium going to provide the wallet infrastructure? Does every bank have to go one by one and figure out, how are they going to manage wallets? Are there going to be joint use cases together, like you mentioned? Of, are you going to see these institutions transacting with each other using the stable coin, or is it going to be more they agree to use the same stable coin, but they're using it for different things. But I think it's going to be really interesting to watch. And the Euro stable coin market has existed for a number of years. I think Euro C is still the largest player in the space. We think that it makes sense that that market should grow. And while Mika is not perfect, it it exists. There's something in place and and I think it's great to see more attempts of large institutions trying to figure out how to actually drive adoption. I think there'll be different use cases than what we see with dollar stable coins.
Sy Taylor 25:51
Rachel, I want to come to you on your view, on the European story here, and also the tokenized deposits versus stable coin story, because some banks are saying tokenized deposits are the answer. Some banks are launching stable coins, but it's slightly different use cases. They solve slightly different jobs to be done. Where do you stand?
Speaker 2 26:09
I think stable coins is the way to go. Obviously it's it's safer, government obligation, narrow bank money, and then if you're going to actually put that in the hands of end users, consumers and businesses you don't want to take on. I think the improvement of stable coins is that it's like true government backed money and not fractional reserves. So I don't really necessarily see, even though we'll see them proliferate. You know, deposit tokens the alternate benefit that it provides to end users from safety and standards policies, but also the open web three and defi innovation ecosystem. So definitely, in the camp of stable coins, is safer and going to win long term. But obviously, I'm with chi. The more that these financial institutions start to innovate and start to issue, I think they'll learn for themselves, like, what works and what doesn't. And then back to the European story. Yeah, we've issued Euro C for many years now, and it's still at 300 million, which is, which is the largest. But I think we're still so early, right? Like, dollar denominated stable coins are still 99% of the market, we have to, like, really ask ourselves why that is, and it's because the like, number one use case is you want to hold dollars across the world by a variety of users, businesses, consumers, developers. It's easier to build dollar based products, accounts, store value, unit of account. But that is not going to be the case forever, and we will start to see other non dollar stable coins proliferate. Europe being, you know, the second major player with stable coin regulation, with Mika, as Kai said. It's not perfect, but it's there. It's all going to depend on the use case, Euro dollars to dollar FX markets. It's the most liquid in the world. It's the most penetrated corresponding bank network in the world. And so you really have to ask yourself, what is the use case for individuals and businesses to hold Euro denominated stable coins? Is it payment? Is it something else? So I'm personally of the view that you'll see more proliferation of emerging market non dollar stable coins, because that's where the margins are the widest in effects. That's where the corresponded banking rails are the weakest. That's where it overlaps with the dollar denominated stable coin penetration. So somebody in Brazil or somebody in Argentina will want to have pesos in their digital wallet, as will they want to have dollars and trade that earn interest and that have like local financial markets in that,
Sy Taylor 28:48
that 99% figure is the kind of thing that makes a European policy maker get cold sweats overnight when they're worried about sovereignty. So I can see why they're sort of supportive in this endeavor. But a policy objective is not product market fit. And I do wonder, to your point where product market fit comes from a digital euro and also given Miko maybe a bit of a difficult thing to compete with on the global stage, because the Euro itself is a great product. Actually, it's been more stable than the dollar, if you look at it on an FX neutral basis. So it's quite a good product if you're trying to avoid hyperinflation, but not so much of a good product if you are looking for a brand name that everybody knows around the world. Nick, you've tweeted in the past about some of the challenges for a stablecoin issuer to look at supporting the European region and the US. Do you want to just bring up some of those regulatory nuances you were talking about there. Yeah.
Speaker 1 29:41
So we're obviously, you know, like circle and the other issuers are trying to navigate the changing regulatory environment, which is a positive change right now that there's actually regulation you can adhere to certain things. And so one of the important tenants of stable coin being valuable. That it can be accepted everywhere, right? It is high utility. The challenge now that we're seeing with some of these occurring regulatory regimes is they're incompatible with one another. And so in Europe, we were talking to the regulators very candidly, because we were saying and outlining the case and like, hey, we would love to be regulated both in the United States and in Europe, right, so there's interoperability between those two, like regulatory jurisdictions, right? The regulation, as it stands today, with mica and genius, makes them incompatible, and I'll give a few reasons why. So in Europe, you are not allowed to have fees on redemptions, whereas a genius you can. And so you could see in sort of a scenario where there's financial market turmoil, all of those redemptions get processed through the European entity because there's no fees, and because mica requires them to be in bank deposits, right, which is also that, like the collateral is incompatible with one another, that could put stress on the European banking system. And so maybe that's a second point, right? Is where in mica you have to keep them in European bank deposits, where in the US, right? They have to be in highly liquid government securities. So it could be overnight, reverse repo, short date, us, treasury bills, whatever it is. And so now we're faced with the choice of like, Okay, do we want to prioritize the US? And then how also do we support the European region, right? And so I think it's going to come down to the fact you're gonna have two different tokens for each region. They can be interoperable through, you know, the Agora Minter, where we have atomic liquidity in either direction, you know, like unlimited size. But I think that's going to be the reality if you want to have a Mika licensed stable coin and a genius licensed one. I'm curious how, like, circle and Paxos are thinking about dealing with it. They may not want to give it away, but right today, USDC is mica compliant. Same with I think Paxos is usdg. And so I think they're going to have to make a decision. I'm sure they've already made it internally, of like, Okay, do we abandon mica in Europe compliance and shift it to the US, or do we create an entirely new asset? I feel pretty strongly. I can guess the way that they make these decisions, but that's the fact of the matter, is that changing regulatory environment will, while positive, will present challenges as we sort of all collectively adjust to it. And the last thing is, and Simon, you just said, it is European regulators don't want to feel supported into US regulators. So they want to have their own their own stuff. And they literally said that to us, and I was like, I get it. Like, I totally get it. Yeah, I fully get it.
Sy Taylor 32:25
But compete instead of trying to launch your own version of it. I really think there is an opportunity to create the better regulatory environment, because you can now have second mover advantage, even though Mika happened, I think there is a desire under PSD three, because everybody forgets that the M in mica stands for markets in crypto assets. It doesn't stand for payments. It was never intended to be a payments regulation, but stable coins emerged as a payments asset, and so now PSD three may have an opportunity to wash some of that up, and we expect to see that in 2728 so I wouldn't be surprised if we do see the Europeans come along with something more interesting in time, and there's a great product sitting there waiting for distribution in the euro. And would be interesting to watch how that evolves, zooming back into corporates. There was a story from the Nikkei that Sony bank is going to issue $1 pegged stable coin in the United States, and they envision this stable coin being used to pay for games and anime within its ecosystem. It'll be launched with Bastion, who CEO now SWI had on episode 41 so do check that out. They also applied for a banking license in the US in October, and apparently the US accounted for more than 30% of Sony group's overall sales to external customers in the fiscal year end of March, seeing a lot of corporates launching and rolling their own stable coins. Interested, Rachel, in your views on that as an approach? You know, is that going to work for these closed loops, but maybe not open loop? Also, they're a bank. They're a unique animal, a Sony,
Speaker 2 33:59
yeah, exactly. And they're not just launching their own stable coin, but they have their own chain, sodium, I think, built on the l2 stack. So I think this is part of a broader corporate trend, which is like full stack, end to end, crypto enabled from the stable coins to the chain. So for the stable coin, it's really the question of closed loop versus open loop. Closed loop within the Sony ecosystem means, as a company, I can improve my in app economics. I can potentially reduce, you know, card fees I pay to visa, sorry, Kai, or I can control economics and experience more so you're not trying to build like a new ecosystem, but rather monetize your existing one and strengthen it through a new product user experience. Whereas an open loop stable coins like USDC or agora, it really enables cross game marketplaces, like if PlayStation One interact with Xbox, it's the same, interoperable standard it has access to. By yield interoperability with other wallets and payments. Sony is building full stack. This is broader of a corporate trend. You'll see more of this. But also, companies can also just build on l1 too. No, that's the meme this week. You can build on l1 those L, you know, l twos are not neutral. I don't know what they're gaining on it beyond just like sequence or fees, but it is ultimately the story about enabling their own ecosystem, improving end user economics. And kudos to Sony, is really a large, established company that's innovating and adopting crypto end to end,
Speaker 1 35:37
just to follow up on Rachel like since we offer both, right, we have a USD, which is open loop, like USDC, and then we do do a little bit of this white labeling. I think it's become part of the Zeitgeist this year, having your own stable because I think, you know, when we started agora, the idea was like, hey, we'll share rewards with you, because it's money on your platform, right? And to Rachel's point, they want to monetize the float income on their platform, which makes sense. I think having your own stable coin, like was just a really good way to capture that selling motion, like in an asset. And so I think it's become popular this year, but I actually think corporates launching their own stable coin will become a lot less popular very soon, because there's so much added friction with like having your own stable coin like that asset there is now forever, you have to figure out, Okay, do I have different on and off ramps? How do I get in and out of this and like, unless there's, like, a very good use case, you could just use an open loop stable and partner with someone that is willing to share those underlying economics, and it makes your life 100 times easier than, like, launching your own sort of custom stable coin. So I actually think there's gonna be a power law with, like, five to 10 extremely large stables, and you know, a bunch of these, like custom ones. And Simon, to your last point on, like, the bank, if you're a bank, you should, I think, be running your own stable coin. We've talked to public company banks that have said, like, Hey, could you do this for us? And, like, we were very like, transparent. We're like, we can get you to market really fast, but, like, if I were you, I would eject us after like, six to 12 months, right? Because you have your own financial plumbing and rails. You are the bank, right? And so you should do this yourself. And I think maybe some of these guys use it as a way to jumpstart faster, but if you're, you know, a bank that is sizable, I think for the most part, you should be doing it yourself, unless you want to tap into the open loop.
Sy Taylor 37:23
Yeah, it's fascinating. I think a lot of banks have talked about tokenized deposits, and I think that's not wrong for their corporate customers who want instant 24/7, but a deposit, by its very nature, is a liability of that bank. It can't go outside of that bank, so you have to figure out a way to swap that tokenized deposit for another tokenized deposit, and some of the banks are trying to do that in Swift they're trying to do it in party all. There's a bunch of technical solutions for how you could do it, but stable coins are open loop by default, and they're cash like, so they have this instant settlement property that makes them really unique. But what I think is interesting about the branded stable coin is the loyalty aspects that you get. Producer Petri on this podcast runs sporting crypto, and there's a lot of sports brands that are very, very interested in where stable coins can act as part of that loyalty ecosystem. And that's maybe something that with the anime, with the games that they'd be looking to do not only collect the float from the stored balance, but potentially enable new functionality that goes off platform in some interesting ways. But Kai, you've seen this story so many times. You were doing loyalty at trial pay before most of us were even thinking about loyalty. This feels like the story that never quite happens. Do you think it's realistic to hear for Sony, or do you think the motivation is just collecting the yield?
Cuy Sheffield 38:43
It'll be interesting to see. I don't know. But, like, I love that they're taking shots here. I think it's clear that Sony has real long term conviction in the space. You know, they're arguably the most crypto native global corporate like, how many other global corporates have launched at l2 and are, like, planning to launch a stablecoin, like, at this stage, like it wasn't like they just started focusing on this three months ago. Like anything when you see a product that goes live and sodium is technically live, is my understanding, for a large company that work started 18 months ago, and so you have to respect that. Like they weren't just like, oh, like, let's put an announcement out of like, they've been in the space now. I think the other interesting thing about Sony is it's a global corporate they have really interesting assets like PlayStation, but also some of the anime products that they have. They are a bank in Japan that is very successful. They are a regulated bank in a large partner of visa, of Sony bank in Japan. If you want to scale a successful bank in Japan to the rest of the world. How you do that in a traditional pre stable coin, pre crypto universe that's going market by market, getting full licensing and. Are setting up infrastructure, and it's very difficult to do now, you could imagine a future where there could be a Sony wallet running on a Sony l2 with a Sony stable coin that could look and feel like what Sony bank is in Japan, but be embedded inside Playstation and some of these other assets and be available globally. And so I think it is a little different when you have an entity who has never really executed in financial services before, that's trying to get into it for the first time, they're just like a lot of things that you have to figure out, versus an entity that's executed very well in financial services, but has done that in one market. And now you could argue it's an international expansion play of how do you take the success of what they've done in one market and scale it globally, and use these new rails to do so? So I think it's a it's a really interesting approach, and whether it's loyalty, whether it's how much the Sony brand matters here, is anybody going to use it outside of the Sony platform? I've no idea. Also shout out to NAS and Bastian. I think they've been building for a while, and like this is a big win for them to be able to support an entity the size of Sony. So I think all these things are just going to be really great data points and experiments to see of where stable coins are used and how they're adopted. And I just have a lot of respect for the companies that are moving forward and just trying things.
Sy Taylor 41:22
Definitely, Kai, we're pressured against time, and I know there's one more story we wanted to cover this week, which is Zepps, if I'm saying their name right, have launched a stable coin linked Visa card. And of course, this is the payments group behind walled remit and send wave, well known remittance brands. The card is powered by bridge, and it will enable a send wave wallet customers to spend their dollar balances. Some more dollar cards are coming. Kai, what are you seeing? Is this becoming a trend? Everybody's hopping onto it.
Cuy Sheffield 41:51
I feel like I'm starting to sound like a broken record on the show. I say the same thing every episode. But stable coins are an opportunity for remittance companies. Anyone who looks at this of like, oh, stable coins are going to disrupt Western Union and monogram. Like, I've been really impressed with the pace of innovation around how most of the leading remittance companies have leaned into the space and have said, You know what? We're going to use stable coins to create global wallets, and we're going to go from just playing one role in remittances to offering a global stable coin, Neo bank. And now that we have a wallet, well, we need to have a card. And I think stable coin link cards are table stakes, that if anyone is going to have a wallet that they want to drive mainstream adoption, how do you convince someone to be comfortable putting funds into that wallet or keeping the remittance that was just set in that wallet? They have to know there's a way that's easy to get it out. And I think having the trust of visa and a card program that you know you could walk across the street and use is a major piece there. And we're really excited about the partnership with bridge, and continue to work very closely with them. And I think it's just a whole new wave of a new customer base that is global by default, that it's not working with a FinTech or a bank that just only operates in one market. It's how do you scale cards across dozens of markets that run on stable coin rails? And I think it's gonna be a major category
Sy Taylor 43:08
going for it. That's the theme here, isn't it? Default global from the last story. It's what Nick was talking about. It's what we were talking about with Sony and Rachel. You were gonna closing thoughts on this one?
Speaker 2 43:19
Yeah, I agree with Kai. Every Fintech is launching a debit card. But so what like? Here's my honest take, everyone has a debit card. That's not real innovation anymore. I think what it shows is that there's wealth sitting in stable coins, and that's great because it's demand, and they want to spend it in their daily life. And that's progress. But what I would want to see from these new fintechs that are being enabled is the missing piece at the next level, which is credit, like true true credit, not just debit and spending on a wallet. So stable coins are becoming store value, unit of account for hundreds of millions of people. The next question is, what is the credit card layer on top of that, that uses stable coins behind the scenes, I think we've got a little bit of card fatigue and complexity around chains and taxable events. Do you have a conversion fee, et cetera? I think the opportunity for these fintechs is to really build a new stable coin, dative credit product. So, you know, for builders like three chain and others, are really at the frontier of credit. So what is unique once you have a stable coin balance, once you start accruing history on a blockchain, or a series of blockchains, you can have, you know, new types of credit that are underwritten on chain. Maybe you need privacy for that. So that's, I think, is what we're going to see in the next year is great credit cards issued by the stable coins backed by on chain credit and staples underneath.
Sy Taylor 44:48
Yeah, let's see. That will be really fascinating to watch. We're pushed against time, so I'm just going to mention some of the stories we didn't have time to cover and then close us out for this episode. So I saw that the FDIC. Has proposed its genius Act implementation framework. And what's interesting about this, of course, is that banks under genius can issue stable coins under a subsidiary, and what the FDIC is clarifying is two things, one, tokenized deposits were not covered in genius, and they're saying tokenized deposits, or deposits would be covered by the FDIC, but also they're giving real clarity to how the backing collateral for a bank stable coin and how FDIC insurance applies to that. So I think that's going to be one more brick in the wall for how banks come into stable coins and tokenized deposits. And we saw that rain acquired Fern money. So shout out to the rain card guys and Fern for getting that one done. Lots of acquisitions, lots of M and A and cards becoming really key and interesting to Rachel's point to see where credit plays into all of that. All right, thanks everybody for watching and listening. Rachel. If people want to find out more about you and more about circle and arc, where did they go to do that?
Speaker 2 45:56
You could go to arc, dot network and follow at arc on x, and myself, I'm 0x jalachalita,
Sy Taylor 46:03
oh, check it out. Nick you and agora
Speaker 1 46:06
with a USD on x, and then Nick, underscore van underscore x as well.
Cuy Sheffield 46:11
Kai on x. Kai Sheffield and visa.com/crypto
Sy Taylor 46:14
you'll find me at tempo dot XYZ. You'll find me at FinTech, brain food.com and at sy Taylor on all of the socials, and you'll find this show if you subscribe to it. So please do that if you haven't already, and tell everybody you know to do it, hit like buttons and review buttons. All of those really, really help us. So thank you very much for watching and listening, and we'll catch you next time.