Stablecoins - what is the state of play in 2024? On Ep. 5 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Zach Abrams, Co-Founder of Bridge to discuss the competitive and innovative landscape of Stablecoins.
On Ep. 5 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Zach Abrams, Co-Founder of Bridge to discuss the competitive and innovative landscape of Stablecoins.
Timestamps:
This episode is brought to you by Visa
A world leader in digital payments, Visa is bridging the gap between traditional financial institutions and innovative blockchain networks, helping players in the payments ecosystem navigate the ever-evolving world of tokenized fiat currencies with confidence and ease. Learn more at visa.com/crypto.
This podcast is also supported by Digital Asset.
Digital Asset is excited to launch the Canton Network, a proven, trusted, and scaleable service that provides interoperability between institutional-grade tokenization platforms. The Global Synchronizer is now live, managed by Linux and institutions are actively using Canton Coin to manage the governance. No, the banks haven’t launched a token in the classic sense, this is much more interesting. They’ve done it to make all token networks interoperable. Find out more at canton.network
Zach Abrams 00:00
We're one of the leading companies in this space, and we're talking to basically everyone who does global payouts, and someone within those companies is thinking about advocating for and potentially going through the process of implementing payouts with stablecoins. And you see this from all the big PSPs. Every single one of them is investing in payoffs. You see this from all the global platforms, because they know how big of a pain in the butt it is to reach the long tail of countries.
Sy Taylor 00:40
Welcome to tokenized My name is Simon Taylor, and I am your host for the tokenized podcasts. I'm author of fintechbrainfood.com and head of strategy at a little company called sardine. Joining me is my co host, my friend Kai Sheffield, head of crypto visa. Kai, how are you?
Cuy Sheffield 00:59
I'm fired up, we're going to try something a little different today. There hasn't been as much news in the past few weeks, and so we're going to try and step back, zoom out a bit, and let's talk about the state of stablecoin payments in 2024 with an amazing guest who's in the middle of all of it.
Sy Taylor 01:15
Yeah, the state of stablecoin payments. I could not think of a better guest than Zach Abrahams, who's co founder at bridge. Zach, welcome to the show. How you doing?
Zach Abrams 01:24
Very good, very good. Thank you for having me.
Sy Taylor 01:27
No thanks for being here. Remind everybody who bridges and what you guys do. So
Zach Abrams 01:31
Bridge is a global money movement platform built with stable coins that makes moving funds, particularly funds across borders a lot easier. We work with companies across you know, the US, LATAM, Europe, Asia, enabling them to send cross border payments, store funds in dollars, accept payments and settle funds in stable coins and a lot more.
Sy Taylor 02:00
Great name bridge. You are bridging currencies. You're bridging geographies and bridging us to the next section of the show. We'd also like to remind you that the views and opinions of our contributors today are their own and do not necessarily reflect those of the companies they're representing. Nothing we say should be taken as tax financial or legal advice. Please do your own research, folks. All right, first of all, let's talk about the state of stablecoin payments right now, at the time of recording Fiat back, stablecoins are at an all time high supply of 165 billion US dollars. Stripe even brought back their crypto payments in this year of 2024 with John Collison on stage at sessions. I remember it well. And PayPal launched their stable coin pyusd last year, and that's more than doubled over the last six months to more than 800 million in its supply. And of course, there's been clear interest from central banks like the Bank of England and then many, many others around the world. China's DCEP has been live for quite some time now. It's a serious area of discussion. How will money go digital, and how will stable coins be a part of that. So, Kai, what's your mental model here? How would you summarize the state of stable coins? What's What are you using?
Cuy Sheffield 03:28
So one way that I like to think about this trend is there are really three distinct models that we're seeing in the market based upon how senders and recipients are interacting with stable coins in a transaction. The first model is what most people like to think of, and it's stable coins, end to end, a consumer with a stable coin and a wallet sending it to a another consumer who's a recipient with a stable coin that they receive in their wallet. And so they're using a blockchain directly. They know what a stable coin is, and that's what we've seen for many years. And we'll talk about kind of where that is. The second is what happens when one side of the transaction is in Fiat. If you could have a sender who just operates in Fiat, but wants to get funds to a recipient who might be cross border, who might want to receive a stablecoin. So that's the second interaction. The third is, what if neither the sender or the recipient know or care what a stablecoin is, and you just want to move money from an account in one country to an account, you know, in the other How are stablecoins being used on the back end? So I thought what we could do is is really start to unpack each of these models and how they've developed over time and where they are. So starting with with the first one, kind of going to use Zach, you know, you were at Coinbase. You played a role in the creation of USDC in the early days. How do you see the evolution in, kind of the that first wave of stable coin payments being this explicit? It new payment method for P to P, from wallet to Wallet. And how has that developed and evolved over the past few years?
Zach Abrams 05:06
Maybe just taking a step back on and talking about our sort of mental model for stable coins, and then tying it back guy to your to your, like sort of three, three different domains, and then specifically on this like stable coin to stable coin payments, which is a which is one area of focus for us. We view stable coins as what will become like a core regulated payment rail. And stable coins are like a scaling layer that sits on top of the Fiat layer. And so we built our company. But most companies that use stablecoins are taking funds from the Fiat layer, moving them up to this layer, moving them across this layer, which is kind of what we're talking about in this section, and then moving them back down. Stablecoins first started like the majority of the payments were, and continue to be, you know, stablecoin to stablecoin, one wallet to another wallet. I think that that the adoption in that segment and with that use case, is heavily oriented towards trading, primarily people, moving assets, settling funds to take advantage of liquidity in different markets, and maybe even arbitrage across, you know, differing prices across different exchanges. And so I think from like a payments use case, it has historically been, in like a peer to peer or consumers standpoint, relatively small, while volumes are really big, because it's mostly been a trading use case. What we have seen happen over time, though, is that the stable coin space is fragmenting. It's either fragmenting within the same asset across multiple blockchains, or is fragmenting with, you know, multiple different assets, like you see that with pyusd or Goro or, you know, m usd or or whatever else. And so increasingly, you have people who want to make stablecoin payments from wallet to wallet to each other, but have you know different settlement assets. When we first launched USDC, it was basically tether and USDC on Ethereum. And those worlds kind of existed in silos, and people made payments within each one of those worlds. Increasingly, people want to make payments across chains, across wallets, across assets, and so there's a huge need for interoperability across all these different assets. And this need kind of grows, you know, exponentially as like more and more folks are building layer twos, like Coinbase did with base or, you know, like a bunch of other folks or games are doing and so on. That's a lot of what we have seen. And that that space is like, while it was heavily trading oriented, is like, the percentage of that, that is like becoming consumer or business payments is growing. I'll stop there. But then there's one other use case that is like, particularly big that that I am not intimately familiar with, but that is cross border trade between LATAM and Asia that I know is a big use case, but I do not know specific stats on that one. So,
Cuy Sheffield 08:15
Simon, how do you think about the role of wallets in that initial flow of like, if you want to use a stablecoin for a payment, and you're doing this stablecoin end to end model, that means you have to have a wallet, and I have to have a wallet, and I have to understand how that wallet works. I have to know how to send a transaction on a blockchain, manage a private key, and that wasn't always easy for everyday consumers to do. Like, how have you seen the evolution of the wallets that are used for these end to end stablecoin payments, and what that means to get to a broader set of customers.
Sy Taylor 08:47
In the beginning, there wasn't one wallet to rule them all. I think Coinbase wallet has done a really good job of trying to get there, and some of them are now trying to build out. But there were two classic types of wallets. There was the self custody wallet, which like a canonically a meta mask, or something along those lines, where, you know, really is like a wallet in your pocket the assets are sitting with you, versus custodial, which would be Coinbase classic before they released Coinbase wallet, which was this idea that, you know, hey, we'll manage it for you, and we'll manage the exchange. So you don't have to think about any of these compatibility issues. Over time, the wallets have evolved to be able to support multiple chains, but typically they are like EVM compatible, so it's Ethereum and it's L twos, or it's Solana compatible. So you kind of have to walk around in order to operate in this world, not only understanding which token Have I got and can I send somebody is my dollar the same as their dollar, but am I sending it on the right network? Does my wallet work with this network and this token? And no matter how much development work is done, new tokens are appearing faster. New networks are appearing faster. Other than people can keep up with it. So you know what the benefit is, potentially huge of Coinbase wallet can send near instantly to anyone around the world for less than $1 for the transaction on something like Solana, amazing, provided the other person has a compatible wallet, like Coinbase wallet or something else. And if they don't, and they don't know what they're doing, then you kind of don't. So there's a big need for what bridge is building. That's that's kind of how I think about the wallet. You sort of have to know what you're doing
Zach Abrams 10:29
with them. One thing I'll add to that is, I think a huge opportunity is when these wallets disappear. Right now, there's a lot of, I mean, this is broadly across the majority of the sort of the digital asset space, where a lot of the complexity of digital assets is sort of thrust upon the user, almost like it's a feature. You know, over time, there's a lot of folks building wallet infrastructure that makes the wallets more or less disappear. And you could imagine, at some point in time having an iPhone, and the assets could be custody directly on the iPhone, and you're sending money from iPhone to iPhone. It feels just like you're sending dollars, you know, and you have no idea that the underlying infrastructure itself is stable coins. And we're getting, you know, in the last year and a half or two years, there's folks like sling and others who are showing people what is possible with stable coins and moving this like, you know, wallet to Wallet piece forward, and making it feel exactly like a Venmo or cash. But we're still very early there.
Sy Taylor 11:36
Yeah, we'll, we'll have Mike Hudak from sling coming on the show in the not too distant future. He's a former Monzo guy really understands this space. And the other thing that came to my mind as you were talking Zach was, of course, we saw Apple has recently opened up the NFC, the chip in the device that lets you do tap to pay and then, therefore, a lot of the wallet infrastructure to other third party developers, which could be really significant from a consumer experience standpoint and a privacy and security standpoint. It seems
Cuy Sheffield 12:11
like there's almost three phases of wallets and wallet type that we've seen, and it's like the first phase, they were crypto exchanges or self custodial wallets built for crypto trading. They weren't really payment focused products, and so you would download one, you'd use it to trade crypto. But once you start trading crypto, say, I've got a stablecoin Now I can make a remittance payment. But those products weren't really designed and optimized for that, then you have this next generation where I think sling is a great example. You could have a product that looks and feels like Venmo, but it's built on stablecoin rails, and so it's not you don't have to navigate an order book and look at crypto training. It's like just there as a wallet for stablecoin payments. And then it sounds like the third phase that you both see is in the future, this kind of embedded wallet concept, where you could have large existing fintechs. Other could be merchants. Could be games that have wallets that kind of disappear into the background, where your account automatically has a wallet embedded in it. And so within this model of if you want to send a stablecoin from one consumer to another consumer, the wallets matter, and the wallets have to continue to get better if you're going to see that grow. But I think the other point you made, Zach, is it's a lot more complex ecosystem when you have many stable coins and many blockchains. Now, how do you have the wallets be able to support a seamless transaction? Even if I have USDC, you have pyusd, and we want to transact across different chains, which it doesn't seem like we're we're quite there yet, but there's been a lot of progress that's been
Zach Abrams 13:45
made. Yeah, completely, completely agree. And you know, I'd actually take it one step further. I think that the rational move in the not too distant future will be for the overwhelming majority of FinTech applications to be built on top of stablecoins. And the reason being sort of twofold, and this is like, even if you're a FinTech that doesn't care about stablecoins at all, you're just trying to move dollars. The reason is twofold. One is that stablecoins purely as an infrastructure asset to hold balances and ledger them appropriately, is way more scalable, way cheaper and way more economical for a financial services company than using FBO bank accounts, which is the primary way in which all of this infrastructure is built. The second is that this infrastructure enables you to scale cross border with the flip of a switch. You know, you not only get a stat, you know, a financial services stack that is a lot cheaper to build and maintain and scale, but it also can enables you imagine your cash app, and their experience is exactly the same, but they could flip a switch and turn it on in dozens of different countries. So. We're not there yet because some of the infrastructure doesn't exist. It's still hard. People are worried about it. You know that we need, like, some form of stablecoin regulation, but, but in that world, this like wallet to Wallet payments become a very, very large piece of how, sort of like Fiat funds, how like peer to peer funds move globally. I
Sy Taylor 15:21
just want to double click on that point and contrast it with FinTech today, because you you dropped like FBO accounts, which, you know, some listeners may not be familiar with, but it's a for benefit of account, and it's how like, if I'm using a well, it's one way to do it. Actually, the vast majority of scale companies, like cash app now do individually segregated accounts at the bank. But that aside, it's typically there's a bank under the hood somewhere, and you've got to work with them, and then there's some kind of intermediary in banking as a service, or somebody like a stripe who does issuing, processing, and all of that infrastructure works in the United States. But there's a lot of drawbacks to that mechanism, not least the fact that one of the companies implicated in this and one of the banks so evolve, Bank and Trust in a company called synapse, have had a massive falling out since of synapse went bankrupt, the intermediary, which has led to accounts being locked consumers unable to access their savings, and has caused all kinds of headlines in the mainstream media because of that infrastructure. And the biggest single problem is nobody actually knows which consumer was owed which dollars and where the money is and that cheap. That's the thing that stable coins do out of the box pretty well. There's a giant shared Ledger in the sky called a blockchain that has every wallet address and every balance kind of stored as a matter of public record. So there's some huge benefits here, if we can, if we can cross that bridge, if you'll excuse the pun, so
Cuy Sheffield 16:57
it'll be fascinating to see. You know, this evolution and kind of the comparison between traditional banking as a service models stablecoin as a service models, what that lower layer of infrastructure that fintechs look to build new products on. So I want to move that. We could talk just about this model for much longer, but I want to move to the next one. And so the next approach is this idea of, what if both sides of the transaction? You could have one side that doesn't even have to know that a stable coin exists. They don't need to have any stable coin wallet or stable coin infrastructure themselves. And I think we've seen this most in the market in the context of disbursements, particularly Freelancer payouts, where you might have a business as freelancers all over the world. That business is a non crypto business. They're operating in Fiat, in dollars. They want to be able to pay those freelancers. Those freelancers might be in emerging markets, so they might prefer to receive dollars. There might be low value payments that are being made. Now that business has the opportunity to work with a growing number of payment platforms to provide dollars, and the payment platform initiates a conversion into a stablecoin and a cross border payout. And so it's a familiar experience for the business. They just want to pay someone out, but the recipient, they have to know what a stablecoin is. They need a wallet they're explicitly seeking out, and want to get paid in that method. So maybe Zach, you all have a payouts product and business that you've been working on, and what are some of the things that you're seeing for that use case of non crypto business wanting to do a cross border payout to a recipient who has a wallet who can receive a stable coin directly? Yeah.
Zach Abrams 18:38
So there are two models for this segment. So we launched our APIs maybe a year and a half ago or so, and we actually got very quickly after we launched. We didn't know exactly who was going to use them and how they were going to be used, or what have you one of the folks who inbounded to us pretty quickly after we launched was a government, government agency that was dispersing aid payments across Latin and we, at the time this use case that Kai you're mentioning, we didn't know about. They sort of showed us the opportunity, but they were dispersing aid payments into many different regions, and many of those payments were really quite small, and dispersing many really small payments is phenomenally expensive on a percentage basis if you're doing this on traditional Fiat rails. So they had elected previously to do this, do this via stablecoins. That was the first use case we saw, because it was many payments, many really small payments across LATAM and those consumers were comfortable accepting stablecoins, then we've seen something similar, where a lot of payout platforms are now interested in stablecoins for reaching primarily like the tip of the sphere is the long. Tale of countries that are either really expensive or really cumbersome to support. So you could imagine, YouTube does payouts in a bunch of different countries, but there's dozens that they just don't support because it's too hard. They could flip a switch and start supporting all those countries, which would then enable people in all of those countries to get paid for being creators on YouTube, which is amazing, and the overlap between the complexity and the cost of sending a or doing payouts in a given country, and the desire for consumers in those countries to hold the equivalent of a US dollar is super high. And so stable coins end up being a very nice way for a platform to go from, you know, 30 countries to 100 countries. That's one use case. The second use case is that there's also a class of wallet providers that are competing with the pioneers of the world, doing so by enabling platforms to pay out to into those wallets using stablecoins. So airtm is a great example here. This would enable, you know, a platform, to pay out in dollars into an airtm wallet. All the contractors get an air team wallet, just like they would get a payoneer wallet, and from there, they can then convert down into local currency. And so this gives them, this enables the platform to pay out in stable coins, so get those benefits, and ensures that those consumers have an easy way to move funds back into local currency. So we've seen both models, where there's a wallet with Fiat connectivity built there, and we've seen others who just directly pay out in stablecoins to the end consumers.
Cuy Sheffield 21:49
Simon, how do you think about this use case in the context of the existing payments ecosystem and some of those hard to reach quarters?
Sy Taylor 21:56
So the way you would expand internationally, historically as a digital business with payments is initially you'd land in a market, and then you'd try and, you know, do swift payments and have partnerships with local banks, and then you'd realize that's hard, and you have to support a load of different local payment methods and a load of local wallets. Companies like pepro do very well supporting, you know, all of the wallets across Europe and Asia Pacific, there's, there's different wallets everywhere, and payments become such a last mile business that acceptance is actually incredibly, incredibly hard. You can want to pay somebody, but how do I get that dollar to that person having this bottom up infrastructure that is somewhat permissionless, that anybody with a compatible bit of software can receive can be hugely powerful. So I know, for instance, the remote payroll platform deal has a partnership with the Coinbase wallet and anybody anywhere in the world, if they want to work remotely, they can. So if I'm a highly skilled worker, and I happen to live in Argentina, or I want to work on a beach in Bali, I can get paid in stable coins and then do whatever I want to or need to do in the local market to be able to offload that. So it's it's kind of pushed the last mile problem to the end user, but the end user is probably sufficiently motivated to solve that themselves, and sufficiently capable of solving that themselves, because of because of that, you know, the motivation that they have. The other model, I think Zach raised was an interesting one, which is, you can push the stablecoin to deal with the cost component of the the international infrastructure, but into the wallet is baked the off ramp. You bake the off ramp into the wallet itself. So I think this is going to be one of those interesting and compelling use cases. As of yet, I haven't seen significant volume data that says this is exploding. It's taking over the world. It's the kind of thing that's been there for a couple of years. But at the same time, when I speak to friends in global south markets like Nigeria and Kenya and Argentina, they tell me everybody they know is using it. But this is the local tech savvy global citizens that are aware of this stuff, that happen to know about FinTech and that happen to know about stablecoin. So it's a bit of a buyer's audience. I'm interested in what makes this catch fire.
Unknown Speaker 24:23
I think it's
Cuy Sheffield 24:23
an important concept you mentioned, of like pushing the last mile onto the consumer, where you can get them funds in a stable coin, and then it's up to them of what they do in them. And so Zach, for the use cases, whether it's aid or freelancer payouts, are you seeing these recipients, they're almost treating the wallet as a savings account, and they're just holding the stable coin. Or how do they get get it back out into Fiat? And is that one of the challenges and barriers for this scaling more is maybe if you're a remote engineer who's an early adopter, you can figure it out. But if you're just a mainstream consumer that wants to receive a remittance, it's our Etsy seller payout, it's kind of hard to figure out the last mile. Like, what does that look like today in many of these markets?
Zach Abrams 25:09
I would say, like, where we are in stablecoins is like a very classic intercept versus slope dynamic. So the intercept is relatively low, but the slope is incredibly high. And so you look at how many platforms are paying out on stable coins, it's relatively low, but you look at the at the trajectory, and think about how this compounds over two years or five years or 10 years, and it materially changes the market. And so what we see today is basically everyone, I mean, we are, I think we're one of the leading companies in this space, and we're talking to basically everyone who does global payouts, and someone within those companies is thinking about advocating for and, you know, potentially going through the process of implementing payouts with stablecoins. And you see this from all the big PSPs. Every single one of them is investing in investing in payouts. You see this from all the global platforms, because they know how big of a pain in the butt it is to reach the long tail of countries and and that's why I mentioned before, like these, these long tail countries, they're the tip of the sphere. They're the ones that are like the most troubling to pay out in. You know, there are many countries in Africa that YouTube just doesn't pay out in, you know, and they would love to support it. A stable point is infinitely better than nothing. As
Sy Taylor 26:36
I speak to friends at a lot of those global platforms, in the payments teams, I hear that they're curious. They're like, Simon helped me make the argument to my team, because I think I could get this done. I get that request a lot. The other one I hear is, PSPs, can you come in and talk to our management and our leadership about, you know, can you help them make stable coins real for them? And there's, there's a little bit of like the advocate is trying to make the case, but they're just not quite there yet. But they know the volumes there. But this thing is like, slowly, then suddenly it builds up. It's like the kindling builds up. It's all very dry, and then a couple of sparks, and woof, the thing just catches fire. It says weak signals that people like us will see, but the market might not see that it's kind of powerful. Payments is
Zach Abrams 27:25
just a enormous network effect game. You know, Kai, as you probably know better than anyone else, the wheel is starting to spin. You know, there's more wallets, more stable coin acceptance, more payouts, and so on. And Kaija, the question you mentioned of like, you know, they get the stable coins. You know, how do they the reason why I bring it up is all of this infrastructure is being created to make stable coins recede into the background. Well,
Sy Taylor 27:52
speaking of stable coins receding into the background, that brings us to the stable coin sandwich. But before we get to the stable coin sandwich, I just need to thank our sponsors. So this episode is brought to you by Visa, the world leader in digital payments. Visa is bridging the gap between traditional financial institutions and the innovative blockchain networks, helping players in the payments ecosystem get closer to the world of tokenized fiat currencies with confidence and ease. Learn more@visa.com forward slash crypto. This podcast is also supported by our friends at digital asset. They're excited to share the Canton network with the world a proven, trusted and scalable service that provides interoperability between institutional grade tokenization platform, the global synchronizer, is now live. It's managed by the Linux Foundation and institutions are actively using Canton coin to manage its governance. Finally, enterprise grade interoperability? No, the banks haven't launched a token. This is much more interesting. They've made all networks interoperable. And you can find out more at Canton dot network. I don't know about you, but the idea of a stable coin sand, which makes me hungry, it could be the time of the day we're recording, but Ty, what do we actually mean by this? Is this like Fiat at the front, stable coins at the back? What are we talking about?
Cuy Sheffield 29:29
It's one of the most interesting concepts that that I've seen in the market that seems to be gaining a lot more momentum, particularly just in the last year. And the idea is, as much as we've talked about, wallets are getting better, and consumers can download wallets. That still requires a behavior change. Most people in many markets across the world, they've either have a bank account or they have an existing wallet that they use today FinTech that they like and like. That's what they're accustomed to. And. I think one of the big questions for the industry is, is there a role that stablecoins can play purely on the back end, as a cross border leg between two Fiat transactions? And so can you have someone who has Fiat in the United States and they want to send it in a remittance to someone who wants Fiat in a bank account in Mexico. And can stablecoins play a role in converting dollars to something like USDC, sending it cross border and then converting that back to Pesos? And then, what does that mean when you have markets that have RTP networks that are growing and scaling, how do these intersections happen, where a stablecoin could be a cross border leg, and then you could connect to an RTP for a local, domestic leg. And could that create a new type of cross border real time payment infrastructure? So we started with you, Zach like, how do you see the current state of both demanded usage of non crypto businesses or consumers on both sides
Zach Abrams 31:03
that don't even need to understand or know that stable coins are in the background, but they're getting better, faster, cheaper, cross border payment products because of these rails that are abstracted away behind the scenes. This is also an area we are particularly excited about, and really one that I think has only become possible in the last, you know, year and a half, two years. So going back to that, like Fiat and then stable coins as like a scaling layer sitting on top of the Fiat layer. You know, if you have these two bits of infrastructure, you need struts that connect the two of them. You know, the way to move from the Fiat layer up to the stablecoin layer across and then back down. What is happening internationally is that a lot of so in the US and Europe, we primarily think of a crypto exchange as a place to go and to speculate and to buy, you know, high variance assets. And what's happened internationally is a lot of the big international exchanges are overwhelmingly stable coin base volume. So bitso in Brazil is like 85% stable coins. Yellow card in Africa is 95% stable coins. Coins.ph is, you know, 80 90% stable coins. So what is happening is these international exchanges are actually a means of buying and selling dollars. They're effectively an alternative FX market. And so as they build liquidity, and as they increase their payments capabilities, you are increasingly able to programmatically go from a stablecoin through those exchanges into local currency and drop it into an associated wallet. And probably the most sophisticated exchange at this internationally is bitso, where they're invest investing heavily in their payments business. And you know, they're a customer of ours. We work very closely together. So through bridge, you can accept a domestic US payment, so you know, an RTP payment, or an ACH or a wire payment through us that can be instantly converted into a stable coin. That stable can can then be sent over to bitso, where it is then converted into a peso and then sent through local payment rails into a bank account that end to end transaction can take, you know, low minutes, and you're able to effectively do real time local payouts and pay ins without storing balances in any country, by moving funds end to end All via stablecoins Over time that will be possible in most countries, as you look at the all of these exchanges and the capabilities that we and others are building in the US and Europe,
Sy Taylor 33:50
and think about the RTP rails, like pix and UPI that are massive in their local markets. So if you could send money from a Venmo, a cash app, or from your bank account in the US, and you could and somebody could receive it in pix or UPI without them really feeling like that had happened. It just lands there. You've essentially got a global cross border rail. Now, the banker nerd in me that works in Global Transaction Banking is Oh, but what about money laundering and what about sanctions and all of that sort of stuff? This is where, you know, the exchanges and the rail providers have a massive responsibility and a lot of this stuff, and I know you take that very seriously. Zach, the PTSD of having worked in a bank, I know some listeners somewhere is thinking about that, and as they should, there's a material concern. But Kai, I'm interested in your thoughts here, as you know, you've done some market research, you've looked at the area. What are you seeing? What are your thoughts?
Cuy Sheffield 34:49
I think one of the most important components for this model to work really comes down to the FX rates. In liquidity between local fiat currencies and stablecoins, and where that is across different markets. And so I think one of the things that has been surprising is that there are a number of markets today where it's pretty close to the same rate that you would get as an interbank going USD to MXN, versus going a stablecoin to MXN. And now the liquidity in those markets is it anywhere near what liquidity is in cross border payment ecosystems through traditional swift correspondent banks, but if you have an environment where local exchanges can become regulated and licensed, can have the proper compliance controls in place, can get more institutional actors on those platforms. You could see a world where that liquidity increases and the rates get to pretty much what you would see in an interbank rate today, but the difference is you can actually move the money into the market. And so I think one of the most fascinating things to me about cross border payments is because of the challenges of actually moving the money cross border, many times the most effective platforms and the fastest, most cost effective payment flows. The money doesn't actually move cross border. You have to have accounts in a number of different countries. You have to have liquidity in local currencies in those accounts. And if you have a bank account in the US and a bank account in Mexico, you can receive to the US account, you can pay out of the Mexican account. And you can enable those transactions that feel instant, but you're not actually moving the money instantly. And so I think that this is kind of fundamentally a new model, when you're actually moving the money cross border using a stable coin and a blockchain, and then you have to have the right amount of liquidity at the right rates to be able to convert in and then the right access into the local payment systems to be able to initiate and I think, Simon, to your point, it's also really important that, as an industry, that there is proper controls in place that you can identify these transactions or cross border. And I think about, if you look at an RTP transaction today, even using this model, it's not clear to the bank that that is the last mile in a cross border leg that looks identical to a domestic RTP transaction. And so it's like you have RTP networks that are being used cross border, but without really clear indication in those transactions that it is the last mile. So I think over time for this to work, there has to be a lot more standardization and policies to make sure that you can understand and screen those transactions appropriately. But it's really powerful. If you've got those connections between RTP rails and stable coins coming together
Sy Taylor 37:51
100% you see this even domestically, right like criminals already arbitrage RTP to cards to some sort of closed loop wallet, and they'll move the money as fast as they can to hide it, right? This is, this is a known threat in the Fiat ecosystem, and it's a known threat in cross border. The fact that it's a threat too in stable coins, means you need to come with your belts and your braces and be ready for the thing that always exists, uh, fraud is as old as money. So is money laundering, like you're gonna see it here too. It's not unique to the stable coins. In fact, stable coins and tokens give you some rather unique tools to be able to prevent and manage some of those risks, because you have a perfect record once it enters that ecosystem, which you don't always get in the Fiat rails, and when you were talking about sort of the pools of liquidity in local markets, I mean, that's wise. That's Western Union, that's most of the big remittance platforms. But what we have here is an order of magnitude reduction in cost and increase in efficiency. That's real time and 24/7, and whenever you have an order of magnitude reduction in cost, you massively raise the bar in terms of who gets financially included and who comes into profitability for financial services. And that's transformative for the global economy. And that gets me really excited.
Zach Abrams 39:14
Yeah, I completely agree. I mean, one thing Kyle, I'll mention is, you said, like the linchpin of this is, like the competitive FX rates and this and the depth of liquidity. One of the amazing things of like capitalism is that the markets are highly incentivized to build that liquidity, because every time now that the market the stable coin to Mexican peso versus Fiat to Mexican peso rates become dislocated. There's money to be made by some enterprising trader and what now we're basically in this feedback loop where trading on these stablecoin exchanges, stablecoin to Mexican peso rate and the Fiat exchanges are both. Highly, you know, regulated activities in the markets. And so it's really just a matter of time that that liquidity builds up because people are financially incentivized to close that gap. And so now you see every year that liquidity is getting deeper and deeper and deeper and deeper, and stable coin rates are becoming more and more and more competitive. I
Sy Taylor 40:20
want to make a really nerdy point temporarily as well, which is, there was this thing sort of coming out of the financial crisis, and I think it was actually after the LIBOR the interbank rate rigging scandal and everything that rocked the FX markets, called the FX code. And the idea here was that cross border is fundamentally something that not one single nation is in fully control of, especially when it comes to trading right like you can do a lot with the Financial Action Task Force and government cooperation, but you really need industry to do its own thing. And the FX code was the industry working with policymakers around the world and saying, like, we're just going to raise the ball, and we're going to push as hard as we can to make sure that that we do raise that ball. And I think the opportunity here is really significant to kind of do that and make a difference. But where's the kindling for this? Is it closer to the PSPS? Is it the remitters? Are there any names that stand out? I know world pay's done a lot in this space. Are there any other names that either of you can think of that are looking like they're experimental and kind of moving towards it
Zach Abrams 41:32
on sort of the stablecoin sandwich that Kai has mentioned. The best example that comes to mind for me is Felix TAGO, which is a consumer cross border payments company. I mean, I can't imagine that any of their customers even know that stablecoins are involved. The whole reason why they built their rails this way is because, as a small company starting out trying to compete against the wise and remitlys and so on of the world, those folks have unique advantages, because they move so much liquidity, they get very favorable rates. Well, Feliz Pogo as a company that started off doing almost no volume, they could have effectively the same or very competitive rates using stablecoin rails, because they weren't exposed to all the banks and all their costs and what have you, they were operating very close to the metal, and the lack of liquidity that Kai is mentioning didn't matter to them because they're doing small consumer payments. One of
Cuy Sheffield 42:31
the things I'm curious about here is, do you see large kind of new networks that are created that are global remittance platforms that are serving every corridor sitting on top of it, or does it create this environment where you actually have many regional focused, corridor specific companies that are sitting on top of this infrastructure enabling really optimizing a specific corridor and then competing with some of the large global platforms? And so how that market structure evolves? And while the existing large platforms are all going to look at how they can use stablecoins to optimize the liquidity that they need and that they have in these different markets, I think all of these things are going to start to connect together. And it's not clear which direction does it benefit the incumbents, enabling them to operate more efficiently, or does it create a new platform for innovative startups remittance companies focused on specific corridors to be able to bootstrap and scale in a much more cost effective manner. Great
Sy Taylor 43:29
question, and I think the dynamics of this are hard to say. I was wondering if there's like room for a pee pro of this market to go connect to all of the other domestic rails. And then I wondered, Zach, if that's sort of a good metaphor for where you guys are headed, really, because the connective glue here, the bridges between them, can be an interesting challenge. I would love your perspective on, you know, the state of stable coins now, and what you think we're going to start to see over the next six to 12 months, given that the window you have is, I think, quite unique to the rest of the market.
Zach Abrams 44:10
Our view is that stable coins will become a core global regulated payment rail today. And I think, you know, a lot of folks sort of think about it as sort of this, this disconnected alternative, but we think that will change over time. It's just going to be a core way that money moves, and it's uniquely capable of doing certain things like cross border payments and giving people access to funds that are hard to custody and local currencies and so on. So that's our view. And stable coins are like a new this new platform that was created not that long ago. You know, in 2016 was the was the first stable coin. People are just starting to experiment with what is possible. We have folks coming to us every week. New people coming to us every week with some problem that we didn't know could be solved with stable coins, then we're working with them to solve those problems. We launched our our APIs a year and a half ago. And if you had to ask me, what was the most exciting use case three months in, I would have said, you know, one thing, and then three months later, another thing, and then three months later, another thing, and three months later, another thing. It is this new set of capabilities that most global companies are now aware of and are thinking really deeply about how they can use these capabilities to extend to new markets to reduce their operating costs, to lower their working capital requirements, to reach new customers, to launch faster. In some cases it's working, you know, in some cases it doesn't, but we're in this like phase of experimentation, which is really exciting.
Sy Taylor 45:58
It sounds to me like Zach the state of stablecoins is they have some level of product market fit. They have a solid business case, but they have this cloud hanging over them of regulatory uncertainty, especially in the US, especially with the US dollar, and yet in Europe, it's really quite different. You have SOC Gen society's generali really actively through its Forge project, experimenting with and moving volumes of Euro denominated stablecoins. So this could change. It could change after a US election. It could change in the near future, but it could change as we see a changing of the guard in leadership. We now see the elderly millennial is 42 and they are coming into leadership positions, and they're a little bit more thoughtful about technology, and they won't work in payments companies and elsewhere. And I think the cynicism is starting to wear out, and people recognize that risk is universal. So that's my readout on the state of stable coins. Kai, did you have anything on the state of stable coins that we've not covered, that you wanted to cover off today? I
Cuy Sheffield 47:07
like it. I just, I think, in summary, 2024 it feels like a turning point year that, you know, if you talk to people a year ago in 2023 coming off, kind of all the issues that the crypto industry and a number of crypto platforms had stable coins, were still kind of stuck in this. It's a crypto product for crypto customers on crypto platforms. And so I think it was easy to say, Okay, well, if consumers are not as interested in crypto platforms as they were, and if some crypto platforms are having issues then, like maybe stablecoins aren't going to be that useful. I think now we've started to see this decoupling, with new companies like bridge that are kind of building ground up for stablecoin payments, and many other companies we come across every week that are building for stablecoins not connected to crypto exchanges, and then large existing companies going from research to early POCs pilots and experiments. And so as I look to 2025 I think that we'll see, and I think a lot of it depends upon the regulatory environment and how things evolve like you could start to see some of the first scaled use cases that people come across, that you could point to that have nothing to do with crypto businesses, but are just stable coins becoming payment rails that are solving real problems, particularly internationally and cross border. So I'm really excited about the tech. I'm excited about the ecosystem. I think that there's a lot of momentum moving in this direction, but there's still a ton of problems to solve, still a ton of barriers, and it's going to take time for this to really develop and become a real payment rail
Sy Taylor 48:52
that people can use. Well, let's make it an annual thing. Let's do a state of stable coin payments in 2025 as well, and see how far we've got, and see if we were overly bullish or if we were really there. But I can see no good reason why. If I worked at a global platform for creators, that I would prefer trying to send swift payments via the corresponding banking network to get to local rails, or indeed, some of the B to B payment networks that you know in some markets are really, really strong to local clearing, but in some markets really, really aren't. This is worth a try. If you've got hundreds of millions of potential creators and payouts and commerce you could be bringing onto your platform, then why not? Well, listeners, thank you so much for listening. That puts us at about time. I want to make sure Zach, people can find out more about you and what you do. What do they go to do that? Visit
Zach Abrams 49:42
us at bridge, dot XYZ, and you could find me on Twitter. I'm at Z, C, A, B, R, A, M, S, and thank you all for having me on it was fun talking about stable coins. It
Sy Taylor 49:57
really is fun, isn't it? Kylie, how about you? You. On
Cuy Sheffield 50:00
Twitter and LinkedIn at Kai Sheffield and visa.com/crypto
Sy Taylor 50:03
and you can find me on Twitter at sy Taylor or writing over@fintechbrainfood.com and, of course@sardine.ai, if you're having any fraud or compliance issues, if you haven't already, go ahead and hit that subscribe button wherever you get your podcast. And if you enjoyed this show and you want more of it, leave us a review. I can't tell you how much it helps others find the show and just remember, of course, none of what we said is financial or business advice. It's for information purposes only. We're a little bit more focused on the tokenization of real world assets, but a lot of this is underpinned by crypto and crypto assets, which can be volatile, you can lose money if you are spending personally or as a business. So we are recording right now in the UK, and the vast majority of crypto asset companies remain unregulated. So be a little bit careful. Even as optimistic as we are, be careful out there, folks. Bye for now.