On Ep. 32 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine is joined by Elise Soucie Watts, Executive Director @ Global Digital Finance and Stepan Simkin, CEO @ Squads to discuss Squads unveiling a stablecoin account for businesses, AI agents and compliance in financial services and more!
On Ep. 32 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine is joined by Elise Soucie Watts, Executive Director @ Global Digital Finance and Stepan Simkin, CEO @ Squads to discuss Squads unveiling a stablecoin account for businesses, AI agents and compliance in financial services and more!
Timestamps:
This episode is brought to you by Visa
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Music by Henry McLean
Stepan Simkin 00:00
Financial innovation is actually going to happen on the blockchain. Right when you think about new financial primitives, new structures, whether it's how you earn, yield, how you invest, more complex and automate the strategies in terms of making you essentially more money, we're actually not seeing that much innovation happening in traditional finance, but a lot of it is happening on chain. And so because we're stablecoin First, our job is to create these sort of authentic pathways for a traditional business or a consumer who came originally to fuse to just store stable coins and make payments to now interact with these novel primitives that kind of go through our threshold of security and compliance and whatever else needs to happen in between. But we think this is where the opportunity for building FinTech products on stablecoin rails really comes from.
Sy Taylor 00:55
Welcome to tokenized V show focused on stablecoins and the institutional adoption of real world assets that are tokenized. My name is Simon Taylor. I am your host for today, author at FinTech brain food and head of strategy over at sardine Joining me today is not Kai Sheffield. Kai is on a flight, but we do have Elise Susie watts, who is making a return to the show. You've been our Savior on multiple times. How you doing? Elise, very happy
Elise Soucie 01:25
to be back again. LOVE doing tokenize, so I will try to do a good job standing in for Kai today. Thanks for having me back.
Sy Taylor 01:31
Thank you. Of course, exec director at global digital finance, and of course, joining us is Stefan Simkin, who's CEO squats. How you doing? Stefan,
Stepan Simkin 01:40
I'm doing great. Thanks for having me. I'm a big fan of the show, excited to be here. No no,
Sy Taylor 01:46
really excited to have you. We'll talk a little bit more about squads in just a second, because you had some big news this week. But before we get into the content, I have to remind everybody that views and opinions of contributors are their own and might not reflect those of their employers or any companies they represent, and nothing we say should be taken as tax, financial investment, clothing wardrobe advice. Just do your own research. People. I mean,
Elise Soucie 02:13
I'm happy to give wardrobe advice, but maybe not an investment.
Sy Taylor 02:18
You have more sartorial elegance in your little finger than I could ever dream of having, but I've got cool lighting, so worry. Alrighty, this story came from blockworks and just about everywhere, and it's about squads unveiling a stablecoin account for businesses. So squads, I guess I could try and explain what this is, but it's really about your grid product. Step on. Do you wanna step back and just explain what grid is and what squats is, for
Stepan Simkin 02:46
sure? So for about three and a half years, at this point, we have been building products and APIs and unlock the benefits of modern money. It all started with squats protocol, which is the core foundation of everything we're doing at squads. And the protocol essentially allows you to programmatically store and move money. The protocol today secures over 10 billion in assets and has moved over three and a half billion in stablecoin transfers. On top of the protocol, we have grid, which is the API layer that allows developers and founders to build FinTech like applications or FinTech applications using stablecoin rails, and it essentially packages all the core primitives that one might need to build a FinTech on stablecoin rails, and packages it into familiar workflows that allow you to do it tactics faster and on top of grid. We have fuse, which is our consumer stablecoin Money App. We have altitude, which is our business account, which we announced a couple of weeks ago, and now we have grid, which we finally unveiled yesterday, that can also be used by other developers and founders to build similar products on stablecoin rails. So
Sy Taylor 03:51
the way I thought about it, just for a metaphor for payments nodes, and tell me, if I've got this right, is squad's protocol is a bit like a Galileo marketer type of almost processor, but on stablecoins, it helps me securely move money, deal with all of the complexities of dealing with stablecoin rails, certainly with Solana. Is that fair? Is that a helpful metaphor? I
Stepan Simkin 04:14
think that's very helpful. But the core component of it as well is that it allows you to store money, right? So it's a mix of Galileo and your bank of choice. And so first of all, you create an account derived from Scott's protocol that can store money on the blockchain, and then it powers that account with different workflows that allow you to move that money according to different frameworks that you're looking for depending on what product
Sy Taylor 04:36
you're trying to build. And then the layer above it grid. And I know you have, like the business account that you've built on it, and you've built fuse and altitude business account and consumer account. Way to think about it, wallet, but grid is really like the banking as a service, or the open API or open finance layer on top of this. So I've got my bank plus my processor, and now I've got my developer. Friendly, consumable APIs that look like flows that I'm used to, is that how you think about the grid piece of what you do exactly
Stepan Simkin 05:08
100% and even to the point of translating the language right? So, like we're taking APIs from bridge, which do orchestration, we take APIs from different key management vendors, we take spots protocol, and we rewrap this into even familiar language for people that were building in FinTech and have not actually interacted with a blockchain, right? And so you have things like debit mandates and authorizations instead of transactions and recurrent transfers, right? Like, I think even on the language layer, we're trying to make it much simpler for FinTech builders to come into the space and build on stablecoin rails instead of building on sort of legacy infrastructure.
Elise Soucie 05:46
It's really cool. And I think Simon, I'm sure you too, hear all the time that one of the big problems that this crypto and digital asset industry has is the complexity and the fact that people find it hard to find that entry point. And it seems like you are providing a way to do that, which is really cool, and this will come as no surprise to the other tokenized listeners, because I always want to talk about policy and regulation, but I actually had a question for you, which is, like, where do you guys fall in terms of the regulatory framework, and what have the discussions with regulators been like about what you're doing, especially considering, as you say, you don't have to rely on banks or traditional rails anymore, and now you can have an account with you instead. So like, where do you guys fit? I
Stepan Simkin 06:22
think that's a great question. I used to be a lawyer, so compliance is a is a big deal for me. The way we think about it, right, is we are providing the infrastructure right? Just like the internet itself as a technology is neutral, the same way the blockchain and the tools that we're giving FinTech founders and fintech developers, they're also neutral, right? And compliance gets injected on higher levels, right? For example, today, on the grid side, we work with bridge. So if you want to create a virtual account, if you want to transfer via ACH or SEPA from your stablecoin account, you can't do that unless you go through the compliance layer that bridge injects, right? And so I think from that perspective, we are giving the tools to developers to build those products. But obviously compliance is also it's not a global thing, right? There's a global element to it, but it's also very local, right? And so depending on which market you're going after, it's the founder's job to sort of figure out how to become compliant, right? And where to inject that layer. And I think that's very different to traditional open banking or open finance APIs, where these companies are heavily regulated, and they have to inject compliance on their level, I think, with crypto and blockchains and stablecoins, that gets kind of removed one step further. And so now you can use those tools, and it gives you a huge advantage, right? Because, essentially, you can launch your application on the app store with a stablecoin account plugged in, and then at that point, if you want your customers to interact with traditional Fiat rails. This is where you have to figure out compliance. But I think it's up to specific founder and developer to get that right. That said, though, enforcement of compliance practices on chain is actually much easier because it's fully programmable, right? So you can create the necessary hooks to say that like only these accounts that are KYC ed by this vendor can interact with these rails that we're providing. And I think the future of compliance is actually going to be on the blockchain, just because it doesn't happen manually, right? I think that's the biggest unlock, right? And that's also what's called protocol a lot was because it's so programmable,
Elise Soucie 08:15
I literally couldn't agree more. And I mean, I know it'd probably be the topic for a whole other podcast, but I'm so excited about the future of Smarter supervision and smarter interactions between regulators and firms. And I think, as you say, having regulators being on the blockchain, able to kind of access these layers, able to have actually more insight into what firms are doing. To me, that's the future. And when we talk about modernizing this industry, it's not just the industry that needs to be modernized. We need to make sure that the public sector is equipped with the right tools too.
Sy Taylor 08:45
Yeah, it is such a great point, although I do have some fears with this model. Whenever somebody says, well, it's up to the developers, it's up to the consumer, the problem is in the United States context, especially generally, if you're serving consumers something that looks like a payments products that tends to be a regulated activity, and it sits inside the perimeter. So whether you need an MTL license to operate to US customers, or an EMI license to operate inside of Europe, you're then going to be subject to AML CTF, but in the US context as well. Then ultimately, historically, there was an FBO account structure sitting underneath that, and that FBO account structure, the for benefit of would sit with a bank, and that bank would be the one that would be responsible to the regulator to ensure that you had, as a, you know, as a developer, as somebody selling a FinTech product, all of your controls in place. And unfortunately, we've seen that go wrong. We saw it go wrong with the evolve and synapse and everything else. And my worry is, and I wonder what your take on this is that we would see something else with stable coins. When people say, well, it's sort of we're just providing the technology. If I'm hearing that as a policy person, it sounds like you're. Sort of like you got little T Rex arms, but I don't think that's what you're saying, but, but help me close that gap? I think
Stepan Simkin 10:06
that's that's a great point, right? Because in crypto world, when you're saying no, FBO, that means actually self custody, right? So in crypto, everybody's talking about self custody, how you own your keys, and as long as you control your keys, you control your account, and your money is yours. FBO means that there's some kind of giant account, right, that essentially collects all the funds, right, and aggregates them, and there's some person responsible for managing that account. I think the unlock of building FinTech on stablecoin rails is that now you can have self custody, right? And I think modern Treasury announced something last week where the whole idea was like, no FBO required. And I think from that perspective, when you think about compliance, you can create these stablecoin accounts for your customers to store USDC on chain, but the moment they want to move it to a bank account, they want to pay somebody via ACH sapper wire, whatever it is, they will have to interact with compliance regardless, right? Because those vendors, like old orchestration providers, like Bridge and dvnk and many others, they obviously need to hold ntls Right. They obviously need to inject that compliance layer. And so I think the opportunity and both the complexity right for founders building FinTech on stablecoin rails is that is they have to marry the two experiences, right? Like, there's an experience that kind of one step removed from the compliance layer where, okay, I can have a wallet in my phone today, and there's no phantom or Metamask. They don't need to have MTLS, and the reason is because I actually control my keys, right?
Sy Taylor 11:32
Well, it's like having cash in your physical wallet at that point when you are self custodying, you are allowed legally to take $10,000 out of the United States and travel to anywhere in the world with it under US law. Same thing if you had it in a Metamask wallet, if you then try and take it to a bank, that's where the same as cash staying would be like, hey, that's over $1,000 that breaks us over the travel rule. We'd like to see some documentation for this, please. And I think that's kind of a key point that you're saying, but I like the modern Treasury link there, because I thought what they did is really significant in that they partnered with Braille, and they talked about having the built in AML KYC controls to proactively verify identities, automating OFAC screening, providing the audit trails. And I think that's what you're talking about. Like on chain, compliance gets really, really easy. The other thing they talked about is setting up an FBO account structure is actually really hard unless you've done it like it's really painful, whereas setting up a wallet setup with squads with others is much, much easier for developers to do, and then it's instant, and it's 24/7 and it's traceable. And I think that's the shift here, that from a FinTech operator standpoint, I get really, really excited by so what's next up for you? Where are you guys heading with this product? What's the market reaction been like? Interested in where you go from here? The
Stepan Simkin 12:59
reception has been great, I think, from a grid perspective, our team is in New York this week interfacing with a lot of founders who are looking to build the future of FinTech on stablecoin rails, and we're kind of in the stage where we're trying to get the first 10 major founders on board. We already have a couple names that we didn't announce yet, but we will soon, and it's really about figuring out what kind of markets are going after, how they're approaching their product, and really building the experience around them. So I guess it's similar in the way it is at this kind of early stage. For grid, is sort of the Palantir model, right where, like, we have forward deployed engineers that work with those founders to really build the experience around what kind of product they're trying to deliver to the market. And then for altitude, it's currently in beta and it's closed, but we have a crazy wait list with a lot of businesses looking to get on boarded. And I think one of the kind of most interesting directions we're looking to take altitude specifically is when we think about agentic use cases, right where you can marry crypto and AI actually it is a unique intersection, because you have cryptographic guarantees of what an agent can do with your money. And so when you see ramp and Stripe and visa talking about AI, I think this is an amazing step in the right direction. But if you go crypto first, and you give agents control over your business finances or your personal finances, you can actually make sure that if an agent hallucinates or goes rogue, there's nothing wrong that can happen, because decentralized node network will ensure that the agent can only interface with specific accounts or can only do specific actions. And so it is kind of a unique place for altitude to really innovate, because we can essentially allow agents to take control over your money much quicker than traditional violence.
Elise Soucie 14:43
So I will just interject here, though, as a kind of policy consideration, and I think where regulators, though, are going to be focusing their efforts. And listen, I'm also really, really interested in the intersection of agentic AI in payments. I think it's really cool the future. World and the future of technology and civilization and how it will interact in our lives. However, as I'm sure you obviously know, with compliance and legal background, regulators have to have a neck to choke. And despite the fact that you might be able to kind of follow that trail and be like, Yes, this is how the decision was taken. It's not hallucinating, et cetera, the regulators are going to be like, we need to know who took x decision if something goes wrong. And so I think it will be really interesting as the kind of future world. And this is not specific to what you're doing, by the way. I think this in general, as we kind of continue to see AI's integration into financial services, where are we going to put those stop gaps for responsibility and liability, and I think that there's still a lot of unanswered questions about that and how that kind of future of compliance for AI and finance will evolve. Ooh,
Sy Taylor 15:52
as you were talking, the words that came to mind were a stablecoin Accountability Framework, which just sounds very compliance nerdy, but like, I think that's missing right to your point, there is no obvious set of accountability of what happens when things go wrong, and the ways to kind of fix that are, oh well, cryptographic guarantees mean that it can't go wrong humans so. But also then the other way of doing it is, well, let's use the existing card networks rules, and that is a really great start for existing flows. But AI agents confuse things a little bit more. But my takeaway from all of this, as you were talking Stefan, is it sounds like we're on the cusp of stablecoin first FinTech, where the next generation of founders are building from stablecoins First, and stablecoins up, and that's the disruptive frame that everybody's been fighting to try and grasp is it's not that every FinTech company will use stablecoins. It's that every stablecoin first company can disrupt fintech. And I think that's a different way of looking at it, in a way you're coming into the market that I find really fascinating, but now I'm just going to zoom us to the other end of the spectrum, because there's a guy that can't keep himself out of the news one, Jamie Dimon has been talking about Bitcoin again, but it's in context of JP Morgan enabling clients to buy crypto, so customers will be able to purchase cryptocurrencies through their bank. And the institutions also said they're not going to custody digital assets. But this did come from Jamie Dimon giving a speech recently, who's been very anti crypto, very anti Bitcoin in the past. In this particular moment, I believe he said words to the effect of, I will defend your right to smoke, but I wouldn't recommend it, and I defend your right to buy bitcoin equally. Or that I'm paraphrasing poorly. So Jamie's still not a fan, but I think this is an interesting shift in the mood for institutions Elise, and I don't know how much that chimes with a change in the risk model, the actual threat versus a policy posture, like, what was your read on this? So
Elise Soucie 18:07
there's a few things that I think are really relevant here, which is that, you know, first, while yes, maybe Jamie Dimon hasn't always been all in on crypto. JP Morgan have been building with DLT blockchain and tokenized products for a long time. And, you know, obviously they had Onyx now, Connexus, and they really, really are kind of bullish on tokenized RW A and so to me, adding in the kind of crypto element, I don't think it's actually all that surprising, like I think that we were gonna get here anyways. But to your point about what is the kind of, maybe, policy posture and changes that have enabled them to make that shift? I think that one thing to remember here is for like, globally systemic, important banks like jpm, they're not just subject to like, local requirements. They also have to contend with things at a global level, like the Basel principles. And Basel principles for the past like five years have really not enabled banks to do that much with crypto. There's the 1250, risk weighting. This makes it so expensive if you want to do anything with crypto that it's just, frankly, not worth it. It's, however, looking very, very likely that the US is not going to adopt that. With OS, there are a couple of other jurisdictions in Europe and Asia that already have implemented the Basel principles. So what you have now here is a little bit of a mismatch which Basel obviously does not like. And so I think it's looking very likely that we might actually see a revisitation on that Basel stance, and potentially something that shifts and also shift. Industry's also been pushing a lot for a shift in kind of direction of travel with regards to permissionless blockchains, public blockchains as well. So I think all that being said, wins are definitely changing. We were actually part of a letter where it was both crypto and tradfi firms that was sent to the Basel Committee just a couple of weeks ago. And this was all about again, reopening these issues, and saying, look, the industry has matured. It's moved on. People want to get. More involved in this space. And so I think that, yes, this could partially be tied to that. And then the last thing I'll say is, on the bit about not custodying, I don't really think that's super surprising, because I think they will probably just use, like, a traditional custodian, like B and y are looking at custody. So I think to say, like, Oh, we're not gonna custody it just means they'll just probably work with traditional or maybe new custody partners anyway?
Sy Taylor 20:23
Yeah, JPMorgan is a big clearing and payments bank. They do a little bit of custody, but they tend to work with a custodian for that. They're a clearing bank. That's that's kind of what they do at scale. Their payments division is enormous, and I was speaking to one of the heads of digital assets on the payment side a few days ago, that interview will come out soon, from the avalanche Summit, and he was telling me that Connexus has cleared something like two to 3 trillion already. Like, if that was stablecoins, we'd all be like punching the air. Oh, my goodness. But quietly, Connexus has cleared trillions in this closed loop, and nobody seems to care. And now what they've done is build this connectivity, potentially with chain link and MasterCard and others out towards stablecoins. So you could see a world in which their closed loop is very, very powerful. They're going to keep that because they are one of the world's biggest banks very, very secure and very, very tight, but they're going to pick their moments in which they play on chain and how they play on chain, and they've been consistent, and I think that's a really great point. Elise, so people get distracted by the headline about Jamie Diamond's opinions on Bitcoin as a financial asset, versus what JP Morgan payments are doing, what the Connexus division is doing, and all of the work they've done around privacy and information sharing, they've done a lot of homework, they've done a lot of hard yards that I think they don't get the credit for. Stefan, what are your thoughts from large institutions enabling customers to buy this asset? Do you think that's a shift in signal in some way? Yeah,
Stepan Simkin 21:59
for sure. I think for us, it's just seeing these large institutions even publicly talk about Bitcoin, and some of them are exploring stable coins. Some of them are obviously very excited about the Bitcoin ETF a couple of years ago, if you asked me if Jamie diamond would be commenting on Bitcoin publicly in sort of more or less positive way, or at least saying that definitely you can respect the right of our customers to buy bitcoin, I would still kind of question whether that's actually going to happen. So things actually are moving really quickly. I think the place we would like this to end is where banks are able to actually custody stablecoins on their balance sheets, right? Because, from a operational perspective, from a cost perspective, if you can get to a full end to end stablecoin settlement, where you actually need a lot less intermediaries to move you from crypto to Fiat and back. That would be a very interesting place. I think it's a long journey. I don't think we're quite there yet, but whenever we sort of see these headlines, we're getting more excited that at least there's a roadmap and this potentially can happen in the more or less near future. Do you
Sy Taylor 22:56
know it's interesting that reminds me of the bank direct model that's emerged in the partner banking ecosystem in the United States, which is, let's take a FinTech program like a mercury or a chime or whomever, and then what they're doing is they've built a lot of their internal stack down much deeper, closer to the bank, and the bank has built up towards towards those organizations so that there's less intermediaries kind of in the middle. And what stable coins do is they sort of mirror that. And I think what you're pointing at is, as a financial institution, I don't need to have see this as a threat. I can see this as an opportunity to provide access to settlement accounts and to fiat money instruments, which I think is a is kind of a great point with my sort of like fraud risk sardine hat on. I also think there's been a change in how financial institutions are looking at the risk. They've come up the curve in terms of being able to understand good crypto risk from bad crypto risk. We have initiatives like sonar, where we work with many large financial institutions, some of the large crypto exchanges and other good actors, and in sonar, they're able to collaborate when they think a customer might be getting scammed, the bank can call out to the crypto exchange. The Crypto exchange can call out to the bank and say, we've seen this bad device before. We've seen this bad customer before, and I think it's this step by step increase in sophistication, in your financial crime capabilities that also behind the scenes, means the banks are actually able to make this a bit less risky for customers without sort of it being so very much buyer beware type of thing. So Elise your thoughts? Yeah,
Elise Soucie 24:41
no, I was just going to say that I agree with that. And I think the other point I would add in here as well is that I think that from a risk perspective, it's also getting a lot easier for banks to have those conversations with their supervisors. Because again, remember, while a lot of the crypto industry is kind of now being brought into the reg. Regulatory framework, any like very large bank is going to have multiple supervisors in multiple jurisdictions that are only supervising that bank really closely. And anytime that you are going to do a change of activity or add a new product, it is your responsibility to notify your supervisors and regulators about that. And so for that reason as well, we've also seen a maturing in the regulatory posture as well, which means it's easier for banks to have these conversations about the new activities they're going to undertake. And so I think that that's really exciting as well, because it just means that there's a lot more potential there for the institutional side to continue to expand and to scale. And I think as well, from a US perspective, we're also seeing a lot less crypto enforcement actions, which, again, if you are a bank, you do not want so I think that there's been a lot of kind of shifts that are making it a lot easier for institutions now to actually have the like regulatory clarity and legal certainty that they need to continue to get involved in these markets, you're making
Sy Taylor 26:02
such a great point people forget when they kind of accuse banks of being slow, just how much work they have to do to get anything done, and how difficult it is being one of those tier one banks. But to me, the mainstream we have stablecoins is here. Stablecoins are now mainstream, and I think we're in a place where digital assets are now mainstream. You can see it in the news every day. But I also want to make sure that as we're mainstreaming stablecoins, we're also mainstreaming thanking our sponsors. So I just want to take a quick break whilst we hear from the folks who make this show possible. This episode, if it's not obvious, is brought to you by our friends at visa, a global leader in payments. Visa's tokenized assets platform vtap uses smart contracts and cryptography to help banks bring fiat currencies on chain. Vtap allows financial institutions to issue Fiat backed tokens, improving financial efficiency and enabling programmable finance. You can check out the links in this episode's description to express your interest in vtap. Tokenized is also brought to you by avalanche. Major banks, FinTech challengers and industry leaders are using avalanche to create new business models on a fully customizable blockchain infrastructure. Think of it as more than a blockchain. Think of it as an entire network built for financial institutions to innovate with purpose built layer ones. Institutions can tailor digital asset strategies to their exact needs while still tapping into the power of a public blockchain innovation, developer communities and seamless interoperability join the institutions shaping the future of finance on avalanche, and you can Learn more at avax dot Network. Thank you to our sponsors. We appreciate you. All right, this story came from just about everywhere, which is the Senate has passed a prelim vote on the genius act. A full vote is still needed to pass the full bill itself, because legal processes or legal processes, but the new version had several changes, including some wording to address stable coins issued by big tech firms without imposing an outright ban. At least, I can't think of anybody better to walk us through the Delta. The latest What are you hearing? What are you seeing? Where's this at? Obviously,
Elise Soucie 28:39
this is a very exciting topic for me, and the development that I've been following very, very closely from the first versions of genius. So there are a few things that I would say just here to level set is I've seen a lot of hot takes from industry that have been like genius pass this is amazing, like us stable coins open for business. And to them, I would refer everyone to the Schoolhouse Rock. I'm just a bill, and I'm sitting here on Capitol Hill, and all of the various steps that it takes for a bill to actually come into law, because we are not quite there yet. And while some of the things that did happen, which means that genius passed cloture, there's still some steps here to go, and where we're now at in this process. And as you say, there were a few amendments, because, if people remember, genius didn't pass the week before, and now it has passed cloture, and there were a few tweaks that were made in the meantime, like the ones that you mentioned, Simon, what now happens is we have open amendments, which means that there's a lot of stuff that can be like, stuck into the bill now before it goes for a Vote, and then obviously it's going to have to pass the house too, potentially we'll see some kind of reconciliation processes there again. So I guess I would remind everyone that this can still change. It might look a little different again when we get the final version, and that it's not totally set yet. Now, another thing to highlight. About this is we did have really amazing kind of bipartisan support, and I think that that is a really, really great and strong signal. I was in DC last weekend. I'm going to be back there tomorrow. And there is a lot of positive tone around this. And one, the administration, like, really wanted to get this done. But two, I think, you know, across both sides of the aisle. It was understood that, given that stable coins are scaling so quickly, and as we talked about in the beginning of the podcast, how this really is one of the most compelling crypto and digital asset use cases globally, everyone sort of understood the gravity of giving clarity to the industry so that they can operate. And you have to remember too, 99% of stable coins are currently dollar backed ones that are floating around. And so this is a huge opportunity for the US, and obviously it's good for us, growth and the way that genius is structured, and the you know what it allows. And having that legal certainty, it will drive up demand for US Treasuries, which, frankly, the US government wants. So I think that certainly super positive headlines. Yes, this is really historic. Great to see it moving forward. We still have a road ahead of us, and I think as well, like we probably won't see much more happening on this until June, maybe end of June. It's not going to be a super speedy process, but I'm really, really hopeful that we will hopefully get this finished before the midterms, because that could end up changing a lot in terms of how easy it is or difficult to get things passed. But overall, great step for industry.
Sy Taylor 31:29
Good step. Stefan, your thoughts. It's
Stepan Simkin 31:31
remarkable that, again, it all happened so quickly. It seemed really dire just a couple of years back. And the fact that we're moving at such speed, and you have already at least, the process is in motion, and I think in some shape or form it will be passed. I think giving legitimacy to the industry through an actual law and a clear framework to follow. It's amazing for us, for me as a lawyer in the past, that's exciting to see that, like we can actually be regulated in an industry that we've spent a couple of years in at this point without any clear guidance. So I think that's that's really useful. I think we'll have to see where we actually end up with the bill. But we're super excited, and I think from our perspective, because we're building in the stablecoin world, and so for us, our market is global. We would love to see that. It sort of sparks a reaction across other jurisdictions, right? That will actually follow suit, and we'll try to come up with our own frameworks, because we have some examples in Europe with mica, but I think globally, it's still very much unregulated technology, and so it would be really good to see us moving forward with this, actually accelerating developments across the world, and
Sy Taylor 32:34
talk to me Elise about functional equivalence and what that means for the rest of the world, because that's a phrase that I've heard thrown around a little bit, but it might just be worth explaining why that's important for stablecoins if they're gonna go global. Yeah,
Elise Soucie 32:47
happy to I mean, this is also one of my favorite topics at the moment, and we've been thinking about it a lot lately. And so one thing that I think is really striking about genius and about the proposals, and it has changed a little bit, and how it's been drafted as it's gone through, but having like reciprocity provisions actually in a bill and saying that you can seek out reciprocity or functional equivalence with other jurisdictions that have sufficiently similar regimes, that's huge, because functional equivalence means you don't have to have exactly the same regulation, but you work out How something that is being used in multiple or two jurisdictions can at least operate at a functional level. So basically, what it means is having bilateral agreements in place for regulation that mean your product can operate in both jurisdictions, rather than completely starting from scratch every time you go to a different jurisdiction and you're like, I have one regime here, and I have a wildly different one over here. Instead, you have a bit more working together from both the regulators and the firm. And given that the most compelling use cases for stable coins are cross border ones, if we don't have functional equivalents, I think that the whole value proposition really starts to break down. And actually, you might remember Simon from the episode that we did with Rob paddock and kind we talked about the CPN, one of the things that we actually said is currently a challenge, is that you still have to have that compliance element there. And if you don't have the kind of compliance streamlined that can be a challenge for these kind of network effects. And so this is kind of coming back to the stablecoin point functional equivalence and enabling for reciprocity be established with other jurisdictions like mica, for example, that is going to make it so much easier for stablecoin operators, but also ensure more regulatory consistency. And look what it will mean is really kind of digging down into the details of where do you have your reserves, what kind of disclosures do you have to have? What language do those disclosures need to be in? Where do you need to share them? What does it mean in terms of transparency? And those details are going to have to be agreed on either a bilateral or multilateral basis. But the. Last thing I'll say about this is hugely exciting, is people might think, Hmm, equivalence. Mica specifically does not have any provisions on equivalence, and it is obviously one of the biggest other regimes at the moment. It was said, Peter Kirsten actually said recently, I think that we would be willing to open up equivalence discussions again, particularly for the wholesale space, now that other regimes around the world are starting to emerge, but remember when they started mica, there wasn't much else to be equivalent to. And so I think that this possibility to have and enable more truly functional global reciprocity is one of the kind of biggest opportunities we have at the moment. And I think regulators all around the world need to be working on this well.
Sy Taylor 35:43
I mean, surely the step on the value here is it's global, it's 24/7 and it's instant. And then, if so, if regulators come and try and choke that outside the US, that's going to be that's going to be painful for builders like you, absolutely.
Stepan Simkin 35:55
But I think also, there is a, definitely a place for regulation, right because, like right now when we talk to stablecoin insurers who are looking to work with, who are looking to work with, who are looking to integrate the due diligence happens on our level right. There is no standard that they need to comply with, and so I get to request from them the necessary documents, potentially bring in the legal team we value together. We have to make that decision, and there is no standard or authority that can tell us, at least that there's baseline compliance, that they satisfy baseline requirements that make me comfortable somebody building a company in the stablecoin space that okay with these players we can actually work with. And so from that perspective, it's actually helpful, and hopefully it can accelerate us doing business quicker with different partners, because we know that they satisfy at least the baseline compliance requirements.
Sy Taylor 36:38
Yeah, that would be very helpful indeed. All right, last story this week is one of the founders of USDC has created a new company and raised $18 million led by Andreessen Horowitz to build an AI native financial institutions. It's called Catena labs, and what they're doing is building a solution that allows an AI agent to securely identify itself transact with other agents or human collaborators. It's built on stablecoins, and interestingly, they've released something called the agentic commerce kit. So their idea is they're going to come up with a standard way of identifying agents, and they're linked to humans using standards from w 3c called verifiable credentials. They're going to identify which payment rail to use. So it should work with ACH and card and fed now and stablecoins, and then they have a defined set of mechanisms for human oversight. So this one is very, very interesting to me. How significant is the overlap between agentic commerce and stablecoins for you Stefan, because the Collison brothers at sessions called it the two forces driving innovation at the moment, bring to life to me, where agents e commerce and stable coins really start to meet each other. Because it just to a cynic, it sounds like you pick two buzzwords and you smush them together.
Stepan Simkin 38:16
When you talk about these two technologies, a lot of people really want to go to kind of the final state of this where you have a bunch of agents doing stuff fully autonomously with your money, whether you're a business or a consumer. I actually, I'm excited about the future. I think it will happen at some point. But I think what I'm most excited by is that, to me, agentic finance is really just smarter and simpler automations for your workflows, right? So that's more of a short to midterm use case, but when we think about making the life of a CFO or an operator of your business account simpler, where more things are automated, more things are queued up or done on your behalf, I think this is where we're going to see majority of this intersection really show us why this is so powerful. And I think yes, we might end up in a place where agents are basically doing everything, but I think until we're there, the most exciting thing for me is like we can actually build better experiences for our customers, because we can combine the two technologies. Right as an example of that, you can have agents, I think ramp does it today already, where you have aI basically reviewing the invoices and checking if those should actually be paid or they're real or fake. What you can do with crypto and agents on chain with stable coins is that the agent can review the invoice, queue the transaction, and then potentially approve and execute right and actually do the payout. And I think in these kind of incremental changes that just make the lives of operators easier, I think this is where we'll see a very high impact in the sort of short to midterm, which gets me most excited, because we get to go stablecoin First, and at some point, go AI first into the space. I love
Elise Soucie 39:50
when we come full circle on this podcast, because obviously it feels very relevant to what we were discussing at the very beginning as well. And I think I would say definitely, I think my comments about what. Regulation here, and what that will look like still stand but the one other thing I would add into this that I think is still a bit of a missing piece here, and this is for the industry, is digital ID, and also for governments, because I think a lot of this will be much more streamlined when we have more consistency with digital ID. Think about, for example, even so simple as, if you want to go and like, buy a bottle of wine, digital ID is, like, not accepted in the UK. And if you want to go buy a bottle of wine in the UK, you literally have to show them your physical ID. And if you even if you have a picture of your passport, it doesn't count. And so, like, if you wanted your AI agent to be making a purchase on your behalf, or maybe, you know your refrigerator is like, you're out of wine and you want to purchase it, well, you still, you would actually need to have your AI agent then be able to present your digital ID to verify credentials. That's like a very silly, like, simple answer, but it would apply for like, much larger scale transactions as well, and also things like leis, like legal entity identifier, which are used for businesses. Again, this is like kind of common best practice, but it's not yet codified into law in terms of legislation in a lot of jurisdictions. And so I think again, regardless of what form it takes, these identifiers and the identity element of it, I think is also going to be really important for an agentic future. The
Sy Taylor 41:20
US is in a slightly better position with its rollout of Real ID and clear in certain states as well. You can put your driver's license directly into your apple wallet. I think there are bits of the technology that's solved. What I think is interesting about Catena is they've made a way to use something that's free and open source there with verifiable credentials, link that to the agent and link that to the payments rail. So they've really an identity company that instructs payments rather than anything else. And the problem with this agentic commerce space is it's so broad. At the moment, you've got sort of stripe doing virtual cards. You've got people trying to do card on file. You've got the card networks with their tokenization is you've got an identity gap. And the answer is probably some mix of all of those. We just don't know how it's going to play out. And we saw a couple of weeks ago, Coinbase came out with X 402 which was like a messaging protocol to use the internet itself. It's very hard to know what to build on and what to focus so Stefan, what are you building on, and what are you focusing on? In terms of flows? I guess I know, with fuse and attitude, you kind of a beginning of a direction. Do you think that's it? Is it the workflows we have today, but on stablecoin rails with a bit more intelligence? Or where's the sweet spot here? The
Stepan Simkin 42:35
way we see it is, for consumer and business use cases, you can essentially create a richer and much more autonomous experiences when it comes to managing money, when you're dealing with a blockchain. And so that's why both views and altitude will be injected with sort of agentic workflows that they are familiar to what you get in ramp, Brax, mercury, but they're much more automated, where agents can potentially have more control. There's still you have to approve things as an operator or CFO, you still can have all the necessary controls and checks that you want. But things just get easier, right? And from a workflow perspective, it just becomes much simpler. I think the way we see it going forward, our thesis at squads is that financial innovation is actually going to happen on the blockchain, right? When you think about new financial primitives, new structures, whether it's how you earn, yield, how you invest, more complex and automate the strategies in terms of making you essentially more money, we're actually not seeing that much innovation happening in traditional finance, but a lot of it is happening on chain. And so because we're stablecoin First, our job is to create these sort of authentic pathways for a traditional business or a consumer who came originally to fuse to just store stable coins and make payments, to now interact with these novel primitives that kind of go through our threshold of security and compliance and whatever else needs to happen in between. But we think this is where the opportunity for building FinTech products on stable coin rails really comes from, it's from that innovation, whether it's, you know, defi, or there's also, it's been a wave in 2021 about streaming of pockets, right? Like the idea that it's perpetual movement of value, and like, your money always works for you, right? Your salary goes into a yield generating protocol, some of it in an automated way, gets paid out somewhere. I think there are a lot of interesting opportunities once money becomes code. And by the way, we talk a lot about compliance on this podcast, right? Like compliance is code, there's also a massive opportunity where you can actually codify a lot of these things. And actually, I think there's a learning curve for regulators and banks to get comfortable, but once they realize that they're getting mathematical guarantees and not corporate promises, it's actually a much stronger proposition for them
Sy Taylor 44:42
as well. Somebody was talking to me, I think about fence finance disclosure. I am a small investor in fence. They are working in the private credit world, so I'm a FinTech company. I operate a lending business on the back end, I have to go get a warehouse facility. From some Apollo, KKR, a bank, whomever, and when I do that, I have to go sign a complex set of legal agreements with covenants in them that what happens if I don't get my money on time? What happens if I don't pay you on time? What happens if I miss a payment? And so we use the legal system to try and hold people to account on you will pay on time. Well, what fence Finance said is, why don't we take all of those legal covenants and turn them into a smart contract so that you can pull down as soon as somebody comes into the front door of you, lending business, buy now, pay later, company, whomever, then we'll draw down from the warehouse facility so that a you're not paying for any more lending than you need, and the B, you're always repaying as soon as the customer pays you. That gets passed through immediately to pay off the warehouse facility. And I think that sort of use case that is very, very tangible in finance today, but could be consumer grade. It could be optimize my money, and a lot of things that are in terms and conditions could be software. And that Penny has still yet to fully drop, I think for a lot of people in the industry. And that's exciting to me, because we could start to bake some of these things in, and along, may we continue. Well, that is all the stories we have for today that puts us at about time, of course, always, always pleasure to have you guys. Stefan, if people want to learn more about you, what you're doing at squads and grid, where do they go to do that? Just
Stepan Simkin 46:28
follow me on x at Simkin Stepan, and you can find all the other links there. Elise, I am
Elise Soucie 46:35
on LinkedIn at Elise. Susie watts, I am also on x at Elise, underscore, X, underscore, digital, or you can find out more about all the policy work we are doing at gdf@gdf.io
Sy Taylor 46:47
Heck yeah. You'll find me at sy Taylor on LinkedIn or x or Twitter, or whatever you want to call it these days. You can find out about all the work we do at sardine@sardine.ai, and I hope you'll also make sure that you hit like buttons, Subscribe buttons, you're leaving reviews, you're doing all of the things you need to do, because it really helps others find the show. And my goodness, this show is growing. Our most popular episodes are some of our most recent. We're really getting momentum. So please keep doing what you're doing. It's really helping us out. One day we will be the biggest little show in the world. All right, thank you guys so much. We will catch you next time.