On Ep. 45 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Sam Broner, Partner @ a16z crypto to discuss Fintech companies building their own blockchains for stablecoins, decentralization in corporate blockchain strategies and more!
On Ep. 45 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Sam Broner, Partner @ a16z crypto to discuss Fintech companies building their own blockchains for stablecoins, decentralization in corporate blockchain strategies and more!
Timestamps:
Tokenized is sponsored by Visa
A world leader in digital payments, Visa is bridging the gap between traditional financial institutions and innovative blockchain networks, helping players in the payments ecosystem navigate the ever-evolving world of tokenized fiat currencies with confidence and ease. Learn more at visa.com/crypto.
Tokenized is presented by Bridge, a Stripe company.
Just like the internet made information global, stablecoins are making money global. And Bridge, a Stripe company, is the infrastructure powering that shift. Built for speed, scale, and simplicity, Bridge helps businesses send, store, convert, and spend stablecoins instantly, all without borders or having to navigate the complexities of crypto. Learn more at bridge.xyz
Tokenized is also presented by Fireblocks
With over $100 billion in monthly stablecoin volume, Fireblocks powers stablecoin strategies at scale with infrastructure that enables PSPs, fintechs, remitters and banks to issue, move, hold, and manage stablecoins. And it’s all done securely, at scale, and with built-in compliance. Learn more at fireblocks.com
***
We’d also like to remind you that the views or opinions of our contributors today are their own and do not necessarily reflect those of the companies they are representing. Nothing we say should be taken as tax, financial, investment or legal advice, do your own research!
Music by Henry McLean
Sy Taylor 00:00
Tai, welcome to tokenized the show focus on stable coins and the institutional adoption of real world tokenized assets. My name is Simon Taylor. I am your host for today, author at FinTech, brain food and head of strategy over at sardine. And I'm joined by the fantastic, the phenomenal, the unbelievable. Kai Sheffield, how are you, sir?
Cuy Sheffield 00:31
I'm great. It's fun spending time together, man. We recorded last night. We're gonna hang out, get a workout in this weekend. It's amazing having Simon Taylor in the Bay Area. So this is going to be a problem.
Sy Taylor 00:41
Who knows? I might be back more in the future, but it's always nice to be around here. But we're also joined by somebody that has been making waves in the stable coin space recently. I'm really excited to be joined by Sam Brona, who's partner at a 16 Z crypto. Sam, how you doing?
Speaker 1 00:55
I'm doing fantastic. I love the show. Happy to join you guys for a live pod.
Sy Taylor 01:00
Let's do this all right, two quick bits before we get into fun stuff. Remember, we are doing our first ever tokenized live event in London on the 11th of September. Tickets are free, so thank you sponsors. We love you and we appreciate you. To register, click the link in the description wherever you're watching and listening. And also, of course, I've got to remind everybody that views and opinions of contributors today are their own. Please don't expect this to reflect those of their companies, and nothing we say should be taken as tax, financial investment or legal advice. Please do your own research, folks. And with that out of the way, Sam, let's start with a piece you just penned called a new playbook for tradfi, and you covered how to win payment rails and why FinTech companies are looking to build their own blockchains. Could you expand on those thoughts? Why now for fintech? Why build your own chain? Why isn't there only so much fun you can have on your own
Speaker 1 02:00
chain there? I think there's a lot of fun that you can have on your own chain, first of all. But the reason why I wrote that piece is because we have had this spate of new l1 and l2 announcements. It's companies like circle, like Stripe. There's been other l2 efforts like plasma, who have come out and said, No, we need to have bespoke block space for stable coins. We need a blockchain for stable coins. And I wanted to make sense of that news. Why not? People understand why they're doing it. It seems like it's a opportunity for these fintechs to lower their costs. That the base case for them, the worst case scenario, is they cut out some middlemen, and they get to keep more of the revenue they take in. And so that seems what like. It's why stripe is building their blockchain. And then, for circle, what they want to do is they want to monetize all the activity happening with USDC, which, right now, they get the net interest margin, but they don't really get a transaction fee. And so if they have their own blockchain, maybe they can get a piece of the transaction flow as well. It's just incentives. They want a little bit more of the money, and they want to cut out middlemen. So that's why we think they are go to those blockchains.
Cuy Sheffield 03:02
Sam, how do you think about the order of operations, particularly for a stable coin issuer, where it seems like the pattern that we've seen is the issuers started multi chain, circle and tether, they were able to scale their stable coin product, and then now they're either incubating, creating, investing in trying to bring more of their own chain, which is then competing with the partners of the chains that they've been issued on. Is this something that's just it's at a phase where they've scaled enough that now they feel like they can vertically integrate, and then how do the other blockchains interact with that? Or do you think is it possible on day one to have a new stable coin and a new chain. And if you have a new stable coin and a new chain at the same time, then isn't that just another closed loop
Speaker 1 03:45
system? Yeah. So this is what we think about in the investing side all the time. Like, basically, what you're asking is, where is value going to accrue, and how do you actually get users cash flows and savings into an app, into an ecosystem? And the answer is, we don't really know. We don't really know where values would occur yet, but I do think, actually, I wrote a piece about this, how stable coins become money, where I look at three big problems in stable coins, the biggest one being, how do we maintain the singleness of money? Make sure money in one place is usable in another, bring money from place to place. But this is a big question, like, if you build another closed loop ecosystem, that's not necessarily a problem like Venmo is a great product, even though it's a closed loop ecosystem, but it's not the future that I want us to get to with stable coins. And so we are gonna need big, bold solutions to liquidity, fragmentation and user experience fragmentation, which is potentially worse, I don't know. I want people to be thinking more seriously about that, and I think some of the current solutions are a little bit short sighted in how they're creating more fragmentation, rather than a universal, composable layer.
Sy Taylor 04:48
And you know, a good friend of mine, Alex Johnson of FinTech, takes often talks about like everybody starts out wanting to build the biggest possible network, and then there's always this dark calling towards building. In your own closed loop. Well, if you just make it closed, you'll learn more of the unit economics, and if you just make it closed, you can get more of the upside and and I think fighting against that is a really hard thing to do. And you know, Kai and myself are both students of D Hawk, you realize how brilliant what D Hawk, and a lot of the people around him at the time, frankly, were in BankAmericard, when they created these was they overcame that closed loop, because they saw that mutualized incentive, even in the 70s, with Swift when that was set up in 73 when the first message was sent in 77 by Prince Albert of Monaco, those things were really, really breakthroughs in a way that I don't think they're given credit for. And we're sort of learning some of those lessons again. Now,
Speaker 1 05:47
okay, that's a great point. I do think there were some regulatory and technology forces that created the I mean, what did deoxy chaotic systems? Like, that's his term, right? Like, we have to have sort of chaos and order. We gotta you couldn't issue a credit card in every state all at once when visa started. And so you actually you had a necessity to have a cooperative some sort. You had to have banks getting started in each state, rolling out these cards. And you might not have even had a technology system that could have handled a 50 state solution on day one. And so there were these pressures that I think we underrate, that made it a more natural system. At the same time, though, for stable coins, we want a simple solution. We want to hide the wires. I think I people said that a lot, but we also want to make sure we take advantage of the unique properties of this new form of better money, which is like things are composable. You can go global on day one. And I'm not going to pretend I have all the answers today, but I think when I look for solutions in the market, it's global. It actually uses the programmability. It uses the composability, and it doesn't really fragment the user experience or the liquidity in the way that we are starting to see some of these l ones and l twos drift towards because they want to own more of the unit economics.
Cuy Sheffield 07:01
I think it's interesting that while the narrative on the surface is it's almost corporate chains. Again, you've got a circle chain, a stripe chain, a Robin Hood chain, it feels like there's this pretty wide spectrum of how each of these entities are viewing, the way that they want the chain to operate, and like where it sits in terms of how decentralized and open it's going to be. And so it feels like, on one hand, you have Robin Hood saying we're going to create an l2 they want developers to come and build on it. But it doesn't really seem like there's a desire to say this is going to be an open, decentralized network, that we're going to decentralize the sequencer, and like, we're not going to control it's like we control it, but like we want you to come build on it and then circle, you know, the white paper. And as they talk about arc, it seems like they want that to be more decentralized over time. They want to have other competing stable coins potentially be issued on that chain. And so even in that same thing, of, we're going to build a chain and bootstrap it with either an existing stable coin or existing corporate flow, there's still like a wide spectrum of decisions, of, do you actually want to give this to the world and decentralize it, or do you want to control the validator set? And the goal is you make money on the sequencer fees, because you're going to be the only validator, the only sequencer. And so I think there could be very different products that come out of this overall narrative that we're seeing build right now. I mean, this
Speaker 1 08:26
is a classic question about decentralization in general, like, does it actually matter? I mean, we, I assume you guys, we like it. We think it's interesting. We think it's a great way to guarantee to your ecosystem that you're going to stay honest, that the platform is not going to get pulled from underneath you that fees aren't going to go wildly later on. The question is, are we going to have a strong enough user experience? Are we going to be able to, as consumers, force the hand of the l1 and l2 creators to, like, make sure they decentralize their blockchains enough to actually sort of enforce those rules long term? Marco Ruud, who's a economist that we've worked with. He published an essay on our on the 816, z.com site at some point, sort of giving a sense of what is the risk of someone rugging you in the future as a consumer, when does the software you're relying on become important enough that you have to have strong guarantees from the provider that they're not going to change the rules later. And I think for payments, that's like the ultimate use case, like you only start to use payments technologies when you really have it on good faith that the provider of that technology is not going to jack up rates wildly later on, because it's so core to everyone's business. And so I think consumers are going to want pretty good guarantees here. And the question is, how do we actually enforce them and make sure that they have
Sy Taylor 09:43
it? Well, it's also the other stakeholders in the payments ecosystem, right? Like there's not just consumers, there's merchants, and the merchant lobby in payments are wild, like they come out swinging. They're always issuing lawsuits. They're always fighting against everything. Because in the US context. Merchants pay for everything in payments, especially in traditional consumer payments, and so they want anything that's going to lower fees and lower costs. So I can see involving those in a network as being a really interesting model. But I think Kai's point is, just to wind back a second, is an interesting one, because it's all incentives here, like, what are the incentives that keep everybody aligned and involved? Because you've got this balance of, well, I've already got this distribution as in circles, case an issuer, so I can bootstrap this network with this distribution I already have, but as an issuer, I need to support every other network, and as a network, I need to support every other coin. And so now I've got a fragmentation issue, and how do I create a set of incentives that people are really gonna line around. And I think it's just like we're sort of in land grab mode, and this is early territory, and we just don't know how it's gonna play out. I mean, there was a story this week. I don't know if you've seen it. Metamask has just launched their own MUSD in partnership with bridge and m zero. Shout out to the m zero guys. They don't get enough love. They're doing God's work. But Blodgett, Ethereum and Linnea, the l2 created by Metamask and consensus. So I guess if you've got this captive distribution your Metamask, you can steer a lot of volume down that stable coin because people want dollars they don't necessarily want, like $1 with a certain brand name. So why wouldn't you it is
Speaker 1 11:29
all incentives, but there's also really practical flows here. And by the way, when I said consumers, I mean enterprises, merchants, users, there's really, like so many people, who have the ability to stakeholders in general. But to this point of incentives, it's also practical flows. If you're stripe, you actually have the ability to say, if you're a merchant and you wanna receive this payout, you have to access it on chain, like you could imagine a world where stripe is doing that, and if you are circle, it remains to be seen what the incentives are gonna be for people, for developers to build on arc, and so is both the incentives. I'm sure circle's gonna come up with a great incentive model, but there's also this, like, practical distribution, where it's like, what are the levers you can pull to make sure that there's actually cash flows running through this system, and it's the cash flows that are gonna drive additional ecosystem members onto certain block space because they want to do lending against these cash flows. They have identity systems around them. They want to access the money in the first place. And so it's not just incentives. It's also the practicality of, can you direct money into this ecosystem in a useful
Sy Taylor 12:34
way? It's going to be fascinating. Tai, your thoughts. I'm
Cuy Sheffield 12:38
interested to see how the Metamask m usd plays out, and I think that there's just a very logical, practical use anyone who's operating a wallet is sitting there and saying, Okay, how many stable coins, how much USDC, how much usdt is currently being held by my customers in that wallet right now, the cost in buried entry to Launch a white label stable coin seems to be getting lower and lower, and bridge making that easy on the insurance side. And that sounds like m zero playing a role in helping to build liquidity. And so if the cost is pretty low to create one, then you just have to do the calculation of of the balances that exist on the platform today, of which I'm sure Metamask has billions of dollars of stable coins that are being held in their wallets. What percentage of that do we think we can convert over and then, how do you target customers and say, Hey, I see you're holding $100,000 of USDC in your meta mask. If you switch that over to MUSD, we'll pay you 3% on that. So it seems like that's going to become more and more of a common playbook for any wallet that owns the customer base to try and see what they can convert. And I'm really interested to see how successful it is and what the supply becomes. It's harder to imagine put linea aside, because I think there's another angle where they have their own l2 and so then being able to try and Bootstrap, define the l2 it's not clear to me that people are going to send MUSD out of their meta mask, into Phantom, into other third party, like it may never actually leave Metamask. It may just be this, like store value in Metamask. And so if you're using stable coins, sending and receiving them all the time. Maybe that's not as attractive a value proposition, because whoever you're sending and receiving, they want USDC or usdt, but if you're just holding stable coins, then I think there's this like store of value product. And so I think we'll, we'll see the separation between stable coins that are marketed in position. It's store of value only, there's not a lot of utility on the medium of exchange. And then stable coins that are more medium of exchange focused, that have a greater form of acceptance. And then the interoperability of switching between those
Sy Taylor 14:53
two. I just love that idea, because it sort of speaks to the fact that really what we're talking about is an upgrade to a. Internal ledgers, right? Like I historically, if I was building a FinTech company, had to create a ledger, and then I had to build a flow of funds to send this down different payments rails. Instead of building an internal ledger, maybe I build an l2 maybe I build an EVM compatible l1 because that sort of outsources a lot of the effort of building funds flows and reconciliations and all of the hard back end infrastructure I had to do, just for storing the value. Said I had to go open an FBO account at a bank, and then had to reconcile that with my ledger and their ledger. Maybe I had to get MTL licenses with stable coins. That's so much simpler just for storing the money, and then when it comes to moving the money and transferring it like that medium of exchange, then I've got these other currencies, but now I need to figure out how the wires of all of that interoperability starts to fit together. That was a really weird thing I just did with my hands for people watching on video. But you get my point. Yeah.
Speaker 1 15:57
My sense is though we should be in a world soon where, yeah, if you're Metamask, maybe you incentivize people to switch to the m usd so that Metamask and the users can get some bit of yield on the stable coin or something. But ideally, when you send money to someone else's wallet, it doesn't actually matter what the stable coin you sent is, as long as it's a genius Bill compliant stable coin, you'll be able to swap it at par and end up with whatever stable coin you want on the receiving end. And we'll end up with this like true fungibility. That means people just don't care. They just have dollars and it's in a genius Bill stable coin, and that's similar to having money in an FDIC insured bank account. In the long run, I'm not sure that'll happen on day one, but in five years.
Cuy Sheffield 16:42
Yeah, how far away do you think that is realistic? Because there's both. We've been talking about this as an industry for a while. There's the chain abstraction. It's not gonna matter what chain you're on, you're just gonna send on one chain, it's gonna land on the other chain. You're not even have to think about it. And then there's stablecoin abstraction, where it's not gonna matter what stable cord you have, like, there's just this magic. You send money, it lands. As money and like, the chains are visible and the stable courts are visible. And like, I get it in theory, I just have, like, a really hard time seeing, like, the practical two years, five years, 10 years, like actually getting to the point where neither of those things matter when you're dealing with dozens to perhaps hundreds of chains, and we might have dozens to perhaps hundreds of stable coins. And then if you do that, how many companies will actually play that role of interoperability as the network? And so it actually means that you probably have a small limited number of companies that are sitting in the middle that can manage interoperability between 100 stable coins and 100 shades. So you kind of re centralize. If that's the end state. Do you see that as Is there a viable path in like, the next three years? You think that that's gonna happen?
Speaker 1 17:51
I believe is a viable path in the next three years. I think crypto people are always apologists, like, oh, it's gonna be better next year. I promise. We just do No but, but, guys, we only got transactions that cost less than a cent and take less than a second two years ago. It was a year ago that striped to the bridge acquisition. It was a month and a half ago that we got the genius bill, legislation like it's really happening right now. I think over the course of the next three to six months, we're gonna see a tremendous improvement in on and off, ramping in at par swapping. I mean, that's on the investment side. I'm seeing every day, people saying we're going to come to market with $0 on and off ramping, and it's going to be nearly instant. It's going to be nearly free, and so we're going to get way more composability, just from like a technology perspective. And then again, it does take time for people to build habits, and it takes time for companies to do the aggregation that you're describing. Like, can we be on 100 chains and aggregate those in just like one API that someone can send a stable coin to and get back whatever they want? But that's okay, like people are building those services today, and the pricing is gonna remain good. It's gonna remain cheap because there's always the ability to build it yourself, because blockchains are permissionlessly composable. You can anyone could go start a competitor at any time. That ability to build and switch away from an aggregator is actually downwards pricing pressure, which is a really good thing. And so I think in the course of the next three years, we're next three years, we're gonna have cheap every to every aggregation. We're gonna have great on and off ramping, and the user experience might still need work, but there's gonna be flows that early adopters know of that are really smooth and in the middle of the market, the early Middle adopters are gonna begin in three to five years to say, Oh, I do think stable coins are better for a couple of use cases. And that's my actual projected timeline.
Sy Taylor 19:46
There's the classic book Crossing the Chasm, right? Not everybody adopts something already. The future is here. It's just not evenly distributed. But I can tell you, in the past week, I've spoken to six, maybe seven different banks who are all like, I'm. Trying to get tokenized deposits. How do I do it? How do I make it work? Like everybody is at the frontier of trying to figure this out. I've even spoken to people in regulators who are like, how the heck do we examine this thing? This law passed so fast, we don't know how what good looks like. We don't know what bad looks like. So now you've got regulators that don't know how to examine it, banks that don't know how to get involved, and a bunch of innovators who have laws and are trying to figure this out in land grab mode, and I can't imagine a more fascinating setup for the next 12 months. It's just unbelievable.
Speaker 1 20:34
Yeah, that is definitely true. And I the reason why I like being in stable coins and investing in stable coins, which I've been doing for about three years, three, four years since I worked at the Fed, and then as an investor at a 16 Z. It's because it's really path dependent. There's a lot of ways that the stable Coin World could go. We could end up with three core issuers. We could end up with a couple 100. It's actually gonna depend on how good is the technology that makes stable coins fungible with one another. How easy can someone make the user experience that makes having a couple 100 stable coins understandable? If it's hard, it won't happen. But if it's easy, then I think it will happen, because there's incentives to have this sort of diversification. Yeah, the next 12 months would be amazing. A lot of rule making to be done and a lot of buildings to do. Speaking
Sy Taylor 21:17
to the next 12 months, I don't know if you saw this other story as well. Apologies to my producers, but because it's rolling with the conversation, I'm just going to switch it around a little bit. But apparently China is mulling issuing a Yu Yuan backed stable coin, issuing those via Hong Kong and Shanghai in a bid to boost the remembers role in global finance and challenge global dollar dominance. I think Scott Besant has been pretty transparent about the goal of, sort of the genius act and stable coins expanding the role of the dollar on the global stage. I guess we should expect a response like this. Sam,
Speaker 1 21:52
yeah. I mean, actually, I wrote a piece about this as well. Like, how are other countries going to respond to the pressure of dollarization from stable coins? And it's, of course countries are gonna, are gonna respond. People want to control their own currency, but also a lot of people want to use better money, and they want to use dollars. So having the genius bill out gives people confidence in dollar denominated stable coins. And the key thing for me is just like, just give people what they want, give them access to these stable coins, and there's gonna be a competitive dynamic on the global stage, but the dollar is a really strong asset, and people have demonstrated that it's the number one asset to hold. It's
Cuy Sheffield 22:30
interesting to trace back over five years ago that China really came out early with the digital Yuan, their cbdc program, that I think they were investing in all the way back 2018 2017 and so there was this fear of, if they're going to digitize the yuan, and they're going to make it programmable, and then they're going to drive adoption of this, not just inside of China, but outside of China. And then the reaction was some people saying, Oh, this is why we need a US, cbdc, so we could compete. And then there was another camp, more in the private sector, saying, This is why we need stable coins. Stable coins exist and they're working, so we just need to regulate them. And that was a strong driver for why there was support, at least from some camps around stable coins as this alternative to a state backed Chinese central bank, digital currency. I think what's been interesting to see over the past five years is we haven't really seen a lot of evidence of real adoption of the digital Yuan, whether inside of China or outside of China. I haven't really heard stories about it recently. We knew that there were pilots that were doing like money with expiration dates, where you could AirDrop a certain amount to spend it in a period of time, but we haven't really seen this like broad consumer like it solves a need, and people are switching from WeChat or Alipay, and they're using the digital yarn. And so it seems like it hasn't gotten success in China. We haven't heard any examples of it really being used outside of China. And so I think over the past five to seven years, stable coins have really continued to grow and accelerate, while Chinese cbdc, I don't think, has been a success by most accounts. And so now it's okay. Well, what does China do? Do they take more of a playbook of following stable coins and saying, Let private sector actors, to some extent, let Chinese tech companies create stable coins or interact with stable coins versus just a PBOC top down only there's one digital Yuan. But Sam, your thoughts about
Speaker 1 24:29
Kai? Are you saying the free market won again? I mean, this is, this is a classic story, like we want competitive dynamics to Yeah, stable coin issuers are competing on their merits, and we should have sensible regulation that keeps consumers, businesses, merchants, safe. But ultimately, I'm really glad that we had a period of competition as stablecoin sort of got better, got more integrated, and it makes sense to me that they ended up being a superior product to CBDCs from like central plain. And institutions. I think if we wanted to point to a success story in digital money, we'd probably point to picks in Brazil, and there's been a couple of these, like rapid payment rails, that have started to work. They have their limitations as well, but it just it takes governments a long time to build products, and even then, there's just sort of limitations to how reactive and dynamic the ecosystems around them can be I
Sy Taylor 25:23
look at it as it's very hard to top down, compete, yeah, as exactly as you say, I look at what Europe's trying to do with the digital Euro, and it feels like China has learned that lesson faster. And the elephant in the room here is tether. One of the major use cases for tether inside of Hong Kong is cross border trade with the Global South, if you are trying to import, export, out of the Global South, out of India, out of the rest of Asia Pacific. And you don't want to go via the dollar, because it's extremely expensive and extremely slow. There are people with tether on the street corner or in agents or even businesses now that will help you do that. And it's wildly efficient. The problem with something that's wildly efficient but also not really regulated is, of course, it's wildly efficient for criminals as it is wildly efficient for business. And so how do you lean into where the free market's going, but increase the legitimacy and scale of that? And frankly, I've just written a white paper with Aaron West, who was a district attorney in Santa Clara, who spent a lot of time in Cambodia and Laos and visiting scam call centers that are absolutely at scale and their primary currency they use is tether. Let's not pretend there isn't a giant global money laundering issue here that we need to resolve. So there's a balance here to be struck, which is the market has already moved. The genie isn't going to go back into the bottle. Tether is a thing. The market prefers it. So how do we use some of these elements and lean into it? And I think China's ahead of Europe on this, on having this realization that, okay, we need to build a roadmap for figuring out how we get our heads around this stuff? It's
Speaker 1 27:01
an interesting point. We, of course, need to have compliance. We need sensible regulation. But for me, we're so early right now. You just described some cash flows that that are happening with bad actors. But ultimately, I think we might only have like, 2 trillion or so of really productive payments flows happening in stable coins every year. And so as that number grows, I think we're seeing more traditional businesses move into stable coin rails, and we're also seeing better and better compliance solutions that are helping issuers do the right thing, and that fits within the genius Bill framework. And I think as a consumer, as an enterprise, a merchant, you're going to want to pick a genius Bill compliance stable coin for exactly these reasons. It just, it's exactly the same technology product, but with with much better guarantees on the on the security side, and so it's going to out compete over time. And tether was was early, but now we've got a better project least.
Sy Taylor 27:57
Do you know it's interesting, though, we just did an episode with Artemis a couple of weeks ago where actually, since the genius bill, the overall supply of the USDC has gone down ever so slightly. The supply of tether has gone up by 2.4 billion. The supply of us, D, E has gone up by 2.7 billion. So it's actually had the opposite effect. Now that's one month. So we don't know if that's scary, like it's
Speaker 1 28:18
one month. And also, exactly to your point earlier, Simon, like we haven't really gotten to the rule making portion of the legislation. We had the legislation passed, and now we've got 12 to 18 months of rule making as the regulators take that legislation, turn it into actionable things that the issuers can do, that enterprises that touch stable coins can do. And so we gotta wait that out before we make any flash judgments. And 2 billion here, 2 billion there. These are we got $300 billion in stable coins. We're not talking about big movements yet. And so let's wait for that to happen
Sy Taylor 28:52
first. It's still a rounding error. I do need to thank our sponsors, and we'll come back to this conversation. So let's just take a quick break and we'll be right back. 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 back tokens, improving financial efficiency and enabling programmable finance. You can check out the links in this episode's description to express your interest in vtap. This episode is also brought to you by bridge, a stripe company businesses need easier global money movement. Bridge is the stable coin orchestration platform that makes it simple to receive store issue and spend using stable coins. Companies like X, Shopify and airtm already use bridge to lower their costs, simplify their global Treasury operations and expand their global. Will reach learn how you can grow your business with instant global money movement using stablecoins at bridge dot XYZ, tokenized is also sponsored by fireblocks. Fireblocks is the stablecoin infrastructure of choice for global businesses, from visa to WorldPay to bridge to Revolut, with over $100 billion in monthly stable coin volume. Fire blocks powers stable coin strategies at scale with infrastructure that enables PSPs, fintechs, remitters and banks to issue, move, hold and manage stable coins. It's all done securely at scale with secure built in compliance with fire blocks. You get complete control to build your own stablecoin orchestration layer, create payment accounts, manage liquidity and access on and off ramps in over 60 currencies. Makes it easier for you to build and scale and expand your business globally. Learn more@fireblocks.com thank you so much to our sponsors. Kai, I think you had a question for Sam over here.
Cuy Sheffield 31:05
Yeah. I think one of the biggest questions as we think about this, what does the next three to five years look like, is how privacy plays out and every bank that we talk to, it is this really weird thing to say that here's this new form of digital money where every transaction that you make is visible on a public blockchain. What are all the implications of that? And I think there are two ways that you could look at it. One, you could say, it's new, that's just how it is, and that's just how it's gonna work. And like, it was demo was weird at first, and then you found out people didn't mind sharing what they do. And then the other approach is to say, Oh, this is obviously going to get solved the same way that scalability has been solved, and now we have one second and one cent privacy is up next. And there are going to be these great solutions that enable perfect privacy for end users, but then still auditability for regulators. Where do you fall on I assume they're going to be both versions that exist. How close are we to actually having credible, privacy preserving stablecoin solutions? And then what's your framework of the different models and the ways that privacy could start
Speaker 1 32:12
to emerge? Okay, so first of all, I believe that we're actually pretty close to having great privacy solutions. We're already starting to see some in the market, and those come in a bunch of flavors. One is you've got privacy that you can use on existing blockchains. Another is we've got private blockchains. A third is that we can use aggregators that sort of limit how much of a transaction you can see. But I want to go back to the sort of the framing you're putting out there, like, will we end up with no privacy interest the new technology accepted, or we end up with a lot of privacy? I think for the listeners that are technology minded, you probably assume that the end state of privacy should be something like, end to end encryption, complete privacy, anonymity and confidentiality, so you don't know who's sending to who the amounts that are being sent are confidential. That's not what we have in today's payments at all. Yes, it's very hard for me to see how much you Kai paid Simon the last time you guys went out for lunch. But if a government entity asks that information, of course they'd be able to access it. And in fact, like someone at that company, if it's visa, someone might be able to see that payment information, if it's Venmo, maybe you posted it publicly. So the actual privacy guarantees we enjoy today are more limited than people realize, and I think we will fall somewhere in between. I think we're gonna have technology solutions that allow us to go all the way up to end to end, encrypted, complete anonymity and confidentiality, but likely we'll stop short of that, and we'll end up with like, a viewing key style solution, where if a regulator says, Hey, I need to see this information, you can share it. And maybe even if your accountant says, Hey, can you share me all your transactions? You could share it with them so they could sort of see who you paid, who you got paid by to make you know, do your taxes easier. There's a lot of reasons why you might want to share transaction information with someone. I think that's on the way when it'll happen. I'm seeing a lot of startups building there right now. A couple of great solutions are are getting to market soon, but my guess is it'll be the part of the second wave, exactly as you were indicating.
Cuy Sheffield 34:13
Simon, do you see it as existing chains having privacy preserving spark contracts or layer twos will that have to come from the new chains that we talked about earlier. Because even I look at things like token extensions, Solana had some really innovative features that they put out around their new token standard that had confidential transactions, but we haven't actually seen it adopted, at least. I'm not aware of any stable coins at scale that are using that, and I think that solution hides the amount, but you can still see the addresses. And so it feels like we've seen some solutions put out there, but we haven't seen adoption of those solutions yet. And it's not clear to me. Has that been a technology challenge? Has that been a regulatory challenge, where before we even got regulatory clarity to begin with, adding privacy? On top is like too much that having this clarity of the public transactions was the first piece. What do you think,
Sy Taylor 35:06
Simon? I think it's one of those classic you get a bunch of security engineers in a room, and everybody's answer is the right one, and nobody's got the right answer. And I think the market hasn't decided where they want those trade offs to be, because the cyberpunk movement comes from one place. But then you've got the whole ZK EMS and zk scale up, so the ZK snarks and that whole ecosystem, which is kind of still a bit slow, but getting more performant year over year. Then you've got people saying, well, you should do a dedicated l2 for privacy, and then even l threes, in some cases, then you've got a whole bunch of folks that have built their own privacy focused blockchains. We just don't know. I suspect that a lot of these things, like the Ethereum roadmap and the Ethereum family, or the EVM extended family feels like a weird, just big family that gets together every Thanksgiving, and there's a weird on call, and they don't always get along, but they agree to meet again next DevCon. You know, like they will get this together eventually in that kind of ecosystem. And it's honestly what's holding a lot of the banks back, is they, they don't know how KYC works in this world. And there are a lot of good answers to that question. There's probably 10 different ways you could do it. The problem is there isn't one way with enough distribution that balances those trade offs of like, well, this is a public network, but here's how we're going to preserve it. And if you speak to a bunch of people, they'll tell you all of the holes in HTTPS there's a lot of technology we use every day that is not perfect, but has adoption, and people can find ways to hack so the problem isn't that there aren't tech solutions to it. It's that we haven't coalesced around one with enough distribution in order to be able to meaningfully move forward. And I come back to that point about the regulators earlier. That vacuum of knowing how it could work is making a lot of big enterprises scared, which is why I think the circles and the Robin Hoods and others that are sort of building their own and pioneering a little bit with their distribution are going to be really key, because some of their design choices are really going to help form what the eventual solution ends up being. I mean, just a couple of other stories to throw into the conversation. We're seeing new ways adding stable coins to expand their money movement operations a little bit more. And also, Western Union is mulling doing its own stable coin. But a lot of these feel like they're either using existing partners and it's a known payments flow, or they're still in the strategy phase. And I think that's what underneath it a lot of people are trying to build, I don't know, Sam, you've got to take on that whole privacy piece. Yeah, I've got a big I
Speaker 1 37:39
mean, I've got a lot of say on privacy. I've got a lot of say on KYC. On KYC. I think we go into those meetings. I met with 3040, people in the fi space, in the finance, banking, FinTech space, and they're all asking these questions, what do I do on privacy? How do I do KYC? And the answer I can give is, I've got 30 solutions for you. Pick one. And they're saying, well, which is the sort of established one, which is the what right one? What? Throw off my trips. They're going to get pulled into stable coin use, because users are going to demand better money. And when that force gets strong enough, they're going to have to suck it up and decide what solution they go with. They're not going to know in advance is the perfect one. We've got a lot of imperfect solutions out there that are making the world run. The world is run on imperfect solutions that are out there and good enough. And I think the same thing's gonna happen with privacy. The same thing is gonna happen with KYC, and it's so great that people are experimenting today, and they should continue to experiment, but it's gonna be when the user demands there and the problem is so visceral and active that the banks just have to choose that we're going to see which solution works. It might not be perfect. Hopefully it is. We have the technology. What we don't yet have is the willingness to experiment and the regulatory clarity to know which experiments won't be punished when we get that the customer is going to decide and the banks will have to choose their way forward.
Cuy Sheffield 38:59
It's just so hard for a large financial institution, when we talk to many folks, there this fear of choosing the wrong one when you don't have an established standard of like, the cost there of just the time that it takes, okay, you commit to a solution, we're gonna use this specific privacy standard, or this l2 and then it turns out a year from now, that was the wrong one, And you gotta rebuild, you know, like, this is not instantly transferable to if something on the other side of the spectrum won. And I think when you actually look at it's easy to say institution, but then there are individuals, and then you're like, okay, that individual just spent a year of political capital totally pushing this to come out the other side, and it's wrong. It feels to me that almost has to be driven by the companies that are already in the space, that already have mature businesses, that are already there solving privacy, getting some consolidation of okay, here's the limited set of options, or the standard that then a bank can adopt, versus if you're trying to solve privacy as you enter the space for the. First time and pick right the number of variables there for a large institution to deal with, I think it's very difficult. But then the other challenge of it is that many of the existing players in the space are operating at scale. They're the ones that are okay with it, not necessarily being private right now. They're used to it, you know? They've become adapted to it, and it's just, that's just how it is. And so I think we're kind of in this weird world where if you expect banks to solve it before they've done anything with stable coins, that's hard. But if you expect the stable coin payment companies to solve it, they don't wanna slow down. There's still a huge runway that I think we could get to one to 2 trillion without privacy. And so how much are they going to focus on it. I think it also could change the role of the stablecoin issuer. It is interesting to think, from a compliance standpoint, that when you are a stablecoin issuer and the stablecoin is public, any law enforcement agency on the planet can be able to easily follow and see transactions on chain. Every analytics provider can easily follow and see it. If you have a stablecoin issuer that's issuing a stablecoin that is private, other than to the issuer, we don't think it's ever gonna be private. You can't be private to literally everyone, like you said, that's just not gonna happen. But it could be private where only the issuer and only the entities in the transaction see it, that's gonna create, likely, a much higher burden, where they're responsible, where they're the only ones seeing the transaction. And so then they have to decide, Okay, are there view keys that you're sharing? Who are you sharing it with? Are you monitoring the network correctly? So I think that it's gonna take some real time to be solved. And part of the question is, how far can the space get in the current public rails before eventually you get privacy, but like, it's not gonna be easy to get there to serve.
Speaker 1 41:50
So look, we need to solve these problems. Simon you brought up crossing the chasm before this is the idea of a new technology needs to grow. There's a period where it's like, will it make it? Won't it make it? There's a lot of energy behind stable coins right now, this problem we're having with privacy, with KYC, these are just the growing pains of a new industry. And this happens every time this new technology. How are we going to integrate it? What are the costs to integrate it? And like, we're quite worried about it right now, it's going to get solved. Like, I'm writing this off as a solved problem with big opportunities, and lots of ways that entrepreneurs can participate, lots of ways that banks, fintechs, financial institutions, can make a big bet and hopefully be right and have a big opportunity to be one of the best, earliest adopters of the new paradigm, the better version of money that stable coins are. And so the question is, who are going to take those risks? But there's no doubt that these are solvable problems. It just requires, you know, a bit of courage and the willingness to be wrong for a year waste a little bit of effort. But we are solving these problems. These problems are going to be solved, and we're going to use stable coins, and it's going to be better money.
Sy Taylor 42:55
It reminds me of the early days of mobile I launched the second mobile banking app in the UK market, way back in 2010 and we were second to market, which is what everybody wants to be. It's kind of the dream if you're a bank, is be second to market. I don't want to be focused, because they figured it out, and we did it a bit cheaper and a bit faster, which looked great on my resume. So that whole thing is like the dream of a bank. And I think it's the real problem. And this stuff simply comes down to a lot of the work I did, and a lot of the work that I'm doing now is just drawing diagrams for people that step by step, takes you from, well, this is the deposit in your mainframe. This is you moving it into an FBO account with virtual accounts and referencing, and then it stays there like you don't send it to anybody else, it just sits there in that virtual account. And then what you do is this thing called minting a token, and then you mint the token, and it goes onto a blockchain network, and then other people can do KYC around it, you can do the KYC. Oh, how does that work? Well, it's a KYC process. Have you ever been Oh, my goodness. But you have to step by step, by step, by step by step it. And I think the reason for that is because to a lot of us that live in this it's obvious, but if you imagine you don't live in this world, if you've not used a stable coin before, and you're used to living in flow of funds diagrams, you need something to come into your world and look like it does in your world. And I think that is the Crossing the Chasm point that mobile banking went through. And yes, Nubank and Revolut and chime did a lot better at mobile than, say, Chase and Wells did, but Chase and Wells have pretty decent mobile apps these days. They work. They're effective. A lot of their customers use them. And this will go the same way, which is those things aren't going away. The biggest players, the smallest ones, will figure out how to use this. But I think, from us as an industry, underneath the hood, we've got to do the Baby Steps piece if we want to help get them there. And it's going to be diagram by diagram. I'm going to spend a lot of time at a whiteboard. I suspect guys, if.
Speaker 1 45:00
It's a lot of me biting my tongue and saying, you know, KYC for this app is gonna look very similar to KYC for the app you already have. But like, you KYC, 200 million Americans, I'm sure we can do it again, yeah? Like, we just, let's roll this
Sy Taylor 45:14
process so one more time. Well, and then there's some upside of like, okay, now it's on a network. You could potentially use some of this cryptography stuff to make that a little bit slicker, and that might be quite nice, but let's not scare you with that just yet. I want that story before I leave us this week, I do want to give a shout out to this story, which was crypto exchange bullish actually received 1.1 5 billion of their IPO proceeds in stable coins, and it was across eight different stable coin types. Most of it was on Solana, minted by Coinbase. But there was Euro CV from SOC Gen, there was the global dollar network, there was USDC, there was PayPals, p, y, USD, ripples, R, L, USD, USD, one, whoa, Liberty financial, the Agora dollar. My goodness, it looked like a party. This is a war shed moment, isn't it?
Cuy Sheffield 46:06
It seems like it's technically the first time this has happened. My question is, why so many different other than like, a celebration of like, bringing everyone along, it doesn't seem practical to have received eight versions of stable coin, dollars, the other currencies, sure. I think the more interesting piece is, what do crypto native companies do with stable coins in their corporate treasuries, which is a trend that we've seen for a while. A lot of exchanges, they operate a lot of their back office, the back end, parts of their business, using stable coins. It's the preferred way to hold and move dollars. And I think we could see this world that one way to bootstrap, particularly B to B payment adoption, is the more exchanges that go public, that grow, that become larger companies. If they turn around and they really dog food and they say, Okay, we're doing an RFP, and you wanna sell software to us, well, do you accept stable coins? We're only gonna acquire that software if we will pay you and all of our vendors and stable coins. I'm surprised we haven't seen more of that. I think PayPal has done a little bit, but it feels like there's the incentive of the industry to try and use their own spending power, their own corporate treasuries, to drive adoption of this technology with companies who want to sell to them, and we'll see what they do beyond this watershed moment of making history just for every stablecoin.
Speaker 1 47:27
Apparently, that was a big takeaway for me is like it's it's a watershed moment, sure, but it's also a moment that represents how many people worked on this deal, 200 people in Wall Street who do these kinds of deals regularly demystifying the process of using stable coins for important transactions, and now they're more likely to do it the next time. We'll figure out some of the problems, we'll solve those problems. We'll make better software that makes it easier to do transactions like this. And so it's that kind of slow march towards better UX and habit changing that is actually what I'm most excited about. From the bullish the bullish news.
Sy Taylor 48:02
Great stuff, guys. Well, listen. I want to thank you so much for joining me. I want to thank everybody for listening and watching and remind them all to subscribe like click all of the buttons in whatever application you're using. Please. It really does help others find the show. Where can people find out more about you, Sam and what you're up to, I
Speaker 1 48:21
am at Sam Broner or Sam broner.com everywhere. And you can also find me on the A 16 Z crypto website. Would love for you to follow and read what I'm writing,
Sy Taylor 48:30
everything. Tai visa.com/crypto
Cuy Sheffield 48:34
and on x at Kaisha field.
Sy Taylor 48:36
Find me at FinTech brain food.com at sy Taylor on LinkedIn or on x, and you'll find me in San Francisco for the next week if you're around. Thank you so much for listening watching. Please do hit those Subscribe buttons and we'll see you soon.