On Ep. 13 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Austin Campbell, MD @ Zero Knowledge Consulting and Ed Woodford, CEO @ Zero Hash to discuss Circle partnering with Binance for USDC, credibility optics, market narrative shifts and thoughts on PSPs.
On Ep. 13 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Austin Campbell, MD @ Zero Knowledge Consulting and Ed Woodford, CEO @ Zero Hash to discuss Circle partnering with Binance for USDC, credibility optics, market narrative shifts and thoughts on PSPs.
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Unknown Speaker 00:00
Simon,
Sy Taylor 00:10
welcome to tokenize. My name is Simon Taylor, and I am your host of the tokenize podcast, author at FinTech brain food, and head of strategy at sardine, and joining me is my coast, my friend Kai Sheffield, head of crypto at visa, Kai, how you doing this week? My friend?
Cuy Sheffield 00:29
I am fantastic. It's an exciting time. A lot going on, and we've got amazing guests excited to get into the
Sy Taylor 00:35
show. We have incredible guests joining us. Is Austin Campbell, who is MD of zero knowledge consulting. Austin, how are you, sir, I'm doing quite well. Glad to hear it. You're not de podcasted, that's for sure. Also joining us on today's episode is Ed Woodford, who is the CEO of zero hash. How you doing? Ed,
Ed Woodford 00:59
yeah, good. Good so you're joining you from a very chilly, chilly Chicago. Well,
Sy Taylor 01:05
hopefully we can warm you up a little bit with this today's show, and the first story is definitely a good warm up circle. Have partnered with binance for USDC. They are bringing it to the binance platform, and it's 240 million users globally. Circle will provide binance with a range of technology, liquidity and other tools. And there's a great quote from the USDC circles CEO Jeremy aller, saying, as binance itself becomes one of the most widely regulated global exchanges, and continues to invest in robust compliance and risk management infrastructure. The marriage of the largest and fastest growing compliant stablecoin with their global platform marks a major material shift in the emerging market structure as we enter 2025 often this business language can give a lot away Austin. What are your thoughts on on this partnership and what it signals for the industry?
Austin Campbell 02:08
So for one, I'm not particularly surprised by it from finances point of view. I think one of the lessons learned from busd is that when you put your name on a product, it really inhibits adoption by other people. And I think post that experiment, binance has taken a very call it, multi pronged view on the stable Coin World. I think they understand themselves to be a platform with huge scale, and they want to work with anybody who can bring users. So to that extent, I honestly look at the USDC partnership as a way for them to have good liquidity in and out of the United States in particular, which is where they are weakest right now. And so it seems to make sense for both sides, right? USDC here serves as a transit layer. That's where they're going to do well, binance gets greater access to call it downstream US banking without doing it themselves. I
Cuy Sheffield 03:03
think that's a really interesting partnership. And I actually didn't really see it coming. I was a bit surprised. One. I think it has the potential to grow USDC supply significantly. I think back to in the days of finance, USD, the Paxos issued stablecoin, I think that got to 20 billion or so in circulation. So if you say nobody else really used to be USD outside binance. And so just the power of binance, now, sure that was 2021, or 2020 they were able to drive $20 billion in stable coin volume, or stable coin supply. That's a big deal. And so you could add 10 to $20 billion to USDC. Like, that's a really interesting opportunity. I'm also fascinated by binance history with stable coins. As kind of Austin mentioned, they've done a lot with usdt. Usdt on Tron has played a major role some of the binance P to P markets after busd, my understanding is they were using a stable coin called FD, USD, or there was one out of Hong Kong that was a smaller one that grew very quickly. And so what does it mean now that they embrace USDC? Does it become the default stable coin? It sounds like they're gonna be using it for Treasury operations, which that could be a fair amount of volume. And I guess the last piece was when they had busd. My understanding is they had this interesting approach where you could deposit any stable coin into binance, and they would auto convert into busd, and you could withdraw and they would auto convert back out. So they've really innovated and done some really interesting things to drive stable coin adoption of whatever their preferred stable coin is. How much do they take some of that same approach and strategy and apply it to USDC now and then. What impact does that have on usdcs overall volume? I think that's what will be really interesting to watch
Ed Woodford 04:48
for. Yeah. I mean, I think firstly, something that Austin and I have discussed, that learned from the past, is not all stables are born equal. So it's interesting to see how this plays out, and you've got multiple stables on one platform. My personal views, exchanges should be agnostic across stable coins, but given the fact that they are not equal, it would be interesting to see if they, for example, roll out USDC pairs versus us t pairs. How does the market price those things differently? Which I think will be fascinating. I think what it really does, what really excites me about the partnership is more the sense of you're getting a major stable coin distributed into hundreds of millions of different users, and that's what I think is fundamentally exciting about this partnership, is the distribution it gives. People often ask, what's the inhibitor for stable coin adoption? And I personally think it's the distribution of stable coins where people already have money, or where they already open up an account, or already have an account, or where they interact every single day. And over the last 18 months, you've seen Revolut new bank, and then you now see finance enabling this asset. It has opened up the ability to access a stable coin instantaneously. And then you can use that for so many different things, whether it be pay payouts, funding mechanisms across different exchanges. So for me, that's what's exciting, is what it does from a distribution infrastructure perspective in the same way that we required the iPhone before we had the App Store. For me, I view this as like the distribution of the iPhone or distribution of stables into hundreds of millions of places more natively, and then we can start to build up more application on the stable coin layer. That's what excites me about this partnership.
Sy Taylor 06:17
There's so much in there isn't there to kind of unpack the distribution side, if that's what USDC is getting. I almost saw in Jeremy Allers comments coming the other way around. What binance is getting is another feather in the cap of credibility. They have certainly been walking towards the light since their CEO did a brief trip with law enforcement into jail and the Richard Teng, who's the existing CEO of binance, is, of course, the former head of the Monetary Authority of Singapore. This is an organization with the most licenses of any crypto exchanges around the world and two 40 million customers. They kind of almost swing back the other way and becoming highly regulated. So the credibility side of it, where do you think this ranks, from a credibility optics standpoint, Austin, and what do you think about some of the Treasury implications it's alluded to that USDC will be used for Treasury by binance. I think that Tai mentioned. I'd love your thoughts on that.
Austin Campbell 07:19
Yeah. So from a credibility standpoint, I'll be honest and say I think it's largely neutral to binance. From a global perspective, I think it's probably positive in the United States in particular. One of the things I think it's easy to lose sight of in the US is if you go travel other places where stable coins are used, and you ask them what they prefer, they say, tether. And then you ask, Well, why do you prefer tether? And they say, Well, it's been around the longest, and it's not in the US, so the US government's not going to break it or steal it. And so one of the things that I would urge people to understand is that binance is operating environment. Is not the operating environment you expect if you are a two legged human in the United States or really even in Europe, they are playing a different game here. And so credibility wise, net positive in the US, neutral to in some cases, maybe even slightly negative elsewhere, which is an interesting little twist on stable coins from a treasury perspective. This relates to something Ed was saying, I think we're moving towards a world where exchanges are going to have to stop explicitly listing pairs of stable coin versus like, call it Bitcoin or versus Ethereum, because you're just at some point gonna have too many stable coins, right? Like, I can't have a USD G and then the bit go stable coin and USD T and circle and FD, USD, all fragmenting my liquidity on Bitcoin, I think it's likely you're going to end up in a world where exchanges manage their treasury and start aggregating all of these things into just USD when you're trading them, and it's really just a basket of all the things they're Managing in their treasury, and then different people can withdraw into them with different degrees of preference. And honestly, as you talk about finances, Treasury operations, knowing what their thoughts were around auto conversion and understanding the liquidity dance there, that is ultimately where I expect this might go, because I know they don't like having a critical Reliance solely on tether either. And by the way, this is not unique to binance. If you look at some of the projects that have been launching, like, say, perenna, right on Solana, you see people starting to get this idea of we can't have like, 15 different stable coins, all requiring individual pairs. Yeah,
Sy Taylor 09:35
the competition between stable coins is fascinating to watch. Ed, the reality of banking is that we got used to calling it $1 regardless of the credit risk, regardless of the features attached. Is that where we're headed, or is the sort of the usdt, USDC label going to stick around for a while yet to come? I
Ed Woodford 09:55
agree with Austin sense of that the dream customer experience is a unified dollar. Balance across different stables. And that also from a fragmentation perspective, from a liquidity perspective, is also super important, right? If you can aggregate different books across USDC, usdt and ultimate USD, that's better for customers. There is, of course, a credit risk exposure that you are taking. So if you have usdt, that is a different credit exposure to, for example, USDC, and then we've seen the proliferation of RL, USD, PY USD, and then you've got offshore places as well. So I think if exchanges do that, the critical piece is how they manage their credit risk with these different counterparties, and being able to absorb those losses otherwise effectively. If there is, for example, we always forget. It's less than two years that there was effectively a deep egg with USDC that could effectively create a run on the exchange as well. So the danger of a unified USD balance without the proper credit controls that can be absorbed by an exchange and transparency in how this is done, I think, is critically important, there's still a lot that needs to happen in order to reduce the credit aspect. It's going to be speed of redemption and effectively minting of stable coins. That is still an inherent blocker. So you're going to have to take more credit risk over weekends and holidays, where you can't do that also in order to actually mint and burn 24/7, right now, there's a very few banks where you can do that. So for example, if we look at USDC, I think there's one or two banks maximum where you as a exchange or partner have to be on that bank as well in order to be able to receive the dollars. And that is ultimately how you limit credit risk is your basically, you get a threshold, and you say, I'm willing to accept $500 million of USDC exposure, and at that point, I'll then liquidate into dollars. I would be surprised if whatever binance entity is also on the banks at which circle was on for the 24/7 min redemption aspect. So you can see that the question is almost like a question squared or the power of three over the power of four, as you get more stable coins, and as you try to aggregate. And so I actually think that exchanges will start to limit the number of stables that they support, because the complexity of single dollar balance, it will be significant.
Cuy Sheffield 12:15
I completely agree that it seems like the direction of travel that this would be most likely to go is that it's just going to be too complicated to manage inventory of many different types of stable coins on your platform with different credit risk, and you've got different economic relationships, commercial whether or not you're earning interest income on them or not. And so if I had to guess like I have no idea how it heads up, but it seems the most logical approach is every major exchange, wallet payment platform you could have, if you're going to hold a balance, you could have a preferred stable coin that you use for holding a balance, that you deeply understand the credit risk on, and that you likely Have some commercial arrangement where you're earning some split of interest income on that, and then whether you do it yourself, or you outsource it to somebody else who's a clearinghouse, and whether it's a bridge or zero hash or someone like that, to provide that role where you let anyone send or receive any stable coin into you, but you have it auto converted into Your stable coin of choice. And so that's what kind of binance started doing a while ago. Because you don't want to just say, I only support one stable coin, and if someone has another stable coin that they want to deposit into me, Well, tough luck. I don't support that. And so having that best of both worlds of you have a stable coin that you understand the credit risk on, you make interest income with, but then you still have the ability the Clearinghouse, the service, to be able to accept any stable coin that auto converts into the one that you want to hold. That seems like the easiest way to approach it, but curious how you think about that,
Austin Campbell 13:53
all right. Um, so I'll say a couple of things there. One, I agree the credit risk is one of the key things to understand with stable coins. And I think, being honest, most, not all, most of the current stable coin designs, we'll get to the NY DFS later, but maybe other than them, have significant credit risk, not just for the reserve assets, but also for the corporate structuring, which is something that people often forgive in terms of like, what happens when things go bad, and whose money belongs to whom is a big question. Number two, I'm skeptical that people will use a single stable coin, because one of the things we've learned from circles near death experience with SVB is you don't want a single critical point of dependency, and also Kai to your point, I think if people do do that, you start asking the question of, Do I really need the stable coin, or should my treasury reserve be in something like black rocks, tokenized money market fund? And I'll just go direct to the source and have somebody who manages trillions of dollars and massive amounts of liquidity manage my. Reserves. And so it's fun to me watching stable coins hit this point, because I used to run stable value products at JP Morgan. And the questions that are starting to be asked are all of the ones that we grappled with for many, many decades in traditional finance, right? Like none of the finance part of this is new. It's just using a different ledger. And if you believe that market evolved the way it did for a reason, you probably are going to see people with diversified relatively simplistic funds and then liquidity solutions layered on top of those in order to manage this problem.
Sy Taylor 15:33
Yep. What Austin said? I've often observed that first principles of finance are being rebuilt in a different technology, but the first principles are kind of, they're almost emergent properties of liquidity risk and settlement risk. And what you do by making a 24/7 transparent ledger is you move everything to real time, and you sort of create a new set of risks when everything goes real time, if you're going that way, because you can have run situations, run on the exchange, run on the bank, really, really quickly. So why wouldn't you want treasuries? And then, what's the safety and soundness of any intermediary, if that is a stable coin issuer, how do I know that the treasuries are being held? What's the audit trail for those underlying treasuries? Wouldn't I just want to trade in and out of those real world assets directly, which you're starting to see more directly now with the launch of those funds. So I'm going to move us to the next story, because you sort of alluded to it, but I thought it was well timed, because there is a different structure emerging, and this is with ripple, who have secured a NY DFS, so a New York Department of Financial Services approval for their stable coin, the RL USD, they are, according to Brad Garlinghouse, aiming for a $2 trillion market cap by 2028 and he also said exchange and partner listings for stable coins would be live soon. So they're backing this with USD deposits, short term US Treasury bonds and other cash equivalents. So Austin, brand me out on the corporate structuring piece here that you were sort of alluding to,
Austin Campbell 17:19
yeah. Yeah. So as somebody who has a lot of experience with the NY DFS, and by the way, let me start with this. If you were a global regulator or stable coin issuer listening to this podcast, go look at the NY DFS framework for stable coin issuance. It's probably the best in the world from a safety and sadness perspective. So what New York does is it requires the stable coin issuer to have what's called a limited purpose Trust Company, and that the tokens are held for the benefit of the token holders. Bankruptcy remote so like if you owned USDP or busd When I was managing the reserves at Paxos, and you looked under the hood, those accounts are titled for benefit of token holders. That's not Paxos money. We can't do whatever we want, but that if Paxos goes bankrupt, the creditors don't get it. That money goes back to the token holders, and that's a very important structure, because what it does is insulates the holders of the token from the dumb stuff that a company might do on its own. So if Paxos goes and makes a bunch of bad investments, or hires terrible people, or is just, quite frankly, awful at being a company. You don't lose your money because Paxos goes down. Not many things are structured like that, and that degree of safety is remarkable. The other part for the nydfs, Simon, alluding to what you just said, is they have relatively strict guidelines around what you can hold in a reserve, which is basically bank deposits, and they don't love those. So you can't hold all of it in bank deposits because of the credit risk T bills and the other cash equivalents in NY DFS terms are forms of very short term collateralized lending called repo and reverse repo agreements, which I would tell you, as a former fixed income guy, we're not going to get into the deep retails of the repo market, but they are as safe or safer than T bills, when the collateral use for those is US government securities,
Sy Taylor 19:13
completely makes sense. Kai,
Cuy Sheffield 19:14
yeah. So one of the interesting things about the my DFS framework, as I understand it, and correct me if I'm wrong, but my understanding is they've gone as far to require some approval around which blockchain the stable coin is issued on. And so today, the Paxos stable coins, I believe, are only live on Ethereum and Solana. And it's not necessarily just because Paxos only wants Ethereum and Solana, it's there's a process that the NY DFS looks at a chain and decides, and I'm not sure what actually goes into that decision of whether or not you could issue on a chain. And so bring that back to this news with ripple. What wasn't clear from the announcement is, if RL USD is being approved, does that also mean that you. It's being approved to be issued on XRP ledger, which would be a new chain, or is RL USD approved, but it's going to be issued on Ethereum? Yeah, they've mentioned that they've been testing it on XRP ledger and Ethereum. So it is interesting to think about, is ripple stablecoin going to be multi chain, similar to how pretty much every other stablecoin Today is, or is this actually like, Is my DFS adding a third chain that is now available, and if a third chain is now available, does that mean USDC could be issued on XRP ledger, or, like, you know, any other stable coins issued on XRP ledger? So I think ripples in this interesting role where there's both ripple, the company, RL, USC, the stable coin, and then there's XRP ledger as the chain, and how those interact with each other. And within the My DFS framework, I think that's going to be the interesting thing to watch, right? I don't know if anyone has any context on that from the announcement. Ed, so zero Ash is
Ed Woodford 20:53
a regulated, bit licensed entity. We have two entities are regulated by the DFS, and I think there's an importance for listeners to differentiate between issuance and effectively the support by bit licensed entities. So specifically, rousd will be issued by a NY DFS Trust, which is different. Ultimately, to circle zero, hash supports USDC, and we support it in multiple chains. We are able to support it on a subset of chains in New York because they do view it as there is an approval of the underlying asset and the underlying chain. And so zero hash is pretty unique. There's, I think, 15 different USDC chains we support now about nine of them in New York. That is not all of them, and there is a reason for that. There's an education process. There's a whole process to go through. And right now, DFS effectively changed the way that they did this. Previously, they green listed assets and chains that has now been fundamentally changed. So there's lots of changes in how DFS is viewing this, but I think what DFS was trying to control for was effectively, when you prove an asset, whether it be RL USD, you don't automatically approve every single chain, because otherwise you're going to get a very quick proliferation. And I know Austin will be able to share more on the issuance side, but purely from the transaction side, where zero hash plays, there is definitely a difference and a nuance between the asset and the
Austin Campbell 22:19
chain. Yeah, I would say, I think there's been some regret at the DFS about how they've done that in terms of approving the asset and then approving chains. It was a large part of what led to the demise of the USD. And then I think the DFS found, after that for a while, that the answer was just nobody was interested in issuing their PayPal had already been in the pipeline. But there were several other discussions where people said, well, listen, new chains, come quickly. I need to be able to get approved. Can you give me, like, a couple of weeks of a turnaround? And they were like, Absolutely not. And so the answer was, cool, we'll go elsewhere, which I think was not what they were expecting. This is the classic example of regulation lagging technology, and I think the DFS is moving to a model, at least in my understanding, talking with them, where they might allow you to have a chain listing process and approve that, and so long as you follow it, you're going to have significantly more flexibility, because it's a commercial problem to take three years to issue on Solana, by the way, Kai is a point of reference. There are three chains currently with the DFS GMO stable coins are on Stellar. So there are three of them currently existing, just to factually say that, so the GMO guys don't throw rocks at me, but I would say I think the DFS probably is going to loosen up on some of those things. My understanding is the ripple stable coin is approved for multiple chains, including the XRP ledger.
Sy Taylor 23:41
Fascinating. I'm also interested in that change of mood at the DFS, they've had a superintendent, Adrien Harris, since late 2021 who has a FinTech background and has been typically more open minded, but still rigorous when it comes to compliance policies. And perhaps we're starting to see that change of some of the traditional stuff, but you are also dealing with the world's largest capital market and financial center, so you have to have the highest of high water marks when you're operating the space. The other question I wanted to ask is, is ripples redemption arc nearly complete here? Because it felt to me like for a while they were the heel, and they've turned baby face, like there was definitely the whole XRP army. It felt like tradfi didn't like them. It felt like a lot of the rest of crypto didn't like them, and now it's kind of very much the other way around. You don't have to pick between being a fan and not a fan. You can be in good shape either way. Did they do something with the SEC and get to a point where they held the line? Did they do something else? So I'm interested in your views, guys, ripple
Cuy Sheffield 24:48
is a fascinating story that just kind of continues to evolve in a number of different ways. I think the first interesting question is, you could give ripple. A lot of credit for the idea of the crypto sandwich, which preceded the stable coin sandwich. And you could say even, like 10 years ago, like the core early vision of ripple was all right, like, let's create a new cross border payment platform, system that you can start in Fiat in one country, you can use a crypto exchange to buy an asset. You could send that asset over a fast, cheap blockchain. You can convert back into another fiat currency. And so they were really the first, from my understanding, to really push and start to experiment with these type of crypto sandwich approaches. And yes, I think that there were a few companies that tried to do it with Bitcoin, but Bitcoin was too slow and expensive at the time to make that really work, so I think they get a lot of credit for that. I think that that model with XRP as this bridge currency in between, there were a number of challenges, particularly with regulated financial institutions and fintechs and payment companies that were not crypto native, that were saying, wait a minute, we wait a minute, we like the idea of a crypto sandwich, stable crane sandwich, like bottle. But what is XRP? And we're converting into XRP, and it's this kind of volatile currency, and do we really want it to be a bridge currency? And what's ripples role with XRP? And so I think that there's been and then you got the XRP market that's trading with the XRP army, talking about the price point. So it was almost confusing to many payments companies to just try and grapple with what is XRP, and how to think about XRP. And then, I think in the meantime, as stablecoins emerged, and particularly stablecoins running on fast, cheap blockchains, that almost became a more simple, straightforward way to execute on ripples. Initial vision to say, Okay, let's, let's do a stable coin sandwich instead of a crypto sandwich. Let's convert from Fiat into a stable coin, send it cross border through an exchange, and then let's convert back to fiat. And you're using dollars as a bridge currency, or a representation of dollars, instead of using a volatile crypto asset that people weren't really that familiar with and didn't know how to deal with and so you could argue that stable coins really scaled the vision that ripple initially had for that sandwich like model. And on one hand, you could say, Okay, well, what's the point of XRP? Is there any reason to have XRP? If you could have a stable coin, wouldn't you rather use dollars? And I think that's been the approach that some folks have taken in the space. But now to have ripple say, wait a minute, we're going to create our own stable coin. And so we're now embracing and adopting that approach of the stable coin sandwich. But then what's XRP? Well, XRP is a blockchain. Now it's like XRP ledger is a fast, cheap blockchain. And so I think the big question for the group is, like, is the vision of XRP itself, moving from being a bridge currency to just being gas on a blockchain. And XRP ledger will be like Solana, or like any other blockchain. And so use XRP to pay the fees, but you don't need to trade in and out of XRP if you just want to be able to move funds cross border. And so is that the direction that they're going, and how do you all think about that?
Ed Woodford 28:03
On the ripple front, I think obviously, has been a challenging few years in the US. I think actually zero hash was the only platform to not delist XRP, so we were one of the last to list it, I think in 2020, 2021, but we haven't changed our policy on ripple as an underlying token or assets, which we're particularly proud of, and I think that's been recognized more broadly, I think in terms of the question around infrastructure of ripple, I think what XRP has done a good job of is that there's distribution of the technology stack, and they've certainly built up strong liquidity pools that potentially in some geographies or some channels of FX are stronger than The USD equivalent. So I think that's what's often missed, is yes, Blockchain, whether it be Solana or XRP or whatever they are, a network of networks, but you need that last mile, and you need the liquidity in that last mile. And so for example, circle has done that with BTG patois in Brazil, where they can accept USDC as a mechanism for doing the last mile FX in Brazil. I think what is unique around whether it be, for example, XRP, they built up liquidity pools with ripple in places like the Philippines and other places which potentially have a strong liquidity pool. My view is that we should be agnostic. What the client cares about is going from one currency to another, and that's kind of our view. And so we have a number of remittance platforms. For example, Felix. Parago leverages stable coins. We also power uma.me which is the light spark folks, David Marcus and CO, and they use Bitcoin on lightning at the end of the day. My view was that the customer wins when what is the intermediary doesn't really matter. And so if the best liquidity at a certain level goes through staples, and then you can get the next best price through Bitcoin on lightning and the next amount. Next amount on XRP, the customer shouldn't really care. So I think we abstract away the complexity. And I think this is more conversation about building out the last mile liquidity pools. And in some places, certainly a USD equivalent is better. Some places, potentially, they built up a great pool with XRP. This is where we I think we. Separate the XRP army is different to the actual use case. The XRP army, so to speak, has actually built out really interesting liquidity pools around the world, and that actually has a lot of benefit for the customer. And so I think it's about aggregating whatever that intermediary step or whatever chain, and ultimately a remittance use case going from one currency to another. Yeah.
Austin Campbell 30:19
So for myself, Simon, to go back to your original question on do I think ripple has completed some sort of transformation in their position in this market, in terms of call it viewpoints and heal versus not? I used to work at a bank that was founded in 1871 so my take on this is it's still surprisingly early in financial terms. To make that determination, you are going to cycle from being the hero to the villain, to the hero to the villain to the hero to the villain, over and over and over and over. And that is the nature of a financial services business like money and finance are very emotionally charged things for people. And so you can expect that cycle to continue to spin as long as humans are humans. Now, on the commercial question, I would say since the introduction of dollar stable coins, we've seen evolving consumer behavior towards a dis preference for using volatile crypto assets for payments, and more and more movement into US dollar stable coins to that extent, I think what ripple is doing is a logical carry on right as Ed was saying, it's possible that XRP serves somewhere between being like, call it the gas token, or fundamentally just ledger technology or a source of independent value, or, quite frankly, kind of both. If you look at things in the world, like oil, definitely serves that purpose. Then I would also remind everybody it's super early in financial technology terms to figure out what sorts of ledgers are going to win and what the preferences of those ledgers are like. As a tradfi person, I look at the majority of current blockchains and I say, Wow, okay, there's some really nice features that some of these things have, but there are some very confusing features that some of these things have as I think about specific financial use cases, because this relates to what Ed was saying about how you build out last mile transaction preferences are certainly not monolithic. I don't need the same amount of security to buy a $5 coffee versus clear a $500 billion repo trade. But on the other hand, the price sensitivity of the coffee may be way higher, because a $50 fee for the $5 coffee is completely unworkable. And so to me, I think it's just still very early in this entire ecosystem. And I'm in favor of everybody ripple included experimenting to see what works. The
Sy Taylor 32:40
likelihood of one chain to rule them all is somewhat limited, despite some of the loudest advocates and the maximalist thing seems to be kind of going the other way around, which is like, actually, where we're aggregating and we're finding solutions like zero hash and many others, bridge and you name them, to start to come around this and relearn some of those key lessons. And one of my key lessons is I always need to remember to thank our sponsors, so I'm going to do that just now, and we'll be back in just a moment. This episode, if it's not obvious, is brought to you by our friends at visa, a global leader in payments. Visa's tokenized assets platform vtap, uses smart contracts and cryptography to help banks bring fiat currencies on chain. Vtap allows financial institutions to issue Fiat backed tokens, improving financial efficiency and enabling programmable finance. You can check out the links in this episode's description to express your interest in vtap. This podcast is also supported by our friends at digital asset, the creators of the Canton network. Canton is unlocking the utility and liquidity of institutional grade real world assets with over $3.6 trillion of assets issued or processed on the network today, think of it like defi transactions, but with the privacy and control institutions need digital asset solutions. Make it easy to tokenize, use or invest in digital assets on the network, create connected applications or simply get started with a validator node. Visit Canton, dot, network, forward, slash, connect to get started. All right, thank you to our sponsors. And the next story is, well, we don't normally talk about price on this show, but since Bitcoin did hit $100,000 it feels only right. We mentioned some of the market narratives shifting, and the thing that caught my eye was recent comments by the Chairman of the Federal Reserve, Jerome Powell, saying that Bitcoin is a little bit like gold, only. It's digital. It's not a competitor to the US dollar. It's more for. Old and Austin. How different is this to what you might have heard 1218, months ago, two years ago? Do you think there's been a real vibe shift, and do you think that's sort of permeating
Austin Campbell 35:11
so one yes, Trump's election, the enduring nature of the support for crypto and I think the growing realization that this stuff is not going to go away after 2022 and in fact, came back even stronger in policy spaces, is causing people to have a pretty deep rethink about what's going on. I also think Powell's comments about Bitcoin as digital gold are quite illuminating coming from somebody in the central banking space, and that that is his way of telling people, I don't see this being adopted as money to pay for things on a regular basis, because when was the last time anybody here bought a sandwich with gold? But on the other hand, that is a statement that I think it is a store of value that may have some sort of place within the economy. And it's important to remember in the modern world, gold exists as a complementary asset within the global ecosystem. It is not the hard money, only money asset at this point. And so to me, that sounds like Powell starting to argue that, well, okay, Bitcoin may be a different in some ways, upgraded in some ways, downgraded in some ways, just different version of gold. And therefore we would expect it to stick around and importantly, be used by people as a savings vehicle, more than a payments vehicle.
Ed Woodford 36:35
We draw these distinctions between store value and payments, and I think these things don't have to be mutually exclusive, right? And so Bitcoin, being compared to gold, maintaining its value can make it a very, very effective mechanism for payment and the transfer of value. I do think what it does politically that is important, is when you spend time on the hill, I think that the conversation has started to move. But at one point it was bitcoin is trying to threaten the dollar. And I think it's an important statement from the Fed that effectively takes that argument, that rebuttal, off the cards. Now, there are other things that have to be explained and other things that, frankly, have to be addressed, but at least it takes that piece of the discussion point. I think that's why it's important.
Cuy Sheffield 37:23
I think in general, we don't talk a lot about prices on this podcast. And I kind of go to like, what does this mean for fintechs, for financial institutions, for payment companies? Like, why do you even care? What's the point of even following what the price is? And it kind of brings me back to some of the discussions that we had in 2021 on our previous podcast, in that sometimes volatility is a feature and not a bug from a consumer acquisition standpoint, and all prices are is a form of signal and marketing. And you now have a class of fintechs who have been crypto enabled for some time now, many of them from the last cycle that as prices start going up and as people start paying attention again, I bet many of them are seeing we've seen this directly. Apps are going up the App Store charts. They're acquiring more customers than they did before, at a cheaper cost, they're probably reactivating, re engaging, some customers, and so I think Bitcoin Now, the other side of that is that maybe bitcoin is less exciting now in 2024 than it was in 2021 because you've got all this, like Central Banks talking about it and institutional adoption. Maybe, maybe that's, I don't know. Maybe that's not what's moving the kids to be excited to rush to download an app. Maybe that's meme coins and kind of other things that are happening. But I think that as these assets grow, the overall net worth in purchasing power of a significant number of customers grow, and their usage and adoption of the platforms that enable them to have access to these assets grows. And I think all those things are really important, and we haven't really had that in FinTech before, in the same way, in my mind, of like you could have these macro trends where people want access to an asset, and now you acquire 100,000 customers really quickly because they want access to an asset like curious. Your perspective, Simon, I'm like, just think about it, purely from a customer acquisition standpoint, what do crypto prices mean for fintechs or for the platforms that they have auxiliary businesses as well. It's not like they're only selling crypto, but having whether it's Cash App or Paypal or others that have crypto as some component of the business.
Sy Taylor 39:48
Well, Cash App and I think Revolut both tipped into profit as businesses around the same time as the 2021 ball run. So it definitely had a. Customer adoption benefit, but also in order for businesses of that scale to get there, they had to break some ground on the compliance side, because they were bundled in with being lots of other things that are consumer facing. So it doesn't necessarily reduce your cost of acquisition if you've got to hire a load of new compliance people to solve a lot of new AML risks that suddenly appear, and compliance risks that appear. There's a lot of hidden costs that are not on the like, hey, everybody wants this, but Oh, who are they and what do they want it? But I do think that if I zoom out even further, what's actually happening in FinTech and financial services is we've moved away from the bank did everything for me and a big bank would try and be my brokerage. It would try and be my credit card. It would try and do my mortgage. It would be my checking and all of that sort of stuff. To a world in which FinTech apps are now re bundling that, because the first thing we did was unbundle it. You had the FinTech debit card, and then you had the Trading App with Robin Hood, and then you had the peer to peer Money App, and then you had all of these individual apps. But if you look at what Robinhood is today, they're re bundling everything from yes crypto to prediction markets to your credit card to your savings and your retirement, and it fundamentally looks so different to what it did even three, four years ago, these businesses are much bigger, but they're much more profitable as a result of re bundling. So yes, crypto was a wedge, I think in 2021 now it's something that you just are expected to have for a generation of people who've grown up with this asset. Let's not forget when Austin and I were working in banks in the mid 2010s then we were seeing Bitcoin come along, and we were the crazy people inside going, hey, there might be something here, and we should pay attention to this. And not everything makes sense, but something really does. Now, the Overton window has really shifted on that, and I think the Overton window has shifted on re aggregating around a consumer who has had crypto for four or five years now, and probably lost out when the crypto crash happened, but now suddenly it's part of their portfolio and it's part of institutions portfolio. So it's changing across the stack. So I think it's moved from being a customer acquisition wedge to part of your portfolio and part of the things you have to offer to be better, faster, cheaper and more transparent. So long may that continue final thoughts on market narratives from anybody, and then I gotta coz it out with our last story. Yeah,
Austin Campbell 42:31
so I will say one of the things that people in finance are prone to doing is treating everything like numbers and rational economic discourse. But the reality is, most people still engage with money, especially in the normal world, on something emotional basis. So the most important part about Bitcoin hitting 100k to me, to bring it all the way back around on why price really matters, is just the marker of hitting a round number at that scale gets people's attention right. And that is just a factual statement about round number bias in general. So one thing you should be expecting going forward, because you know, if Tesla hits 1000 you would get similar news stories, is just the round number bias creates media, which creates eyeballs, which creates opportunity, and that will echo on for the next six months
Sy Taylor 43:20
indeed, it's certainly a mainstream attention grabber, that's for sure, and this probably says more about human psychology than anything else. So the last story this week came from newveh, who the large payments processor, who have launched their comprehensive blockchain payment solution. So this payments business is launching a solution for merchants across LATAM. They've partnered with rain, bit go and somebody called visa. I've heard of those guys to enable businesses to use stable coins, including USDC, for faster global settlement and reduce reliance on traditional payment rail. So I think I know a guy who might know a little bit about this. So Kai, what's going on with this one? This is
Cuy Sheffield 44:06
a really interesting product opportunity, and we've been working with nuvey for a while. They're one of the more forward thinking PSPs acquires around stablecoins. And so going back, I think it's been over a year, we started settling some of our volume with them in USDC. So as an acquirer, what we do with Visa? We settle with acquirers. Acquirers get to choose which currency they want to receive settlement positions in nuvey said, for some of our merchants, we want to receive USDC. We said, Great. All right, so we now settle with newveh in USDC, nuvei is now looking at, how do you create card Products In A, B to B sense for their merchants. And so if a merchant has accepted card volume now they've got the settlement position that gets paid to them, how do they then spend that value back? Work on. Think about it as a corporate card. So we think that there's a huge opportunity for this to work really end to end in USDC. You can imagine that someone goes and spends at a merchant, particularly a merchant in Latin America, with a Visa card. Nuvei gets settled in USDC from visa. Nuvey now is holding USDC on behalf of a merchant, nuvey could then provide a card to that merchant to give them the ability to spend the USDC that they just received through that payment volume. And so rain is another provider who really interesting platform that's enabling and bringing to market card products across Latin America and some other markets that is very stablecoin native and uses stable coins across their stack. So I'm just excited to see how these pieces start to come together as stable coins just become a new way to move value underneath existing payment systems like Visa and so I think this kind of closes the loop of, if you're settling in USDC to an acquire and they make that available to a merchant. What does the merchant do with that? USDC? Well, now they could spend it back on a card. And so we've had USDC connected, or stable coin connected consumer cards. We're now seeing a bunch of demand and interest for stable coin linked corporate cards, and we think that businesses, particularly in emerging markets, being able to have a treasury balance in a stable coin, but spend it at merchants to pay an AWS bill, that that's a big deal. And so we expect to see more and more of these types of products going live. And I think there's a huge opportunity in
Sy Taylor 46:30
that space, getting into B to B. Add to Your thoughts on this one, in terms of the payment space
Ed Woodford 46:35
for PSVs or acquirers, obviously, zero hash power is a bunch of them, whether it be stripe simplex by nouveau shift four. So where we see a lot of interest is around a bunch of different applications, whether it be as Kai said, for example, around pay. I think one that's really interesting, for example, is payouts. So this may be cross border content creators, so that is using stable coins as a payout mechanism that we're launched with a number of these partners. Then there's also the concept of spend, which chi outlined, which is effectively spending USDC and the merchant receiving dollars, and then effectively, I think, then there's obviously the merchant settlement in and out. And I think those are the areas where PSPs and acquirers are spending their time. And I think it's going to differ on geographies or different applications. For me, the one that really excites me is payouts, just given the demand from content creators serving the long tail of geographies, the ability to pay people immediately and quickly, and that does mean that the recipient is doing the last mile themselves, I think that's incredibly exciting. And doesn't actually get enough coverage more generally in terms of where PSPs inquires are spending time they're
Sy Taylor 47:43
going after the new volume and the new flows. And I think there's a lot of folks that I know in the payments industry who sort of are like, Oh no, this stable coins thing, it's all hype. But whenever I speak to people in the PSPS, they're like, no, no. If you think about where our business is growing, it's growing in these new payments flows, and it's growing in the merchants in the Global South. It's growing in the beneficiaries in the Global South, the recipients. And a lot of that is around the Creator economy. I just came from the Middle East, where the Creator economy is massive. If it's very hot outside, a lot of people play video games, stream things. It's one of the major cultural activities now of the digital age and content creation in that part of the world is absolutely massive. So I think sometimes we are blind to the world we don't exist in. Uh, especially in this industry. Austin, your thoughts on PSPs, specifically, if you have any
Austin Campbell 48:36
Yeah. So it's interesting to see this trend towards stable coins, because it works call it directly against the bundling that you were previously referencing with other forms of financial services. Because one of the reasons for the usage of stable coins, as Kai was alluding to, when you're thinking of like merchants and B to B payments, is it makes everything interoperable. Right now, if I am a business in Thailand and I'm paying a vendor in Finland, or if I'm paying a vendor in South Africa, or if I'm paying one in Japan, if we're all one hop away on a blockchain, I don't care, right? This greatly simplifies and allows for more efficient money movement, and also a point that I think New, a I think understands, but there are many others that do not as it makes all the PSP platforms interoperable when you're using a stablecoin on a blockchain that can move around right like now, I could essentially have, let's use USDC as this example, because we talked about it before. If I can pay with USDC through a debit card from either a self custodial wallet or maybe my Coinbase account, but I can also just send the USDC to a vendor if I don't want to use the visa rails, or I could move it to another platform and potentially spend it through a different vector. Now you've got an interoperable payment system that starts instead of increasing the fragmentation of all these tiny islands, unifying things, again, which goes back to the original sort of open access E. Dose of payments and having all the issuers able to interoperate. So to me, as I listen to that story, I'm more thinking one layer down or up, whichever way you want to put it, in terms of the overall market structure and what that does to payments. And I think people greatly underestimate how transformational it is when you can compose many of the payment solutions with each other.
Sy Taylor 50:20
I wrote a piece a few months ago. Why did stripe acquire bridge? And I think honestly, if you look at what they're being pushed to do, they're having to support multiple PSPs because they were the software layer above the payment stack. And then, of course, now they became a processor, but you reach a certain scale where you need to go multi PSP so if I'm Spotify, or if I'm Netflix or if I'm Instacart, I need to start supporting multiple markets. And with the best intent in the world, my PSP, whether it's a gym, whether it's stripe, whether it's new, they isn't going to be the best everywhere. It's just very hard to be that. So what do you do if you're a big merchant. Historically, you go multi PSP. You work with adjen and with stripe and with newveh, and that becomes complex very, very quickly. And if you're stripe, you still want to be the front door. You still want to be the dashboard. So you start aggregating and hiding and orchestrating some other PSPs behind the scenes. But wouldn't it be easier if there's this bridge between all the PSPS, like a stable coin, then I don't have to bother doing awkward partnerships with my competitors. I can just use this thing instead, which kind of gets me a lot of the way there, which I think Ed was kind of alluding to. So the payments market structure is going to be fascinating. Who knows? D Hawk's original vision may yet come alive under Kai Sheffield stable coin guidance. We live in hope chaudis will survive. So listen, that puts us up against time. Gentlemen, thank you so much for joining me. Ed, where can people find out more about you and zero hash and everything you're up to? Yeah,
Ed Woodford 51:57
absolutely. You can add me on LinkedIn, or I actually just got an x account. You guys were giving me FOMO, so it's just e underscore Woodford, which kind of brings me back to my Hotmail MSN days. Simon, you'll know what those are, but so yeah, e underscore Woodford, or zero hash, X on x as well.
Sy Taylor 52:15
Fantastic. And Austin, how about you? I
Austin Campbell 52:19
was gonna say the only reliable way to find me is on x. So it's at Campbell J Austin. There, if anybody wants to follow me and get grindingly long threads about the minutia of bank and crypto regulation,
Cuy Sheffield 52:31
highly recommend following Austin. Those threads are incredible. And can't believe Edward that it took you that long to get on and I guess we are saying x now. So I'm at Kai Sheffield on x and visa.com/crypto
Sy Taylor 52:46
it's still Twitter to me, damn it. I'm at sy Taylor. You can find me blogging at FinTech, brain food.com and please, please remember if you have enjoyed this show. And my God, these guests were incredible. Tell some friends about it and leave us a review. It really, really does help us out. So thank you very much. Remember, of course, none of what we said here is financial advice or business advice. This was for information purposes only, but if you enjoyed the show, please still tell people about it, and We will see you. We'll see you next time.