On Ep. 24 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Chris Harmse, Chief Business Officer and Co-Founder @ BVNK and Nabil Manji, SVP, Head of Fintech Growth and Financial Partnerships @ Worldpay to discuss Wyoming launching a stablecoin, the impact of the OCC’s new guidance, the future of stablecoins and more!
On Ep. 24 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Chris Harmse, Chief Business Officer and Co-Founder @ BVNK and Nabil Manji, SVP, Head of Fintech Growth and Financial Partnerships @ Worldpay to discuss Wyoming launching a stablecoin, the impact of the OCC’s new guidance, the future of stablecoins and more!
Timestamps:
This episode is brought to you by Visa
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Tokenized is also presented by Avalanche.
With Avalanche’s purpose-built Layer 1s, institutions can tailor digital asset strategies to their exact needs—while still tapping into the power of public blockchain innovation, developer communities, and seamless interoperability. Learn more at avax.network
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Music by Henry McLean
Chris Harmse 00:00
But I think it gets really interesting when you can put both fiat currencies or multiple fiat currencies on a blockchain with the right level of liquidity, where you move payments fully on chain, and can do on chain FX, and you can do kind of an execution through a Dex or something like that. So I think I'm excited to see if we head that direction. But today, you know, I'm seeing it super early days. And I guess my view for 2526 is still overwhelmingly dollar denominated.
Sy Taylor 00:35
Welcome to tokenized. The show focused on stable coins and the institutional adoption of tokenized real world assets. My name's Simon Taylor. I am your host for today, author at FinTech brain food and head of strategy at sardine. And joining me is my co host, my friend Kai Sheffield, head of crypto over at visa. Kai, how are you? What excited you this week?
Cuy Sheffield 00:58
I'm busy just trying to survive. I think we are at a very exciting time for the industry, but also a much more stressful time with the amount of interest and demand on this topic that we cover quite a bit on the show. It's a
Sy Taylor 01:13
high quality problem. If there's a weather vane for demand for stable coins, I think Mr. Kai Sheffield from trod fi especially is probably got a front row seat to that. What you didn't ask me Kai, but the thing that excited me is the fact that tokenized now has a newsletter. So if you go to tokenized pod.com forward slash newsletter, you can find it there. So go ahead and subscribe. That helps out a bunch joining kind myself today is Chris, I still don't know how to say your last name, Chris, Chief Business Officer and co founder of bvnk, our second only returning guest. So you're doing well here, Chris, how are you? I
Chris Harmse 01:55
am doing great. Simon. I mean, look, I'm truly honored to be back on for the second time because the the quality of the guests that you've had on in the last six months have been right up there. So really excited to be chatting with you guys today. Well,
Sy Taylor 02:07
speaking of quality guests, we have uh Nabil Manji, who's SVP and head of FinTech growth and financial partnerships at well paying Nabeel, how are you doing? Sir?
Nabil Manji 02:18
Yeah, I'm good. Thanks, Simon, thanks for having me excited to be here. Hopefully, uh, you guys are happy with me by the end of the podcast, so I can maybe be a returning guest too. So I guess that'll be my, uh, measuring stick.
Sy Taylor 02:30
It's, it's all to play for at this point, you know, just, just follow Chris's lead. I'm sure you'll be fine. Before we continue, I do need to remind our viewers and listeners that views and opinions of contributions are their own might not reflect the companies they're representing, so please don't take anything we say as tax, financial investment or legal advice. Do your own research. Be safe out there, folks. All right, first story this week from everywhere. The Wyoming State is gearing towards launching a stable coin. This will be the first Fiat backed token issued by a public entity in the United States. The Wyoming stable token W, y, s, t is currently being tested on multiple blockchains in collaboration with layer zero, which, if you want to know who layer zero is, we have their co founder, Brian, on just two episodes ago, so you can learn more about layer zero. This is a huge headline, but Chris, why would a state want to issue a stable coin, and how might something like this actually work? I
Chris Harmse 03:40
mean, I was quite surprised that the headlines be honest, and I first thought they're going to be giving state level tax discounts if you buy the local stable coin or something like that. No, all jokes aside, I think it's just this existing trend that we're seeing all around the industry where with that regulatory clarity through things like the genius bill and OCC allowing banks to hold stable coins on their balance sheets. It looks like the states want to get involved as well. So look, I think it's all part of the same theme. Clearly, regulation allows more innovation at in different pockets of the industry. And it was a little bit light for me on what exactly the use cases and they're going to do, so it felt a bit fluffy. But yeah, let's see. Maybe they are going to give state level tax discounts if you buy the stable coin.
Sy Taylor 04:24
Well, Kai, what are your thoughts here? And without getting into the speculation of what it could before, I'm curious as to the signaling and what you think this means for the broader industry about stable coins, I
Cuy Sheffield 04:36
think first, importantly recognize, like it's it's not out of nowhere for Wyoming. If any state were to do it, Wyoming would be the state, and it seems like they've taken a very pro crypto regulatory stance for a number of years now. And I know Caitlin long and others have done a lot of work really advocating for crypto and stable coins. I think it does speak to Chris' point of as there's regulatory clear. 30 for stable coins, and there's a pretty clear aspect of how to issue them. I think we're just going to see more and more of these issued, and there will be many different types of entities who try and issue them. And I think I've heard or seen in the past that there was a notion of using the interest income generated by the stable coin to fund certain initiatives in the state. I don't know if it was like the education system or other aspects, and so I think it's an interesting concept, like, is there a demand of a Wyoming consumer who says, You know what? Like, I want to support my state, and so I'm going to hold Wyoming stable coins, because the interest income is going to stay here at home and go right back to the state like it's I think we'll see a number of experiments, and it's hard to imagine that someone outside the United States would choose the Wyoming State stable coin over any other global stable coin that exists today. But I think we'll just see more more efforts around, how do you use the economics that stable coins generate to fund different elements and from the issuer? Yeah,
Sy Taylor 06:07
I wonder about the optics of moving from the what was a conversation around Central Bank digital currencies towards state level issuance of stable coins, and really the question of what's backing it and what's the technology of being bifurcated. The technology is typically something that looks and feels like a stable coin. The question of what's the credit risk and who's backing it is really what we're seeing a Cambrian explosion in at the moment, of kind of states and lots of different companies all sort of getting involved. Nabil, what are your thoughts on the regulatory clarity and the thoughts generally, of some of the use cases that you're seeing with stable coins, and where this may or may not fit within that? Yeah,
Nabil Manji 06:51
so I kind of love this story, because in some ways it's not new. Like Wyoming passed the legislation to, you know, develop a state stable coin, I think, in 2022 and then had the working group set up in 2023 and now 18 months later, give or take, they're kind of saying we're getting close to launch, and I think the timing is perfect. And I think to Kai's point, some of the use cases are around better funding of state programs, whether it's education or other. They've said that publicly. They also talk about how they're quite bullish on defi and other uses of, let's call it more highly regulated or more highly trusted stable coins, and they want to be at the forefront of that. So they kind of think, hey, if stable coins are going to be used in a big way for different financial services and products in the future, what better way to potentially be a winner in that ecosystem than having the backing and trust of a state government, which to your point, Simon in the intro, you know, they're the first kind of major public entity in the western world to issue something like this. So I think they're trying to angle for some of that winning, and if they can do well, that potentially is a windfall for the state. So I think it's really cool because of that element of there being a state actor backing the currency, or at least the framework around the currency. And it's been really interesting, I think, in the evolution of stable coins, you know, first we had tether, which didn't really have a nexus to a lot of the the Western or developed world. And then you had circle, which did, and then you've had major traditional financial institutions issue stable coins, and then now you have a Western government agency issuing stable coins. So we're kind of like on that curve of adoption and legitimacy, clarity, transparency, trust, whatever terms you want to use. To me, this is just like another stepping stone or another block on that journey, and a really nice validation, I think, of the
Sy Taylor 08:41
space, yeah, I think it's fascinating that the decentralized model of the US means you get this experimentation at different state levels, and you can kind of see what works before you roll it out at the federal level, and kind of take it from there. People forget, of course,
Nabil Manji 08:58
the actually one thing to add, just as an aside, this is a bit nerdy us stuff, but a lot of times in the US, if you buy municipal or state bonds, the interest those bonds pay is tax free. And so I'm like, Could I go get some Wyoming stable coin and start yield farming and not pay taxes on that yield? Because that could be also really quite interesting. But I think that's probably uncharted territory, but we'll
Sy Taylor 09:20
see. Well, there does appear to be more open competition now, right? So Wyoming is definitely competing with Delaware for being one of the capitals to incorporate companies in, as is Nevada, as are many, many others. So there's a question there about consumer protections and fraud and anti money laundering. And I think there are lots of serious things to think about when you move in this direction, but experimentation and sort of slowly getting there is eminently sensible. Chris. I want to zoom out for a second and talk about your perspective on that increasing clarity. What are you seeing in terms of the conversations you're having as headlines like this hit is. It's all hype, or are you actually seeing it on the biz dev side as well that like, there's meaningful action?
Chris Harmse 10:06
No, we've seen an significant increase in either conversations we were having at, you know, we definitely have a focus on kind of like the enterprise PSP and fintech segment. And two years ago, you were having a very early conversations with innovators post q4 last year, those conversations have increased. And then fast forward to today, with headlines like this and the genius bill coming through, and these sorts of things. It's people are not ready to move. It's not just, Hey, this is cool. Let me. Can you chat with me about a few use cases we could one day, hopefully, eventually, implement? It's okay, there's an RFI out. You're in the RFI. What can you do? These are the technical specifications we want to do and enable X, Y, Z, use case. So, broad strokes, that's enterprise, PSPs, that's FinTech platforms, that's marketplaces. We've definitely seen the pipe build, and are quite excited about 2025, and what will come from that, and the conversion of that interest into actual business.
Cuy Sheffield 10:59
We've talked about on the show before, of issuing a stable coin is relatively easy. Getting distribution and adoption is pretty hard. And I think a lot of people are going to realize that. And I think you'll see a lot of interest in Okay, now that there's a framework, let's issue a coin and like, see what happens. And I can see a world where a few years from now, there's this on chain, graveyard litter, like, attempts of stable coins. You know, many companies like, it sounded attractive, of, oh, let's issue one. Like we can. But then how many of them have a clear plan and get distribution? Like, are people going to come directly to them? If you don't have a core business, how do you get someone to choose you? I think those are becoming the really hard parts, rather than just Oh, like, yeah, you can issue a stable coin, but, but does it actually make sense?
Sy Taylor 11:42
It's reminiscent, almost, of the Wildcat banking era of the railroad boom in the late 1800s where any bank could create their own dollars and issue them and sort of then also lend anything it wanted. And there was just endless boom and bust cycles as credit creation went wild, but so did the boom and bust cycle, and that's when the OCC actually came in and started mandating control over the creation of the currency. The Office of the Comptroller of the Currency comes from that historical quirk to your point, it does appear like the Oprah meme, of you get a stable coin and you get a stable coin is absolutely happening, because our next story is this was covered in the Financial Times, but this was about fidelity, $4.9 trillion of asset under management. Asset Manager is going to launch its own stable coin, and apparently, in the advanced stages of testing, and this is just a week after they announced the filing with the SEC to launch a tokenized Treasury fund. So is there rationale here, Chris, that you can see for somebody like a fidelity to be launching a stable coin and tokenized treasuries together? What would you see as kind of the use case here and other some upsides of issuing your own stablecoin?
Chris Harmse 13:06
Yeah, I think the one thing it's adding, like, C fi credibility and defi efficiency, kind of like together, so, you know, and when we talk about the defi efficiency piece, some of the older treasury, you know, whatever you know, Treasury funds that have been issued, they're still struggling with that interoperability back into Fiat. And, you know, we spoken to a bunch of these issuers, and you might get same day in instant settlement, you know, redemptions of that. But to actually mint something like a Biddle is quite a process. You send dollars to a bank account that then you need to buy stable you know, then you need to mint the Treasury, and then if you want to sell it and go back into stable coins. So I think despite the Treasury product being put on chain, the settlement capability with stable coins was still lacking, and therefore left some efficiency gains to be desired. By doing this and issuing a stable coin and the Treasury, you can now settle that Treasury in stable coins for the mint and the burn. So I think it's really almost like a full stack approach to stable coins on the settlement payment infrastructure side, plus the capital market. So it's kind of bringing the capital markets efficiency of defi plus the payments efficiency of stable coins to bear. And I think with a $4.5 trillion asset manager, as you mentioned, it really is adding that c5 credibility element to it.
Sy Taylor 14:19
Do you know, just to give that some context, good friend of the show and sponsor over at digital asset, Yuval ruse had a great framework for thinking about stable coins as your current account and treasuries as your yield account. And it's amazing to be able to move between those and to be able to do so in real time. But if the practical reality of a Biddle token is that you can't move between those in real time, then it sort of breaks. So it's quite a competitive move to do something different.
Cuy Sheffield 14:48
I mean, Bill, I'd love your take on like I feel like there's this world of vertical integration of the same companies offering tokenized treasuries and stable coins. You had Blackrock with Biddle. That then partnered with circle, so you could do USDC to build, and then circle acquires what hash note, and so that now they've got USDC and USD y How do you see to build like this intersection of the tokenized Treasury and the stable coins coming together? I think
Nabil Manji 15:15
Chris hit the nail on the head where it's not just tokenized treasury, actually any tokenized asset. There's a lot of reasons you do that, but one of them is for the speed and availability in terms of trading and moving that asset. And of course, when people are trading tokenized assets, one of the other assets they want to go to and from or in between is dollars or their local fiat currency. But that leg of the transaction, in many cases, has been missing, as you had these, let's call it non Fiat, or non dollar assets that were tokenized and could be moved and traded. 24/7, 365, nearly instantly, but only if you wanted to go between those assets, not back into your local currency or to fiat, which many of us, myself included, when I'm trading them more often than not trading back into Fiat before I want to decide what I want to do next with that Fiat. I'm not going from one asset straight to the other, and so I think it was kind of like a natural expected evolution to have that real time Fiat in out capability for those tokenized assets. And I think what's interesting, particularly with some of these large asset managers, is they have such large portfolios, such large customer bases, that you, as we spoke about 1015, minutes ago, we're going to have a stable coin for you, stable coin for you, like everywhere, right? But these asset managers actually have, I think, a built in kind of distribution and network advantage, and so they're kind of seeing the monetization of that, where, I don't know what Fidelity's plans are, but let's say when they launch it in the near future, if it has to be used to go in and out of some of their tokenized assets, or treasuries or money market funds or whatever it is, they're going to immediately have one of the largest market cap stable coins out there, because people are going to want to access those products, and they're going to control the way that those products get Access, which is through their new stablecoin and so that just increases, I think, the business case for them and the economics of the ecosystem for them and their customers, yeah, I think
Sy Taylor 17:09
it's an important point of clarity. This is fidelity digital assets, the separate operating unit of fidelity that's doing this. And fidelity digital asset has been kind of an innovator in this space for quite some time, the very, very different organization to some of their competitors, still very much family owned, they've been offering Bitcoin in the portfolio with an integration with Coinbase, I think, as early as the mid 2010s and they've been progressively pushing down this path. So this is not a shock to see them innovating. I think what is interesting is, to your point, would they push this into their broader book, and would we see others do it? And I think that's kind of my big open question, Kai, you sort of made the point of, will we see a graveyard of stables, or will the letters start to disappear? Because it's getting incredibly complex, dealing with the alphabet soup of stable coins. And and I'm just interested in what you're seeing kind of evolving in that space. So we just gonna end up with a world that's actually worse than Fiat, because I don't have to think about what flavor of dollar I want to send you. We're running
Cuy Sheffield 18:14
out of letters, and now they're numbers. I thought the other I saw USD, one, like, is it gonna be USC, two, like, how funny are we gonna go to I think there's a huge branding problem and challenge. Like, I think it's just gonna be, it's gonna be really hard for consumers to distinguish. Like, my framework is, if you're on an existing platform and you've got a relationship with a brand, so if you're on fidelity, if you're holding funds on fidelity, I don't think you really care. You see a USD balance on fidelity, having that be a fidelity stable coin on the back end. It's just it's USD on fidelity. So I think you'll see, like, the brand of the stable coin fade more into the background, and it'll just be whatever brand of the app that you're interacting with. I could see that world, I think it's gonna be very difficult if you're like a in a self custodial wallet, or you're on a defi Protocol, or you're on a place where there isn't a default brand behind the scenes, and then now you're exposed to selecting a brand, and then how do you make that selection? Are you gonna go and look and read the Terms of disclosures of like, compare one to the other. I tend to have a preference for like with the brand starts with USD. I think that's more compelling than like, if the brand starts with other letters and then like as USD later. So it's a really weird space that I have a hard time imagining. A few years from now, consumers, particularly, are going to get accustomed to having this like really direct brand association with all these other letters in the alphabet soup that you mentioned.
Sy Taylor 19:47
What about you Nabil, from a merchant perspective, are they kind of dealing with a similar cognitive dissonance? Because I know the the Treasury benefits of B to B payments and cross border settlement are an area. That merchants really, really care about. But are they willing to adopt new technology to do that, or do they need us to hide the wires as well? I think
Nabil Manji 20:08
you've got a mix of both. So I think particularly over the last two years, we've seen some of our more, let's say, technology forward, or more innovative clients actually starting to do this themselves. So there's a number of clients that have actually been working with the Connexus offering from JP Morgan to more efficiently manage their corporate treasury, particularly for businesses that have, you know, very distributed geographic footprint, they need to move liquidity around those entities, whether it's for things like payroll, vendor, payments, normal operations, whatever. So I think you have seen quite a few of the I would say more innovative companies move that direction. But I think for others, not everybody's a giant merchant that has 1000 person payments team and can assign five or 1020 people to figure this out and execute it right? The the others, let's say, are going to rely on companies like WorldPay, like BV and K and others, to quote, unquote, hide the wires and deliver not a stable coin solution, but just a solution for more efficient treasury management. And it goes to Kai's point around abstracting away the branding of the assets behind or the branding of the technology behind it just is like, Hey, this is our new 2025 corporate cross border liquidity and money movement solution. And here are the benefits. Visa be what you might be using. They don't really like necessarily care.
Sy Taylor 21:30
It just happens to be 24/7 it happens to be instant, and it happens to be you could switch it in and out of a money market fund instantly. I want that.
Nabil Manji 21:40
And the funny thing about the whole stable coin branding thing is, at a very basic level, a stable coin is just a right on an asset that is sitting somewhere else and or being custody by another party. But think about when you have money in an E wallet. It's basically the same thing, like you have the right to withdraw dollars or euros or pounds or whatever your balance is in the E wallet. But not every e wallet is branding your Fiat balance as like, name of company, then currency or currency, then name of company. It's just your euro or dollar or GBP balance in that wallet. And for me, like, yes, maybe the slight nuance here is that with an E money institution, your dollars or euros or GBP are either in cash or, like very, very liquid, low risk instruments. But that's not like that different than a stable coin, right? Like when you have a stable coin, it's backed by a basket of baskets, most of which are very liquid, very low risk, a lot of which is in cash, and you have the right to redeem or mint on demand, which is basically a demand deposit, which is just what we call Fiat in a bank account. So, yeah, I kind of agree with Kai. Like, I don't know why branding here has taken off so much. Maybe it's just because it was a new industry. We needed to brand the different players, stuff like that. But I think as you get them more embedded in traditional financial services, whether it's investment platforms, whether it's E wallets or whatever. I've got to imagine that some of that fades into the background and is maybe like a note in the TNCs or like a footnote at the bottom of the web page.
Sy Taylor 23:07
Yeah, I see it from the issuer perspective, like it carries their brand for a little while. But what do you think, Chris, is that an inevitability? Is it starting to happen? What's are you still in the midst of adding new stable coins every week to BV and key to support as much as possible.
Chris Harmse 23:24
No. I mean, I think very much you've seen, you know, as you guys have said this, the 200 plus stable coins that have popped up. And we've been in the space for quite some time, and we really in that kind of distribution layer, where the whole point of the stack that we run and the product that we have is to, is to abstract that complexity away. And it's really just like dollars running on a blockchain, paying someone out. And as you've spoken, you get personal preference today in terms of a specific brand of stable coin. Maybe there's some regional preferences. And then you've seen big payment companies like pyusd launch servers and try add their brand credibility to it. But for us, the whole ether, you know, is really multi rail, ie, multi blockchain, multi stable coin, and then abstracts that choice. So when we do something like the stable coin sandwich, going Fiat, stable coin Fiat, the system is really just looking for the cheapest blockchain and the best stable coin to do that payment and, you know, deliver it on the other end, versus trying to pick a specific branded stable coin. So today we support most of the major ones. We'll probably have to add a few on merchant demand or client requests. But I think long term, it probably settles somewhere around and starts becoming more of a unified space and thin of this specific brands running at the running at the problem.
Sy Taylor 24:35
Yeah, because I can see different stable coins having different benefits with different merchants or states or whatever. Like the Wyoming token, your tax is automatically calculated so you get discounts at certain places, and like the blurred line with loyalty and stable coins becomes interesting. But to your point, really, this is a UX problem more so than an infrastructure. Structure problem, because you can abstract this pain with bvnk, with zero hash, with bridge and others, but you can't necessarily solve the consumer experience problem or the business experience problem, especially if they're used to seeing that thing. But maybe you should, I mean, sling money comes along and just displays fear and it doesn't display the other things, Kai, are you seeing like in the dollar cards world, that they're still displaying the nature of the stable coin, or, because you said a couple of weeks ago that in many markets they want dollar cards now, and it just unpacked that a little bit for me. And what you're starting to
Cuy Sheffield 25:38
see, I think it depends on on the app. I did notice that, particularly in Latin America, some of the dollar focus savings accounts, particularly that use usdt, the T's lowercase, and so it's USD T. It's like, there's like slight like branding. That's like getting a little bit closer. So the question is, does it go from like lowercase t to then eventually just USD, and I don't think that consumers, particularly once you get regulatory clarity, like there's an argument that the brand is really important and matters a lot in a more wild west frontier market where different stable coins are regulated in different ways, with different reserve requirements, if you truly get some harmonization of, if you're calling something a stable coin and it's offered in a certain market, it's got to have some kind of floor of what the reserve requirements are, then I think you could start take that next step, and instead of you remove the lower case and just you just say, USD so we're not there yet. But I think that that's the likely direction that it's it's heading
Sy Taylor 26:42
fascinating to watch. Final question, just for the bunch of you, which is, before we move to the ad break, do we see other g7 currencies start to emerge as stable coins? And is that ever happening, or is it still the dollar card? I mean, Nabil, Chris, what are you seeing in your networks? Is there anything starting to happen in that space, or is it still wildly dollar dominated?
Chris Harmse 27:04
Us, being a multi stable coin platform, we see kind of demand mimic market cap, 99% USD stable coins. But that's obviously changing. There's AED stable coins, there's an SGD one, there's an IDR one, so there's em ones popping up, there's g7 ones, as you were saying, popping up. I think it comes back to the liquidity the, you know, liquidity distribution sort of problem that you start when you issue a new stable coin. But I think it gets really interesting when you can put both fiat currencies or multiple fiat currencies on a blockchain with the right level of liquidity, where you move payments fully on chain. I can do on chain FX, and you can do a kind of an execution through a Dex or something like that. So I think I'm excited to see if we head that direction. But today, you know, I'm seeing it super early days, and I guess my view for 2526 is still overwhelmingly dollar denominated, overwhelmingly
Sy Taylor 27:55
dollar denominated. Well, on that note, we will thank our sponsors, 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 backed tokens, improving financial efficiency and enabling programmable finance. You can check out the links in this episode's description to express your interest in vtap. Tokenized is also brought to you by avalanche major banks, FinTech challengers and industry leaders are using avalanche to create new business models on a fully customizable blockchain infrastructure. Think of it as more than a blockchain. Think of it as an entire network built for financial institutions to innovate with purpose built layer ones institutions can tailor digital asset strategies to their exact needs while still tapping into the power of other public blockchain innovation, developer communities and seamless interoperability join the institutions shaping the future of finance on avalanche, And you can learn more at avax dot network. All right, the next story we picked off from the block. This was about Athena and securities launching a new institutional grade EVM so Ethereum compatible chain for tokenized assets. The new chain aims to make defi more accessible to institutions by providing compliant settlement and custodial services. Kind of out of the box, the public network will integrate a native know your customer, KYC wrapper and provide access. To Athena and securitizes whitelisted investment products, so public chain, but whitelisted with KYC baked in, it is really, really fascinating. So I'm interested in sort of the attraction to something like this. Chris Kai Nabeel, any of you wants to jump in. Do people want this sanitized? EVM, chain, what are your thoughts on institutional change, generally? Kai, so I want
Cuy Sheffield 30:28
to hear what Chris and Nabeel think about this. Like the way that I would frame it is, this is actually one of the more interesting areas of debate in the space right now, and I don't know which direction it's going to go, but I frame it as follows. It's like as institutions come into the space, as there's regulatory clarity, as more and more institutional use cases get built up, there is the question of, okay, will the existing blockchains that have really dominated the crypto use cases have played a role in the FinTech use cases be the same blockchains that satisfy all the requirements and properties that you need to scale institutional use cases. And if you talk to salata, the salata foundation and teams, they'd say, yes, absolutely, like, we're ready to scale to institutions. And then there's a new class of competitors that are basically saying, wait a minute, what about embedding KYC? What about privacy? What about these things that we know institutions care about that. When you're a chain that's supporting meme coins or supporting many different use cases, it's very hard to optimize for that. And so I have no idea, if you ask me which which side is going to win five years from now, and probably it's some combination of both. But Chris, how do you think about like, is there enough of a demanded need? Maybe even just in a payment context, will there be institutional payment chains, or is it just going to be Solana based the chains that exist right now that institutions get comfortable coming into it's
Chris Harmse 31:50
definitely an interesting topic. I mean, firstly, I do like the name converge, and I'm kind of converging of these two systems and the Fiat and tradfi, but try to find crypto. But the way I think about those institutional chains, I mean, you seeing some purpose built stable coin payments chains pop up, and what they do is they, instead of paying gas in the native token, they pay gas in stable coin. So I think you're seeing, you know, it's the early innings in trying to understand, as you said, Can the chains of yesteryear support the future, regulated use cases that are coming to market, specifically in a payments context, and then, if not, what does a KYC institutional grade payments chain look like, and what features does it need to have? So I agree with you. It's quite early days. I'm not sure where it settles, but I think these are the early moves. There's a small startup out of Singapore called Codex. They're building a specific also, EVM based chain that that's hyper optimized for stable coins and cross border payments. And like I said, they've actually changed, instead of paying in the native asset, you're paying gas fees and stable coins, which makes it a little bit easier to operate and do payments with. And then you're seeing things like this, bringing institutional grade infrastructure and really trying to hyper optimizer chain for KYC, KYB led Trad fire products, which, I guess they're, you know, modules, or what are you gonna call them, kind of like modules you can build into the traditional kind of chains to achieve this. But when it's natively, you know, in the kind of core infrastructure, it probably gives you a bit more flexibility. But I'm not sure it settles. I'm sure there's going to be a lot more of these pop up. Pop up, given what we've seen so far in the last six months, but let's see where it settles.
Nabil Manji 33:26
Yeah, so for me, this is actually super interesting because of a couple reasons. One is you as you talk about stable coins and blockchain based payments, one of the things, or really like, the main talking points or benefits that are typically touted are speed and cost efficiency. There's a longer list, but I think those are the two ones that get discussed most. And the thing I always like to say, which I'll repeat here, because I like to say it, is, you know, moving money around the world is really just moving ones and zeros, like moving any other sort of data, whether it's an email or a text message, and we as humans have had the technology to move ones and zeros around the world instantly and very cheaply for a long time. Think about how much you pay for a text message or an iMessage or whatever, right? So for me, like the complexity and the cost of payments isn't necessarily driven by technology disadvantages. A lot of it's driven by what is the other information or other requirements that need to be met, or information that needs to be set with a payment and or other requirements, whether regulatory or otherwise, that need to be met before you make the payment or receive the payment or whatever. And so that's what drives the cost setting aside FX. And what's interesting here is we haven't really solved that at scale in the blockchain space. So like, yes, you can send a stable coin across the world nearly instantly and very cheaply, but you need to think about things like travel rule and wire front transfer regulations and things like that. And that hasn't been solved at scale like it has to solve. Degree in the Fiat world. And so this whole concept of like embedding things like KYC in the basic technology layer, like the blockchain that's being used for that payment is super interesting because it almost extracts that away for the whole ecosystem on that chain. And the way I kind of think about it, the parallel to the Fiat world is in most of the western world today, if you want to sign up for financial service or product, you have to go through KYC with that provider. Maybe it's a bank, maybe it's a e wallet, maybe it's a payments company, whatever. But each time you sign up for a new financial service in your home country, in the Western world, you're going to go through like a different KYC experience, and that company, or in this language, application is not going to provide you that service until you go through it. But then you go look at a country like India, where they've issued their new digital ID, and a lot of regulated service providers there are being mandated to accept that digital ID. And so basically, they're transitioning from this concept of like each application or each company needs to do KYC, to having, like, a base KYC layer, or ID layer, for everybody in the country. And so now you show up at a financial service provider or other regulated business and you present them your digital ID on your phone, and if you have that, there is no KYC like, you just prove that you've gone through that base level governance process, and that's your valid credential. And so, like, now, if you're running a KYC company in India, your business model, it's not there because it's not needed anymore. And so for me, this is kind of like taking that concept and putting it on chain. It's interesting.
Sy Taylor 36:32
There's been so many decentralized identity startups around crypto generally, and there's, you know, Canton would tell you they do a lot of work on privacy inside of their network and connectivity. The idea of baking it into the chain is one more feature that you could bake into the chain. And I guess where I stand is, I'm unclear as to which is the better answer, but Nabeel, I absolutely agree with you all of the cost in payments is risk. It's related to identity. It's related to refunds. It's the what happens when something goes wrong, set of questions, and who makes you whole when something did go wrong, and how do they make you whole? This is why I wrote a piece a few months ago called stable coins aren't necessarily cheaper, but they are better, because you typically can share more data about the payment kind of around that KY your thoughts. Maybe
Cuy Sheffield 37:29
the other reason that this is such a hot topic is we're seeing that everyone sees how valuable layer one blockchains have become, and if you could become a dominant blockchain that builds a real network effect. With wallets and exchanges, they have accrued a good amount of value in terms of the market caps. It feels like in crypto, if you're competing for crypto trading meme coins like it's a much more mature market where it's hard to compete based against Solana, those networks are really growing and scaling. The new area that's not as mature is institutional use cases. And so there's a shot that someone could come in and say, Hey, not every institution has come on chain yet. And so maybe they'll come onto my chain instead of coming onto an existing chain. And so the summary as I listed you super helpful framing. It feels like there are really three requirements that people are focused on, that most institutions would agree that they need, that blockchains have not fully solved today, the first being embedded KYC or some type of identity layer, which I think you'll see the existing chains try and support an ad and Coinbase doing some really interesting things with Coinbase verifications on base, but like that hasn't really been solved. The second is gas fees and stable coins. And it is still kind of baffling that you got to convince an institution to go and buy soul or buy Eve, to then be able to launch a stable coin or transact with a stable coin on Ethereum or Solana and so like, is that going to change? Like, are they going to enable gas to be paid on those trades? Or do you need a new chain and then privacy being the huge one, which I don't think gets nearly enough attention. And my bet is that I think we're gonna see a lot of these use cases start to scale. And as they scale, in terms of stable coin payments, people are gonna start to realize how much of a lack of privacy there is and how much there needs to be privacy. And then there's gonna be a restaurant. Okay, how do you embed privacy around existing chains? Or do you build new chains of privacy and then you have, okay? How do you still have compliance, but privacy? And so I think it's still very much an early wide open area, and I'm excited to see more innovation and competition in different companies trying to come in and solve this for institutions.
Sy Taylor 39:37
And to that point, when Coinbase launched based there was quite a bit of cynicism about whether that was going to make a difference. Optimism and arbitum were already established, and Ethereum was established and so on. What did this centralized exchange have any business doing launching its own chain? And actually, when you look back at it, it's been wildly successful. So. One might argue, we are still very much in the early innings, and it's all to play for. And if you do succeed, it can be quite lucrative. Chances are you won't, and there's a graveyard of a lot of these things, but that's why they call it a risk. Any thoughts on Athena itself and us? De because producer Patrick shout out. Put some notes in the show notes, which I hadn't really looked at us de before, and I didn't realize it became the fastest USD crypto asset to hit a $3 billion market cap in history. And it's backed by a Delta neutral eth position. So in plain English, it's collateralized by long staked Eth and simultaneously offset with a short, perpetual futures contract in eth. So eth, long staked per future short keeps the dollar peg. I mean, it's experimentation. I really don't know. I mean, I know delta neutral positions quite well, and they have existed, but I feel like I need to go talk to Luca prosperity about this and read Rhodes to kind of get an understanding of it. But Chris Nabeel, any thoughts on us? De itself and the growth you're seeing in that space,
Chris Harmse 41:21
I think it was a perfectly timed product for some defi degens that were finding it quite difficult to do these, execute these trade themselves on platform. And the team at Athena did a great job by taking for you get, like a dumb whammy on the yield. You effectively get the state E field, and then you get the yield generated through the E Futures mechanism that you just explained. But is it the kind of when we've looked at it, we've stayed quite far away from any algorithmic type, anything that requires that's non Fiat backed stable coins, at least for the payment side of things. And that's quite, quite deliberate, because experimentation, it's been wildly successful. As you said. You know, first stable coin to see billion. But I think from a payments perspective, we've stayed a bit away from it, for sure. But to their
Cuy Sheffield 42:08
credit, they're not calling it a stable coin now. And I think it also is important to say it is a tokenized financial product, but because there's not Fiat behind the seeds, I think it's just something different than a stable coin backed by fiat,
Nabil Manji 42:20
but no build. I was gonna say there was a another non Fiat backed stable coin that offered promisingly high yields some time back that doesn't exist anymore,
Sy Taylor 42:33
Terra, something and something with a moon, Luna, yeah, I seem to recall that one.
Nabil Manji 42:40
But yeah, I think, to Kai's point, stable coins probably the wrong term for us, de. And you know, if we all believe in the efficient market hypothesis, the level of reward something generates should match the risk, and the reward is materially higher for us, de, than it is for other, quote, unquote stable coins. So to me, that suggests that there is a level of risk that is
Sy Taylor 43:04
I like that bifurcation, because under the current draft of the genius act, this would not qualify as a stable coin. And I think that's going to be helpful framing going forward, that there are assets that try to closely track the dollar with higher yield, but those receipts for that position that you can trade as a token and use as a token aren't necessarily guaranteed to be stable or don't have the same risk profile. I think that's such a such a great point. So final story this week is it's m and a season, Coinbase and Kraken have neared records with their crypto acquisition. So Coinbase is reported to be nearing the acquisition of crypto derivatives exchange deribit, which would value it in the region of between four and $5 billion and of course, crypto exchange Kraken are rumored to be interested in acquiring them too, but have instead acquired NinjaTrader, which means Kraken can now offer crypto futures and derivatives in markets in the US, adding to their existing UK and EU and Australia licenses, and NinjaTrader has close to about 2 million customers, so lots of m&a in the space. Do you think that we're seeing the convergence? Converge? Seems to be the theme here of finance and trading and crypto. Is this like defi efficiency on sort of the new exchanges world? Does everybody need to be in one of these spaces? Any thoughts? There's
Nabil Manji 44:40
no doubt that, let's call it investment platforms for traditional financial assets and digital assets are converging, right? You know, many of the US investment platforms, you know, most famously or notably, Robin Hood, started to offer crypto trading years ago. And similarly, a lot of crypto exchanges have started offering stock trading or ETF. Trading or other traditional financial service products. And to me, this is just the next iteration or another extension of that. And I think part of it too is as the market becomes more regulated, more liquid, you're gonna see those nice spreads, the trading fees that the exchanges have enjoyed, I think it competed down as they already have been over the last five years. And so I think part of it is them thinking about what are the other products and services I can bring into my portfolio that I can continue to extract a higher margin on as those traditional trading fees get conveyed away. And, of course, any sort of financial instrument where there's a element of structuring or risk, futures, options, et cetera, you're typically going to be able to price higher than you would on just buying a simple share or buying a slice of Bitcoin or whatever it is. And so to me, it's a little bit of business future proofing and revenue diversification, which isn't too surprising given the scale that some of these exchanges have reached. I definitely
Chris Harmse 45:56
think there's this blurring of the lines between crypto platforms that have reached scale, and these Fiat platforms for sure. And I think we're probably seeing that even in some of the payments side, that where you seeing traditional digital wallets, remittance apps that were built on web two infrastructure, looking over the fence at you mentioned sling earlier, at remittance companies like sling popping up maybe compete against wise. So you're seeing it on both sides, not just in the investment platform space, but in the remittance app and the digital wallet. So I think these walls are slowly, definitely coming together and then, and that's really kind of some of the infrastructure that we've built is really to create this interoperability between that Fiat world, at least for some of the payment apps, and the crypto world, and really make them one platform, so to speak. So you're going to increasingly see more M A in the space, for sure, I
Cuy Sheffield 46:44
think with more regulatory clarity, we should expect, to some extent, there'll be more consolidation. And I think it's very hard an environment where you don't know if crypto is going to be legal, or what you could do, or what the rules to make significant investments in M A, and in terms of scaling companies, I think now, yes, there's still questions on crypto market structure, and we'll see what happens with genius act, but I think that many companies have more of a business case internally to start to take action, rather than you had to really be wait and see when there's just it's very unclear what the the industry will look like, what The rules will be, which was kind of the period about a year ago. Yeah,
Sy Taylor 47:24
it's definitely interesting times. Well, my bet is we see a lot more before we see an end to it. There's certainly a lot to come. I would certainly, if I was a large global payments company or a large FinTech company, be looking at this space, but very quickly, those companies in the stable coin space are going to get very unaffordable if the demand keeps going anywhere near this trend, which seems to be counter cyclical to the crypto market and price, which is possibly the most fascinating thing, that stable coin volume continues to grow now it's found product market with its first use cases, and may find more when the genius act comes. Well, that I think is a nice place to leave today's episode. So I want to thank you all so much for listening, watching, however you consumers, whether it's YouTube or a podcast, Chris, I want to thank you for joining us as our second ever returning guest. Where can people find out more about you and bbnk, you can
Chris Harmse 48:20
find me on LinkedIn at just Chris Holmes, that's how you pronounce the name for the third time. When we can when I come back home for the third time, and then at just PV and k.com I'm
Speaker 1 48:28
such a bad human being. Well, get it right the third time Simon.
Sy Taylor 48:34
They say third time's the charm. You should
Nabil Manji 48:36
just start calling him like Simon or something. Yeah, you
Sy Taylor 48:39
should do it. You could totally haze me back. I'm absolutely fair game. Nabil, I gotta say quality performance as a first timer, I think we may have to invite you back. Where do people find you in the interim?
Nabil Manji 48:51
Yeah, LinkedIn is the best place. Nabeel Manji, and then you can also check out worldpay@worldplay.com
Sy Taylor 48:57
and Kai on x at Kai Sheffield and visa.com/crypto you'll find me@sardine.ai FinTech brain food.com or searching for Simon Taylor on LinkedIn. If you haven't already, please subscribe. If you're watching hit that like button. It really, really helps us and tell your friends to subscribe too with a little podcast that can thank you So so much, and we'll catch you next time.