On Ep. 59 of Tokenized, Simon Taylor, GTM @ Tempo is joined by Nilan Peiris, Chief Product Officer @ Wise and Luca Cosentino, Head of Crypto @ Cross River to discuss KlarnaUSD launch, corporate treasury use cases for stablecoins and more!
On Ep. 59 of Tokenized, Simon Taylor, GTM @ Tempo is joined by Nilan Peiris, Chief Product Officer @ Wise and Luca Cosentino, Head of Crypto @ Cross River to discuss KlarnaUSD launch, corporate treasury use cases for stablecoins and more!
Timestamps:
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Music by Henry McLean
Sy Taylor 00:00
Simon, welcome to tokenized. The show focused on stable coins and the institutional adoption of tokenized real world assets. My name is Simon Taylor. I'm your host for today, author at FinTech brain food and head of market dev over at tempo and Well, today we're recording on a Thursday, or as it's better known in the United States, Thanksgiving, so you'll forgive us for letting Kai have this episode off. But we are joined by some genuinely incredible guests welcoming to the show, the Chief Product Officer of wise friend of mine, Neil and Paris, how you doing?
Unknown Speaker 00:43
Sir, very well. Excited to be here with you.
Sy Taylor 00:46
Yeah, likewise, man, excited to dig into some of this week's stories with somebody who's in the weeds on all things cross border and all things currencies. I'm also joined by, again, another Peck of a payments expert, Luca Constantino, who's head of crypto over at Cross River? How you doing?
Speaker 1 01:03
Luca, fantastic, amazing morning here in the US. Indeed, indeed.
Sy Taylor 01:07
Well, I appreciate you bringing the Italian vibes to an American holiday. Thank you for making that happen. All right, one quick bit before I get into the content, I've got to remind everybody that views and opinions of contributors today are their own and might not reflect those of companies they represent, please don't take anything we say as tax, legal, financial advice, sports advice, fashion advice, clearly, please always do your own research, folks. All right, and with that, let's jump into the first story. This story was covered just about everywhere. Klarna, you may have heard of them. The big Buy now pay later company has launched or announced at least Klarna USD, partnering with bridge on the new low on blockchain tempo. This is the payments first blockchain incubated by stride from paradigm and where I happen to work. They're using Klarna USD initially for their internal Treasury operations, but potentially from there spreading out to other use cases in time when the main net launches. And potentially This means they will be generating more yield from their internal Treasury operations, and they can move funds 24/7, without the need for banks in some cases. So Luca, you've probably seen a number of organizations now look to stable coins for the corporate treasury use case, but you're also somebody with one foot in the traditional finance world. Why might somebody like Klarna benefit from stable coins? What would your hypothesis for that be?
Speaker 1 02:38
Think there are a couple of reasons here that I can think of. Number one, there is some genuine simplicity in moving stable coins over dealing with traditional rails. Part of it has to do with multi rail integration, and part of it has to do with maintaining the technology compliant with the standards of these rails, which is inevitably expensive for some of these companies, the second reason that I can think of is a progressive shift from fintechs, from service providers to platform, orchestrators to ecosystem. Orchestrators and the stable coin is one way to create an ecosystem around what you've built to that point maybe, like think about connecting the two sides of merchants and buyers, as well as streamline the back end operations. And so if that becomes the tool that is needed to interact with that ecosystem, then there is, again, an ecosystem advantage that can be created across the business that you built at that point.
Sy Taylor 03:34
You know, it's funny, you use the word streamlining and simplify. All of these things could potentially be done before, but streamlining and simplifying is still valuable. A lot of folks said that klanner is just bandwagon jumping here. They jumped onto the AI bandwagon. They jumped onto the stable coin bandwagon. But new land is there a there, though, with stable coins here, and why might brands be attracted to them?
Speaker 2 03:56
Well, firstly, Congratulations on the win with tempo. It's like a pretty awesome client to get planner over the line. So congrats, Herman. Just from what I understood from the announcement, this is for internal Treasury movement of USD. That's the current scope today. Yeah. So this is a pretty sweet use case for a USD stable coin. Just going down a level of detail here, in terms of dollar clearing between here, I guess it's internal Klarna accounts. You're kind of restricted, so people hold USD around the world in USD accounts. But to move that money, they use Swift messages today, and those swift messages eventually end up in the US with wire transfers happening between US banks, and it takes quite a long time to just move USD between your own accounts, as a consequence, anyone so limited by, you know the limits of wire transfers in terms of their opening hours, etc, as you shared. So transitioning from that to a different dollar settlement and a network is pretty awesome. I think USD stable coins as a medium for. Or dollar settlement is a pretty sweet use case. There's a couple of caveats that should just go through, just as I've also tried to think through, like users of wise or other companies, when we say USD stable coins, we're talking USD treasuries, right, that are backed behind a coin, and that's different to USD cash and pretty interchangeable, but when you get into corporate treasury, within a bank or with a payments institution, there are obviously limits to your risk weighted assets, and you need to hold a certain amount of USD liquidity, et cetera, in your corporate treasury, et cetera. So be interesting to understand how much of those assets that are currently on businesses like klanner's balance sheet can be switched for USDC, or whichever stablecoin variant they've gone with, and what benefits they see from this, and then the rest that they can't. How would they work through that, if I've understood it correctly, well?
Sy Taylor 05:53
So they're launching their own stablecoin. It's not USDC, it's Klarna USD. So one would suggest they're collecting more of the yield. So this is a little bit like holding treasuries, except you get to move them, 24/7, would you just say it like that? It's like, which treasurer doesn't want that? Because actually moving the actual treasuries themselves, quite difficult, quite clunky, needs a brokerage, needs a treasury team, the stable coin things sort of collect some of, not all of that yield, but they're programmable, and they are 24/7 and so if you have multiple subsidiaries, each with multiple banks trying to move the money between all of those subsidiaries and all of those banks becomes an exercise in complexity. This simplifies and streamlines, to use Lucas words, there. One of the things I speculated, Luca, and I'd love your opinion on this, is doing instant merchant payouts as well. Because, as you well know, when somebody makes a payment online with a card or, you know, with a BNPL, the merchant might not receive that funding instantly, or if they are, it's some sort of cash advance. Somebody's taking the risk in between, are you seeing this sort of instant settlement use case starts pop up more and more?
Speaker 1 07:06
Yeah, absolutely. Super interesting that you're mentioning this. I go back to simplification. This is both a case of simplification and enablement. If you think about the card flow, right, like a consumer swipes a card, then there is some authorization process, then the network like Visa, MasterCard, have to say, yes, that went through all good. And then they give the money to the bank, and then the bank makes it available to the end merchant via the acquirers in between. So there is a little bit of a multi step flow, and the money availability determines how quickly the money gets to the merchant. And if you do this on legacy infrastructure, and you have a little bit of friction left and right. Then all that friction sum up, end up being t plus 1t, plus 2t, plus three, for merchants who then get the money later. Stable coin give a primitive to move this money almost immediately. And so it's never going to be super immediate, because there are some authorization benefits in that flow, and we can talk more if this is interesting. There is also some risks that are covered by the speed of the money there, which may be healthy for both sides of the equation. But let's assume that that is covered and that's a benefit for everyone. Then the remaining portion is what part of the slowness today is not driven by the benefit, but it's actually driven by legacy. So we tried to take that away, and it's a multi particle aberration. It's not just stable coin enabled that. Stable coin makes it very easy, because when you think of global companies trying to enable this feature across multiple geographies, the last thing that they want is having one different integration with different local rails. But instead, they love one tool that works globally, and then they figure out in each geography what requirements need to be met. And so stable coins are one more time, another streamlining to a very fast go to market that wasn't
Sy Taylor 08:54
able they're almost like an abstraction over local payments rails, exactly, if you think of them as this abstraction above. I call them the rail above rails, you know, like the abstraction layer. So I just integrate with that, and then somebody else can take care of the local integration, so long as they connect into the stable coin rail. So it's abstracted.
Speaker 1 09:13
And what's pretty cool about this is that every time we think of abstraction in FinTech or in money movement, it comes with a cost. It's kind of worse, right? Like it's simpler to use, but worse, because you're taking assumptions from someone else that is abstracting that layer. It's opinionated, yeah, exactly. But stable coins are neutral and abstraction at the same time, and that is what makes them, in my opinion, very unique.
Sy Taylor 09:37
You said something else that I thought was interesting, which is the multi party workflow. So with a smart contract or something like that, we can agree that, like six different legal entities, six different companies who are mutually unknown to each other, can have a single workflow through stable coins if they all agree and sign off with PKI signatures to a smart contract and. Multi entity workflow, this shared workflow thing is where the programmability of stable coins become interesting. Again, because it's this neutral layer, I could always write software. Historically, I could give you an API to my infrastructure, but orchestrating a flow of funds across multiple entities is a little bit harder. So that's fascinating. And I want to spike home the point you made here as well, which is sometimes a little bit of friction is a good thing. Like, what happens if the goods don't show up? What happens if it was a fraudster? Like, we don't want everything to be instant, but having the ability for it to be instant If we did want it, would be quite nice. So Neil, I'm interested in your reflections, kind of, on all of this. Do you think that somebody with 114 million consumer users would also be thinking, hey, cross border, maybe we could start to do a remittances product. I know that's something that's near and dear to your heart and to the folks at wise you've got a lot of experience there. Have you seen any upside from the cross border use case?
Speaker 2 11:03
Yeah. So I think when we look at stable coin adoption, predominantly for cross border, there's two ways in which people talk about it. One is the stable coin sandwich is great word, which is, when you're sending Fiat to fiat, you kind of send it through stable coin in the middle. And the second is more or less what you were talking through there for Kleiner, where instead of sending the fiat currency, you send a USD stable coin to the end user. One, where I see a bit more adoption is on the latter one. So my observation is that looking around the world in the markets that we're in so we're moving about talking in pounds, 200 billion pounds a year, growing at around about 600 billion. That was right, and growing at about 20% year on year and the and we're global. So we UK, US and Europe is only half. 25% Latin. 25% is a pack. We enable our customers to hold USD balances. We've got about 30 billion imbalances globally. And the places we see USD adoption and people holding large USD balances are places where customers don't really trust their currency, so their currency is devaluing or very volatile, and in those areas, they'll hold the USD as a stable store of value. The areas where we see customers beginning to hold stable coins like USDC or other variants, is where customers don't trust their governments, and they don't trust their governments that put in place capital controls that will stop their bank from trading their USD back to local currency, because in those countries, like, whether it's Brazil, whether it's Argentina, generally, around South America and Africa, we have volatile currencies, and there's a history of capital controls coming in in periods of volatility. So one of the big advantages of stable coins is that you can hold USD, and you can hold the USD in our wallets, and the wallets can be on your phone, and you can't shut it down, right? It's there. We can work through, like our government, but
Sy Taylor 13:03
it looks a little bit like cash, right? Like physical cash in your hand would work similarly. But this is on your phone, and you can link a card to it, which can be spent online. So there's some nuance there. Totally, that's the
Speaker 2 13:12
remittance question. We go back to remittance. We're just staying on this one here. So USD does flow from the US, for example, to Brazil to Mexico, does get held in stable coin wallets and then on. The utility of spending only really comes if it gets merchant adoption or you get these stable coin cards which enable you to use existing rails in order to do the payments around it. The bits I'd like to game theory through a little bit is like, you know, say, a government wakes up one day and suddenly its fiat currency is the USD. So everyone in the country is now holding in Venezuela, 80% of deposits are now in USD. The government's lost the ability to print money anymore, to get its way up its fiscal deficit. I'm sure, like, a bunch of governments could see this stuff coming and trying to think through this accelerated dollarization, like, what would they do about it? This is like, one tail risk and the other tail risk. These are tails are the day you give a stable coin and one, one USDC say, is a stable coin, and you get back 99 cents for whatever reason, something's happened, and it just needs one person to mess up their is her leisure or their risk, and you'll have a little bit of a flight away. But I think these are the types of crises that will happen, and the industry will get through and work its way through over the next few years. So I think there's a lot of opportunity for this. I think it is dollarization. And, like, governments recognize it's a dollarization. Dollarization has pros and cons. You So, isn't it great if everyone used the same currency around the world? Yeah, it would. But then, like, and there are consequences. There are consequences to that national governments have built on, like not relying on someone else's money. So this is where it could get interesting in
Sy Taylor 14:49
the future. It's not surprising to me that we're hearing a lot from the ECB about monetary sovereignty, which is their way of saying, we don't want to dollarize. Also questioning, like, how much. Is hyper inflation a risk if you're in the euro area, not really much of a risk. And also new, and you'll, of course, be familiar with CLS and CLS currencies. This is the continuous link settlement bank that really does deliver massive efficiencies in the foreign exchange market for any of those currency pairs, making stable coins look expensive if you are at the institutional end of banking. However, if you're outside the CLS bank for non CLS pairs, then stable coins start to look like a swift plus CLS for everybody else. And I think it's those long tail markets, those long tail currencies, and especially exotic to exotic, where even the most ardent banker I speak to cash management of 30 years at Big G SIP will say, Yeah, I see that use case, and so do my clients and and so I think that's starting to slowly turn so we'll see whether that comes bottom up. Adoption, I know one. On a previous episode, we had the CEO of MoneyGram and from their remittance business, what they're now doing is they're monetizing the beneficiary. So historically, they were a business that monetized the sender, but now they can monetize the recipient. The recipient gets a stable coin wallet. You link a card to that, once they've got a wallet and a card, you can start to offer them yield. You can potentially start to give them other financial products through the defi rail. So it fascinating to watch. I want to bring us to the next story, which I also saw in the block, but I first saw in a WhatsApp group posted by a guy named Luca. And this is cross river bank are launching a stable coin payments platform that unifies stable coin and Fiat flows into a single, interoperable system. The goal is to eliminate operational sprawl and the need to pre fund or to rebuild ledgers in order to take advantage of stable coins. So talk to me, Luca, about why you built this and what pre funding used to look like, before this platform existed.
Speaker 1 17:04
The best motivation is when you as a user have a little bit of a problem, right? And what I really don't love is I do have a meta mask account, I have my Chase account, I have my FinTech account, and all these kind of things I need to pre determine. And the wise account, of course, and the wise account which I have. And so in each of these places, I do have to predetermine how much money I need to live in each and I never understand why necessarily has to be the case. And when I looked at our crossover customers building flow funds to start enabling stable coin flows, really it's shocking how complicated the flow fund is when it could be really straightforward. So the previous situation is you get an ACH that settles in a wallet. If you want the money available immediately, you need to pre fund that. Then you need to park that liquidity as some stable coin or market maker issuer and authorize the minting from there by using your own capital and balance sheet in between. So it's the second cost of funding that you need to sustain. On top of that, you have the Fiat rails to maintain. Then you have the two ledgers, one for the Fiat rails and one for stablecoin. And then you reconcile and make sure that payment one is reconciled against payment one on the stablecoin, and hope that the two talk to each other. Compliance flows are also broken. And so sometimes they work, sometimes they don't work. All this to say that if something goes wrong in that kind of matching, effectively, everything gets lost. But most importantly, the cost of building that product for these FinTech companies is an order of magnitude bigger than what it could be in a situation that I thought should exist already, which is what we just launched, which is we have a core banking system, which we built. The core banking system opens accounts right for commercial or for the benefit of all these kind of things. Where the dollar settles, you can automatically convert it to stable coin within the same infrastructure and send it out. There's no need to have different ledgers, there is no need to have different vendors. There is no need to have different pools of capital, but everything can be in the same place that, in my opinion, is the missing element today, one of the missing elements today in the interconnection between Fiat and stable coins. And one of my goal in this effort was really to make the Fiat and the stable coins
Sy Taylor 19:20
100% interoperable. Yeah, fascinating. I mean, Neil and I know over your years, you'll have had to build multiple ledgers, multiple flows of funds. Have you seen anybody that's been able to simplify those things? I know you guys are still on the journey of looking at stable coins, but more broadly, flows of funds, multiple ledgers, simplifying. It sounds useful.
Speaker 2 19:39
It does sound useful, and it sounds like incredible the work that you've done that Luca, just the complexities we have are much more around the interactions between faster payment systems, real time, GS, real time growth, settlements, networks as well as our ledgers. So just taking a step through so. So about 75% of the payments on our network, so out of the 200 billion settled instantly and was available to spend in the bank account at either end. And that instant we define as under 20 seconds. And when you look at the volume of that that's going through, that is pretty material. So the way we do that is, when you're sending money from the UK to Singapore. We've got a couple of bits. We spent a bunch of time building reverb. We've got a bank account at the Bank of England, and we have a direct integration to fps, faster payment system, which is the real time voice settlement network in the UK. And we have the same setup in Singapore. And we have liquidity in Singapore as well for people sending money the other way. So when you're sending, say, 1000 pounds to Singapore, the money comes in by Faster Payments into our bank account at the Bank of England, and then we pay out in Singapore at the other end. So in terms of ledger and matching, you can kind of imagine what we need to do. You've set off a transfer, we've checked we've received the fund, we match it, and then we do the payouts at the other end, once that's been confirmed, and at the same time, run through all of the AML checks, sanctions, checks, etc. The interesting bit for us is to, in some ways, we're centralizing into a single ledger that enables us to do these settlements and payouts outside. The fun bit is we've been building an enterprise product with wise platform, where we now have 200 banks onwise. These are extra standard, chartered Morgan Stanley through to Monzo in 26 ramp. And as these banks are on our platform and people move money between each other, then the money movement is just a database Change entry, and there is no money movement into Fiat. This is very small at the moment, but this could get quite large over time, and we obviously share this in pricing back to our customers, which gives us a bit of a network effect as things begin to go and to accelerate. But we definitely see the challenges of where we interact come back to your point on stable coins and the opportunity with legacy systems. So for example, if I was sending USD from UK to Singapore, then my setup is like, incredibly slow and efficient. I send a swift message to a banker, sends a swift message to a bank that ends up doing wire transfer in the US, and yeah, that would be so much easier on stable. So you can kind of imagine areas that we would be exploring,
Sy Taylor 22:15
interesting stuff and also working really hard. I saw the US. I think it was governor Waller talks about the skinny payments account, things of that nature, and because wise was the pioneer of, sort of getting direct access to central banks for non banks. So interesting to see how those two worlds collide, how direct central bank access and all stable coins start to come together. Look at takeaways from this, like, what are you looking towards over the next three to six months with this platform. And what are your ambitions with it? What are you hoping to unlock and enable for people? Give me some examples.
Speaker 1 22:48
Yeah, they first need this, as I said, full interoperability. So the flows that we're enabling are everything that has to do with corporate treasury, on and off ramp, wallet funding with no walls, B to B, payments, B to B, payments, B to C payments, like, all these kind of things are immediately unlocked by this feature. And the amount of demand that is being generated is pretty insane, and it's coming from every single angle. And one of the craziest, but not that crazy, that we just heard, is a company that is not in crypto at all, like, probably doesn't even know what crypto is, to the extent that you have to know blockchains, et cetera. And said exactly what I said at the beginning, which is, we need a way to send you money. We don't want to do ACH work because maintaining ACH is high compliance cost for us, where compliance means network compliance. And what if we just mint stable coin from our account and we send it? Would it be just easier to do it that way. And like, yeah, frankly, it makes it simple to do it that way, right? This is the level of thinking that is going on when I say simplification is important. Now it turns out that if you build this infrastructure right, and you build it directly inside your core banking system with all the automated compliance checks embedded in it, with the full interoperability with the Fiat rails and the ledger that we discussed before. Then, essentially, you're very well set to serve a lot of the future use cases that have to do with tokenization. And here we entered all the card stack right, like from receiving money and paying money merchant settlement, which, again, like receiving money and sending money to the merchants. Entire flow can be done in stable coin multiple days a week or more, days a week, than just five and then after that, it would be moving bigger assets than just stable coins into the same infrastructure, because, again, the ledger and the tokens can be interpreted, finally, from computers, instead of being Excel spreadsheets that look the same, but the computer cannot really understand what's inside. That's pretty powerful. So we do believe that beyond the use cases that we can power today, we're really building an infrastructure that 20 years from now is still going to be there, and five years from now is going to be super obvious. All right,
Sy Taylor 24:56
it's going to be very interesting to watch. All right, we're just going to take a quick poll. Calls here while we hear from our sponsors, and we will be right back. This episode, if it's not obvious, is brought to you by our friends at visa, a global leader in payments. Visa's tokenized assets platform vtap uses smart contracts and cryptography to help banks bring fiat currencies on chain. Vtap allows financial institutions to issue Fiat back tokens, improving financial efficiency and enabling programmable finance. You can check out the links in this episode's description to express your interest in vtap. This episode is sponsored by stripe. Here's a problem so many businesses are up against money still moves like it's the 1970s on financial infrastructure that was designed before the internet was even a concept. It's slow, it's expensive, and it's tied to borders. That's all changing now. Stable coins are fundamentally a better way to move money online. They're affordable with payments that take minutes rather than days. They work across borders, and they're easy for anyone to use, no matter where they are in the world. Stripe allows you to unlock those benefits for your business. One integration and you can accept stable coin payments, pay out globally and manage your money with stable coins. No blockchain expertise required. Learn more about how you can use stable coins and expand your reach@stripe.com forward slash, crypto tokenized is also sponsored by fire blocks. Fire blocks is the stable coin infrastructure of choice for global businesses, from visa to world pay to bridge to Revolut with over $100 billion in monthly stable coin volume. Fire blocks powers stable coin strategies at scale with infrastructure that enables PSPs, fintechs, remitters and banks to issue, move, hold and manage stable coins. It's all done securely at scale with secure built in compliance with fire blocks, you get complete control to build your own stable coin orchestration layer, create payment accounts, manage liquidity and access on and off ramps in over 60 currencies. Makes it easier for you to build and scale and expand your business globally. Learn more@fireblocks.com thank you to our sponsors. Next story I picked up at the block, and this is about Paxos acquiring fortify the MPC Wallet. So this is their second acquisition of the year for more than $100 million fortify offers institutional grade MPC wallet solutions that currently safeguards over $120 billion of monthly transaction volume. But of course, this follows stripe acquiring privy, which does something very similar, and fire blocks acquiring dynamic to become somewhat false stack between license issuance, custody, and then this NPC wallet as a service seems to be the last piece. And of course, what I like about these wallet as a service things is you could potentially build something that looks like a NEO bank out of them, and the experience is getting a lot better. You tend to see they're quite thoughtful about how you could use credentials that you already have, like a Gmail account and others to avoid the long Metamask, 12 word password to log in or whatever it is in the secret share code, but also they become embeddable inside existing FinTech apps. And that is really, really interesting. So Luca, have you seen any of your client they start to look at using these things. Is anybody live with it today? What are your thoughts on MPC wallets and really that transformation in the customer experience? Yeah.
Speaker 1 28:40
I mean, Paxos has historically been built for custody, if you think of the business model over the many years. So it makes sense for them to think of the wallet a bit less as a custody only tool and a bit more as a ecosystem, interactor tool, as you said before. So I think the acquisition makes sense and represents like the shift we have always believed in MPC as a company, and also myself, it probably gives you the flexibility to be very protective on the custody side, but also very flexible on the experience side, however you want it. The protocol has been pretty resilient over the last few years. As far as I know, there have not been major issues. There have been some enhancements, actually. And I think over time, has become a little bit of the status quo, if I may, in wallet security. So I do believe that the direction is absolutely right. I do believe it gives you the flexibility that banks need, that there's a lot of ways that you can play with it to make it more secure or more flexible based on your needs. So yeah, I think the choice makes sense. And I think MPC is a technology that is here to stay.
Sy Taylor 29:41
Yeah, it's so interesting how there's a few full stack players emerging, like a fire blocks, a Paxos, a stripe family, that this is this consolidation phase is really, really happening. Neil and chief product officer, you obviously think about customers a lot. What do you think the gaps are in customer experience for stable coins, especially for sort of your consumer. And mid market SMB space, is it still outside of the realm of what customers are asking for in your world? Or do you think this is something where we just need to hide the wires and make it feel like dollars? And if it solves a problem, it solves the problem?
Speaker 2 30:14
I think more the latter. If you look at the direction of travel in crypto, it's been in hiding away the complexity whilst simultaneously increasing the security and the distribution of the platform. And I've seen, I'm sure you've seen, some pretty slick apps coming out that are sending stable coins and stable coin variants around the world as ways of sending money and moving money. It's like a very slick customer experience with all of the Metamask craziness obfuscate away. So I expect we'd see more like that happening, and I think there's an opportunity for that, especially in areas where and markets where there's real demand for stablecoin remittance. As I as I talked through earlier, one
Sy Taylor 30:53
of the things that caught my attention as well was AAVE has launched the AAVE app, and there were a bunch of stablecoin neobank apps for both SMBs and consumers, where on the surface it looks and feels like $1 account, but something that Coinbase was doing six months ago was allowing people to lend out their Bitcoin into vaults like Morpho and earn a return on that, or they could borrow against their Bitcoin and spend without losing the capital, which is something that the ultra high net worth have always done. They don't sell their assets, they borrow against them and live off that and then pay them off with the gains. This is now something that are they's making available direct from protocol to MPC wallet, and it's something that in 2021 everybody was talking about, but we actually saw centralized things like Celsius come along that were maybe not so good. Now we're sort of delivering on some of that vision, and it just feels like an app which is quite nice. It feels like an app that solves a problem. So Luca, is FinTech cooked here? Or do you think that these things start to emerge? Does distribution still matter? Like, what's your take on all of this space.
Speaker 1 32:01
First of all, distribution will matter a lot. In my view. What's really going to change is that the time to call it 100,000 users. I don't know if that's a landmark, but let's call it like a target. Is going to be drastically going down, because if you can work globally Day Zero, clearly it's much easier to find 100,000 users globally than 100,000 users in one market. So clearly there is an aspect there. I would say this is part of one philosophical question that I keep asking myself, which is, are banks going to become protocol before protocols become banks? So I think it's kind of, it's kind of going back and forth into the spectrum. In reality, both words offer a lot of uniquenesses. And I keep going back to the definitive answer, which is the partnership of the two is where the most value will be unlocked. Defi, in my opinion, or from what I'm seeing, offers a very interesting property, which some are criticizing, but I actually welcome, which is this idea that the maturity is no longer in there, like the concept of lending against a pool instead of lending against a maturity. I think it's pretty interesting to explore. I don't know to our point this is gonna be not enough. But if you think about the traditional financial system, trying to play with the maturity of the assets, how much you keep on a balance sheet, how much you don't keep on a balance sheet like that kind of trade offs. I'm wondering if defi offers an alternative to the two traditional options, and so I'm very, very curious in that space.
Sy Taylor 33:30
Yeah, no, I'm with you. I sort of try and describe what AAVE is doing as like private credit for retail. On one side, it's an investment asset class, and on the other side, it's a way to borrow at higher cost, frankly, but from a different kind of lender. And actually, a lot of private credit is fueled BNPL and some of the non bank lending. And one could argue that's good thing, bad thing. Apollo and Blackstone would argue it's a very, very good thing. The banks would say this is not a level playing field. You know, they're not regulated like us. The private credit funds would say, Well, sure, but banks are levered 10 to one versus the private credit funds, which tend to be 100% backed and have tranches for how that first lost capital works. So these are fundamentally different products. Private credit isn't an asset class that's generally sold to retail, and I think people get a bit of heartburn, a bit squeamish about whether we should or whether we shouldn't. But I would imagine there's a way to do this responsibly. And I would hope we would you do see some companies that I consider further out on the risk curve, your Robin Hoods, your Revolut really pushing to deliver these sorts of capabilities. But what I thought so interesting about revoluts recent crypto announcement with stable coins is they're honoring all stable coins at par redeeming for $1 and so by taking some of the risk in this space, they're getting that early adopter user base, and they're able to take those stable coins and do treasury management with them in. Some of these protocols, and that can be quite lucrative if done, right? So your treasury management function as a non bank starts to look more like a private credit fund than it does a traditional maturity transformation type of bank. Wow, that was fun to nerd out that way with you. Luca, thank you for getting into the real bank nerd stuff for that right. One last story. Speaking of banks, there's a story from the block and US Bank, the fifth largest bank in the United States, tests its stable coin on Stellar. So this is not a tokenized deposit. They're issuing their own stable coin. It's putting them among many other traditional financial institutions taking an interest in digital assets. But this is very interesting, compared to JP Morgan, who has put their JP Morgan deposit token, jpmd on the base blockchain, only available to its institutional clients. And I think this is an interesting separation, right? Because deposit is a liability of the bank. It could only ever be available to your own clients. Once it goes outside the bank, it's not a deposit anymore. So how do deposits go open loop? They probably need to turn into stable coins. So these, these things are kind of not the same, but this stable coin could be used as liquidity and defi. It could be transferable, and it's backed by deposits at US banks. So Luca, what are your thoughts? I know you're looking at this as a bank, or, I don't know if this is something that's on your roadmap or not, or if you can share, but speculate for me, why this might be interesting and why it might not, and what your thoughts are,
Speaker 1 36:37
I would say, starting from if you sit on our roadmap or not, this is what we launched. So it's more than a roadmap is in the past. I think the idea is that very excited to see banks playing with stable coins, I think is absolutely the right way to think about it's no brainer to me. It should happen. Public blockchains should have more respect from the regulated industry than what they have today in general. Now, every time I read about testing, it's hard to make comments, because you don't know what's behind that test, right? And so it's a little complicated to make, like a judgment overall, I think is a massive positive piece of news for the industry. I generally get a little bit more excited when I see that things are getting real. Testing, it's easy getting real. It's not super easy.
Sy Taylor 37:20
Yeah, banking, circle, sock, Gen, both have live stable coins that are out in market. So it's a different thing. Maybe in 12 months time, we'll see something along those lines from some of the larger US banks. And to your point, there's a lot of tests. There's also the Swift ledger. There's project agora, there's party all. There are many initiatives to start integrating and linking different central bank supplement systems like the ECB and the Indian Central Bank are working on connecting those things at the bottom, the banks are working at connectivity. All of this heavy infrastructure and machinery takes time, but you could just launch a stable coin and skip it. What struck me is why Stella seems like a bit of a ghost chain at the moment, but the US Bank folks said, well, it sports KYC natively, and it's very, very fast, and it's very, very cheap, so it does meet some of their needs. So could be interesting to see if Stella makes a bit of a comeback, and really quite different to a lot of the banks out there who are really talking about tokenized deposit new than you're obviously familiar, I suspect, with JP Morgan's Connexus and token services. Is there utility in those internal blockchains and token projects to somebody like a wise are they useful to you? Would something like this from a bank be more interesting to you? I think
Speaker 2 38:38
it was very smart the way that you summarized it in terms of like, if you're on there, tokenized deposits are useful inside the loop, and you'll need to go to stable coins to get outside the loop. I concur with your thesis. I think that's a very smart way of looking at it. You can imagine that where we have central bank integrations, we use them, and if not, we work with banking partners, and we work with over 90 banks. You can imagine the largest banks in the world, which would include companies like, for example, of JP Morgan, so we're very familiar with their systems. It's interesting to think about from a technology strategy perspective, because JP Morgan's been probably the bank that impressed me the most over the last decade in terms of how it's grown its payments business. I think it's around 30 to 40% don't quote me, now, of the revenue line. Now the PnL and Tai Chis and the team rebuild something quite extraordinary there, and quite differentiated when you look at JP Morgan as the other banks in having a huge payment stack underneath the surface, though, what they did was to buy a bunch of companies who integrated into local payment system banks and payment companies and put them together. And when you're working with banks like this, you can see this ugly underbelly fairly often when you're integrating with this bank or share names at this point with this bank in one market and another market, it's clearly an underlying different core banking system. Video, it's. Great thing with right? And it's very clearly a different API. But again, I think I can share with this is public domain stuff. JP Morgan has worked on their creating their own singular API that's now wrap around and done a lot of the heavy lifting. So it is very, very curious on their strategy. When you think about this, you think about tokenized deposits, and you also think about stable coins and how these play together into a world where, clearly, they look at global payment volume, they think about how much of that are they going to take? They, I think, are the largest USD swift clearer in the world. And then you think about the challenge, the threat they've got there from stable coins most completely killing that market. And then I think we see that response, because their share price and future, the DCF, on their on their future profit is predicated on them and continue to maintain hold of this payments market, specifically USD and this growth in dollarization. So I think we're going to, in terms of banks that I expect to innovate in this space, expect these guys too, and you're right that tokenized deposits are only ever going to be part of the answer, so I would expect to see something else. So there's pure speculation
Sy Taylor 41:08
for me. Yeah, no, we're allowed to speculate, and views and opinions are our own. That's the best thing about the disclaimer at the beginning of the show. But I think it's fascinating analysis to consider that somebody with the most to lose is also the fastest to innovate. That's a narrative that you don't hear very often. The Connexus product suite also involves the interbank Information Network, which is a very interesting bit of cryptography that enables you to manage some of the KYC, AML and sanction screening that needs to be done with incredible privacy technology in a way that arguably, Swift could have done but didn't. So they've been moving into innovation in a way that they often don't get credit for, because people view them as the big bank and they must be an incumbent, but actually, yes, they are, but that's forcing them to innovate. So credit where it's due. Couple of stories we didn't have time to cover this week I saw that tether pegged usdt Zero has now transferred over $50 billion so that's kind of interesting, that layer zero's version of the ultimate bridge between networks is pegged against tether, and it's now starting to transfer more. So the idea of interoperability is coming. And also Moon pay has a bit license and a trust license allowing them to custody for big New York banks, so possible pivot in the works for moon pay. So that's all the stories we had time for this week. I want to thank everybody for watching and listening, but I also want to throw over to Luca if people want to learn more about you and what you're building over at Cross River. Where do people get hold of you, and what do they find out more about the product?
Speaker 1 42:47
Classic answer, we have our website, but I'm super open to spending time with builders at the end of the day. We build everything for builders. So if someone is curious, has ideas, is thinking of flow of funds, there's plenty of ways to find me, LinkedIn, WhatsApp, Snapchat, and I'm pretty everywhere, so gonna be easy to find my name
Sy Taylor 43:03
is Snapchatting flows of funds from whiteboards all day. That'd be,
Speaker 1 43:07
yeah, I'm not really on Snapchat. It was joke.
Sy Taylor 43:11
So it's funny. I did my conference FinTech nerd Con last week, and the one big request was for a whiteboard zone, because there were so many people trying to map things out there. That's what happens when you put builders in a room. Things get built. We're happy to participate. Yeah. Man, we'll get you down next year. Cross River will be a major piece of it, I'm sure. Neil man, if people want to find out more about you and everything going on at wise, where do they do that?
Speaker 2 43:31
Yeah, hit me up on LinkedIn or x. At these places, you'll find me happy to take reach out from builders, people looking at building products, especially people interested in working with me. We're hiring everywhere in the world, from the US to India to Singapore to London, as well as interesting FinTech companies.
Sy Taylor 43:49
Ooh, interesting FinTech companies. Go on, reach out a day, all right, and you'll find me at sy Taylor on all of the socials. You'll find me screaming into the void at FinTech brain food.com and if you want to know more about tempo hits tempo dot XYZ, and for everybody that asked email partners at tempo dot XYZ, if you want to come have a look at what we're building. If you haven't already, you have to hit that like button, subscribe and do all of the things that annoying podcast hosts ask you to do, like share it with everybody. Spam your friends. That is essentially what I'm asking you to do on this Thanksgiving recording day. Thank you so much for watching and listening. We will catch you next time.