On Ep. 50 of Tokenized, Simon Taylor, GTM @ Tempo, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Edward Woodford, CEO & Founder @ zerohash and Keith Grose, Senior Country Director of the UK @ Coinbase to discuss zerohash raising $104 million and more!
On Ep. 50 of Tokenized, Simon Taylor, GTM @ Tempo, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Edward Woodford, CEO & Founder @ zerohash and Keith Grose, Senior Country Director of the UK @ Coinbase to discuss zerohash raising $104 million and more!
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Music by Henry McLean
Sy Taylor 00:00
Tai, welcome to tokenized. The show focused on stable coins and the institutional adoption of tokenized real world assets. My name is Simon Taylor. I am author at FinTech, brain food, head of market, Deb at tempo. And I am joined by the one, the only, the man, the legend, the myth. Kai Sheffield, how you doing, sir?
Cuy Sheffield 00:29
I am fantastic. There's too much going on. It's too hard to keep up. We gotta get into the show. We've got some great
Sy Taylor 00:35
guests. Yeah, we do on this 50th episode as well. It's feeling good to get 50 episodes. Joining us today is Keith Gross, who is senior Country Director of the UK over at Coinbase. How you doing? Keith, great. It's great to be here. Simon, thanks for having me. Yeah, no. Awesome to have you. We've known each other for a while, but nice to do the podcast thing. And of course, back with us is Ed Woodford, CEO and founder of zero hash. How you doing?
Speaker 1 00:58
Ed, yeah. Good to be back. And I had to raise 104 million to come back on so high bar you guys set. You know,
Sy Taylor 01:05
that's the bar. You know, it's we're booked out for six months. Man, is serious, but you did all right. You know, maybe raise 105 next time. Just say, look, two quick bits before we get into the content. Of course, I have to remind everybody that the views and opinions of contributors today are their own might not reflect those of companies they represent. Please, don't take anything they say is tax, legal or financial or investment advice. Do your own research. We're not trying to sell you things. And of course, I need to remind you that this podcast is supported by centrifuge tokenized is brought to you by our friends at centrifuge. Centrifuge exists to bring institutional grade finance products fully on chain. Centrifuge is a full life cycle defi platform, from asset creation and structuring to defi integration, and it's cross asset by design. What that means is they work across private credit, ETFs and equities, making your financial products much more accessible and much more efficient. This is the tokenization you keep hearing about, unlocked for all asset classes by centrifuge. Thank you so much to our sponsors. Story number one, well, pretty much everywhere, as Ed may have alluded to in the opening, zero hash raised $104 million from companies like Morgan Stanley and SoFi and Apollo led by Interactive Brokers, which caught my attention. I'd read a press release, but Ed, I think you could probably do a better job of explaining the story here. So why don't you tell us a little bit about it?
Speaker 1 02:49
Yeah, absolutely. So we've been building since 2017 and this is our series D, and I think it just, it's not really the size that matters. I think it's more about the participants. That's what they all say, and it's the participants of you've obviously got a globally, systemically important bank in Morgan Stanley, the bar to get a group like that, not only to invest, but also to become a customer, is exceptionally high, and I think, testament to the way that we've positioned ourselves to be the most trusted infrastructure provider in the space. So yeah, so yeah, we can currently announce that Morgan Stanley will be launching a crypto product, you know, in q1 of next year. But I said this quite a lot over the last few days. For me, I think banks have now more or less put crypto in the rear view mirror. It's kind of vanilla. The leadership team spend a lot more time thinking about stable coins and tokenization. And so my thesis is the next six to 12 months, and you're starting to see this on our cap table. This on our cap table, and how we're thinking about things. Next six to 12 months, every bank will offer crypto natively within their infrastructure. You'll be able to buy it. And then over the next 12 to 24 months, will be a much bigger story around tokenization. I think you'll see a meaningful portion of their balance sheet become tokenized, and then obviously different areas and avenues of of ways to be involved in the stable coin space. So, yeah, very, very exciting, I think, testament to what we've built as a team. But you know, it's just, it's a step in the journey.
Cuy Sheffield 04:08
Yeah, first off, congrats everyone. I think what's really interesting to me about zero hash is that at its core, stable coins are this intersection between payments, lending and capital markets. And so I feel like if you just look at like one of those segments, you miss part of the bigger picture. And so it feels like you guys have been able to find this interesting role where there's the crypto asset trading side of it, that you have clients that are using you for buy, sell and hold. There are payment companies that are using you for payouts. And then there's this new use case that we've talked about a lot of this, like account funding transaction, where people are using stable coins to fund a brokerage account to fund a prediction market account. Can you talk more about how you see that intersection playing out of stable coins, not just being used to buy your coffee, but they're becoming one of the best ways to fund. One day brokerage account and the need for infrastructure to do that?
Speaker 1 05:02
Yeah, absolutely. So maybe just kind of big picture thesis in terms of because you mentioned both crypto and stable points. I mean, my view is that tokenization is a technology. Blockchain is a technology effectively makes, I think this line between traditional investments and payments, it becomes incredibly blurry, right? Because if everything's easy to move and can be fractionalized very, very simply, this concept that you have to hold something in order to pay for something and not earn any interest or do anything, I think goes away. So I think there's a massive blurring of lines between what is historically being seen as an investable product versus a payment product. Is Robinhood an investment game now, or are they a payments business? I think more and more they're becoming one in the same. So I think that's kind of the big thesis. A great example of that is account funding. So for example, Interactive Brokers launched with us crypto trading, and now they're launching account funding, which, in my mind, actually can be a much bigger product, because let's say that 5% of IB assets become crypto, right? Because that's a portfolio. That's a big market. But what's really big is if you have a meaningful funding mechanism in stable coins. So we've talked about stable coin account funding, but maybe just give a quick overview. Stable coin account fund is effectively the ability to use a stable coin from anywhere anytime to be able to fund the account and the recipient effectively to meet me transfer, and what you receive at the other side is dollars. And so you alluded to some of our customers here, for example, cow she leverages zero hash to offer stablecoin account funding. Interactive Brokers and I and tastytrade do the same. And then you've even got large tokenization platforms like biddles Blackrock fund and Franklin Templeton's Benji fund can all be funded with stablecoins. And so stablecoin account funding is incredibly powerful, global instant, real time funding mechanism. And where we're seeing a lot of market adoption right now is the gaming, is the brokerage, it's these 24/7 365, marketplaces. But I think it's a much bigger story. If you can fund instantly, cheaply, quickly, I think you'll see that in the way that we fund our FinTech accounts or other pieces. And I think what's really exciting to me about this is the infrastructure that exists, because with genius, that means that every bank is gonna be able to instantly become effective with this on ramp into stable coins. And so you'll be able to fund anything, anytime, anywhere. 24/7 365,
Speaker 2 07:15
yeah, well, first of all, congrats, Ed. I mean, it's great to see zero hash do this raise. And I think it's also amazing that you've been building this since 2017 because I think a lot of people think stable coins came out overnight. It's like, no, you've had to build this infrastructure and fight through many cycles and battles to get there, which I think is amazing. I definitely agree with you on a few things, a few things I want to pull out of that. One is I definitely agree with you that I think, especially with regulatory clarity coming. Big banks are going to be launching stable coins and tokenization of other assets like that's coming. I see it in the UK. We're seeing it in the US. I think the next 12 to 24 months are going to be really fascinating to see the intersection of crypto and tokenization with traditional financial service institutions. And so I'm excited to see where that goes. And it's great that you can announce Morgan Stanley? I think that's a great company to work with to start that movement. The other thing maybe, to dovetail onto your statement around tokenization, that I point out, that I that I really like, and the way I like to think about is, I think the other value is, once you tokenize assets, you can use them as collateral, and you can get leverage from them. And so what I'm seeing a lot, and this is why I think equities are going to become tokenized as well is, I think it really opens up this world of trading. 24/7 365, for big institutional players, hedge funds and others. So I definitely agree with stablecoin account funding, but I also agree that tokenization is going to hit other asset classes. I think this is part of the reason why big financial players are talking to folks like zero hash like Coinbase and others to get involved, because I think it's early days, but people see the opportunity in that space.
Sy Taylor 08:44
Yeah, that regulatory clarity of the genius act really helps. But Keith, because you're a veteran of plaid and having Dodd Frank passed is very different to having rules, but the passing of Dodd Frank, the emergence of this sort of gives innovators space, and it allows people to move into it, and as challenging as open finances in the United States, it exists, and it's scalable, and it's a big business. Stable coins, as somebody in the FinTech industry, are now the topic. They are the payments industry topic, and because they cross with everything else, and that's capital markets, it's correspondent banking and international payments. It's consumers, and it's kind of really connecting those and Keith, I think you're seeing this Ed and Kai in your professional lives. It's kind of fascinating how many people are taking this really seriously inside the large financial institutions, in a way that, you know, I was head of crypto R D at a bank in 2014 I've been sort of an evangelist for the technology for a long time. In 2017 and that cycle in 2021 the infrastructure wasn't ready, and the regulatory clarity wasn't there. But Ed, I want to come to you on one thing as well as you kind of have a unique perspective, because you do a lot in stable coins, you do a lot. In crypto, and you do a lot in the tokenization of real world assets, you sort of span all three of those in a fascinating way. What are you seeing as the biggest areas of opportunity for a financial institution? Because you said crypto is table stakes at this point, like, yeah, okay, it's vanilla. But what comes after is it stable coins? And what's the path look like for a financial institution, because I speak to lots of FIS who are kind of lost on what to do next.
Speaker 1 10:27
Yeah. I mean, I think there's still a lot of unknowns, right? Just in terms of, if you're a bank or a large fi that has an active customer base, crypto is much easier to understand in the sense of, we have customers that want to use it, and it can be a meaningful revenue line item, right? You can look, just look at Robin Hood's revenue, and you look at how Coinbase has performed, right? So that's, in some senses, vanilla stable coins and tokenization. More broadly, there is a lot more at play here. My view on how banks will approach stable coins is that they will leverage it as one of the most powerful alternative payment methods out there, ie, I don't think banks will be holding stable coins unless it's their own, and I think that will increasingly become an edge case, because objectively, when you speak to a banker, and I think they're speaking facts here, when you think about store value for most people with a stable coin, if you're based in the United States, for example, and obviously we're talking about a subset of the world, but Let's just focus on that, because a lot of these banks, most of their customers are US customers. For example, they're not that interested in the Argentinian or Nigerian story, right? They're just not. What they think about is objectively. If stablecoin is not as good as $1 for customers, it's not insured, you're taking credit risk against a company, as opposed to the US government, and they can't earn interest on it, even if they get a share with the issuer, it's still not as interesting. But I think where banks are really starting to see is that, I think what you're going to have is a consolidated dollar balance, and in the same way that you can draw from a wire or Zelle, you'll now have effectively, a blockchain. And I think even there, you'll start to move away from even blockchain, because right now, you have to choose from like 30 from like, 30 different blockchains on circle. I think you'll start to think in terms of account to account movements, and it'll be this blockchain technology that is abstracting the way, in the same way that I send you an email, I'm not really thinking about the technology that I'm leveraging. So that's my view on how banks approach this. A lot of the banks are saying, look, the first thing that we can do is we can hold the dollars for stable coin issuers. I don't think that's that interesting. So given that I'm just talking about banks, I think a lot of banks are much more focused on tokenization, and you have to think of it from in terms of the FIS viewpoint. Most FIS make decisions from risk and in terms of what threatens their existing business. It isn't necessarily innovation, right? And so what is risky to them is that deposits move away from them, the assets move away from them. So at least from my viewpoint, and we've got a pretty good viewpoint across all of the major banks, I personally think they're spending more time and more energy now on tokenization and a subcategory out that could be issuing their own stablecoin. But right now, that's my view, is where they're spending a lot more time. It's on tokenization. I think most banks, outside of a POC will move more meaningfully in the tokenization realm. So I'm not talking about networks or a lot of other parts of the world that obviously, I think spend more time on stable coins. But if we're just talking banks, that's my view.
Cuy Sheffield 13:19
I think this is a super important point that we still see a lot of confusion on when we talk to people that are starting to really look at the space for the first time, I don't see any incentive or demand that a bank in the US would have to offer a stable coin based account to hold stable coins on behalf of a consumer, like they have no incentive to do that. And I think you could argue that consumers don't have an incentive either, but like, banks definitely don't have an incentive. They want to hold deposits. They have the ability to take deposits, like that's what they do. And so I think it's very different where stable coins were born out of crypto companies then moving into FinTech, if you're a non bank and you don't have the ability to take deposits, then it is really interesting to say, Okay, let me offer a Venmo balance that could actually just be a stable coin behind the scenes. And so I think we'll see more and more non banks that use stable coins as a more flexible way for them to have the equivalent of a store value product. But I don't think we'll see any banks say, let me just have a consumer send a stable coin to me, and I'm just gonna hold it for them. It'd be like growing their safe deposit box business of just holding physical cash in a box that they can't do anything with. It doesn't make any sense. However, if you don't look at the just as a store of value, you look at it as a medium of exchange and a payment method, then I think it's much easier to translate and say, how many different ways can you get funds into a bank or out of a bank? Right now? You can get it through cash, you can get it through Zelle, you get it through visa direct, you can get it through RTP, like this is just one other rail. But as Edward mentioned, the problem is it's not one other rail. It's like, you know, 20 different blocks. Trades with like 10 different stable coin brands. And so I think we need to have this convergence of stable coins being treated in a consistent user experience as one other rail, even if underneath that, that includes many different stable coin brands and many different blockchains. But I don't see why you wouldn't, as a bank, want a consumer if they have a stable coin to bring it to you deposit it in and as our friend Tony says on the episode, like it's a gift, like someone is bringing it stable coin to the bank to deposit it that's growing your deposits. That's a really good thing for a bank to have. And so that nuance is really, really important.
Sy Taylor 15:35
I think it is. You've got to color over the top of that the incentive for everybody to issue their own stable coin and insert the Oprah meme here. We'll cover it a little bit later, but Cloudflare have just announced they're going to do net USD, and as the genius act is currently written, they get to collect the yield on that so that incentive, so long as it stays around, will be enormous, which will just create even more fragmentation. But that smells an awful lot like an opportunity for financial institutions, because stable coins don't trade at par to the dollar, but dollars do, deposits do, and this is a superpower that I think financial institutions haven't realized they have. And again, this comes back to the Tony story of like clearing and trading at par tokenizing deposits is actually a relatively simple thing to do, and what you then have to ask is, how and what does that process look like, and how do I protect and make sure I manage all of my risks in that process? Keith, any other thoughts on this one before I move to the
Speaker 2 16:35
next story? So I do think that the fact that these are going to be fungible, and how you manage that in a clearinghouse is a really interesting question. Interesting question, right, especially when you think about deposits, and the benefit of tokenized deposits, right? If you can trade these globally on chain, is the deposit in JP Morgan, the same as a deposit of US dollars in a bank in Bermuda, I think that's a question, and we'll have to figure out how to handle that. The other thing I point out about this, I think is interesting that we've sort of glossed over and taken for granted. But I think is going to be a really interesting change around this is it means wallets are going to have to sit alongside bank accounts for all of these banks, for all of these consumers. They're going to need wallet infrastructure. And I think that's going to be a fascinating thing to see happen, and see if consumers just start to think about an account and a wallet as the same thing, TBD, but I think that's another sort of secondary effect of this growth in stable coins and the adoption by large financial institutions that we'll see. Yeah, I got
Sy Taylor 17:30
asked earlier today by a group representing several large banks who are the infrastructure providers and edge you'll be happy to know I did name zero hash is one of those names and and I do think there's a real desire to learn and understand. Okay, I accept that stable coins are inevitable. So what are the bits that I need to build, like wallet infrastructure, or who do I partner with on wallet infrastructure? Who do I partner with to deal with all of these networks and and I think that opportunity is really exciting. So Ed, I do want to tip my cap to you. You've lived through a couple of winters. It's not always been easy, but credit to you and the team for getting to where you've gotten to. Speaking of some mega raisers, this story came from just about everywhere, including the CEO of tether himself. They are apparently seeking funding at a $500 billion valuation. They're seeking between 15 and 20 billion for 3% stake in the business. This would value them alongside OpenAI, the world's highest market cap private company, except nearly 99% of their revenue is profitable, versus OpenAI, who is actually not necessarily making money at the moment. It's fascinating, fascinating story. They also announced that they intend to start to diversify some of how they generate their profit into other investments, like AI and like into agriculture and media assets and beyond. Tether is enormous, and tether continues to get enormous, and it seems like Paulo has confirmed this is true, Keith, I'm going to come to you first on this, because stablecoins are such a huge topic. What do you think about when you see headlines like this, and where do you think that places is overall?
Speaker 2 19:14
Yeah, I think it's really interesting. I think one, it puts stablecoins on the map in a way, and sort of cements the end of stable coin summer at a very high point. But I think, you know, we talked about this earlier, about stable coins as a payment method. And so one thing that I think is interesting to compare here, and we talked about how there's a motivation for all these large financial institutions to issue their own stable coin. You know, who else is worth $500 billion is MasterCard, and they had 4.9 billion of profit in q2 which is the exact amount of profit that tether had in q2 but tether has 150 employees. So I'm looking at this saying tether and MasterCard are valued exactly the same. One of them is building a payment network that's serving a lot of emerging markets, and one of them, obviously, is one of the biggest card networks in the world. But I think you're starting. See this growing battle there. And so for me, that was the thing I picked out of this, which is, one, a monster raise, but two, it's interesting to think about the comparables, right? There's no other private company value like this, except open AI, but when you look at the public market comps, even there, it gets quite interesting,
Sy Taylor 20:15
yeah, rookie numbers.
Cuy Sheffield 20:17
Ai, I mean, there's, there's no question that tethers one of, if not the most fascinating company in the world, just from like a storytelling standpoint, like where they started, like how they operate, the business that they're in. Like it is, it is fascinating. I think two takeaways for me. One is, it seems like they're becoming almost like this Berkshire or Hathaway, like holding company that is going out and building and buying businesses from, as you mentioned, agriculture to AI to biotech, and it's with that small of a team to see kind of how broad they have gone outside of just the focus on serving $1 stable coin. I'm most interested to see how those investments end up intersecting with usdt over time, because, as we've talked about on the show, distribution is such an important thing that anyone can create a stable coin. But how do you drive liquidity and adoption of it across the world? And so they're investing in new battery solar technology in Africa. That is then, my understanding is you're gonna pay with with usdt. They're buying large agriculture companies in Lac that then could tokenize commodities that could be traded against usdt. And so like, it feels like, as much as this is like a super broad future technology vision that they have along the way, they could find these intersections to bring it back into usdt, and that could end up becoming a major distribution driver. And while there's one side of the distribution that's very much partnerships with existing providers, how do you share interest income? How do you incentivize like I think it's a really smart approach they're taking of going in and buying businesses, starting businesses, and then having usdt Potentially a core part of what helps those businesses operate so super early, with that amount of funding, will they stay at 100 employees like I think that's gonna be the big
Unknown Speaker 22:15
question. Indeed, yeah.
Speaker 1 22:17
I mean, maybe just to dovetail on that, I don't think the fundraiser is really because they need the money, right? It's going to be because they're going to bring in some incredible access because of the investor that comes in. And I think further on, Kai's point, they're almost like the Berkshire Hathaway. And Berkshire Hathaway is a very philosophical business, right? In terms of how they view scaling businesses. When you spend time with Paulo and that team, they are true believers in what they're doing. And so it's a broader philosophy that permeates beyond stable coins. It goes into AI and everything else. So that philosophy is incredibly powerful. They're not just motivated by money, and that is very, very hard to compete with. I do think they've got so much money and they're going to have so much access now with this raise, if they do it, I wouldn't be surprised if you see some major step function moves, ie, companies that we all know, I think, will be bought by tether, I wouldn't surprise me, because they are so they're such true believers, I think the multiples won't necessarily matter as much to these people. It really is a philosophical drive that drives them, and I think that's gonna permeate some of the decision making. So I wouldn't be surprised the next 612, months if there's some incredibly like jaw dropping moments to cap off the year.
Sy Taylor 23:28
I think about it a little bit like the build out of mobile and how that impacted the global south and brought people into the internet and created digital literacy. And if you take the dollar and instant money movement and access to the global north through money, then what else do you build around that as an ecosystem? There's a good friend of mine, Dave Burch talks about how every generational technology change ends up creating a new form of money. So in the industrial revolution, we saw in the late 1770s that the merchants themselves and the machinists created their own coins, because the Royal Mint couldn't create coins fast enough. In the railroad boom of the 1860s you couldn't get paper dollars to the last mile of where the railroads were being built. So the Wildcat banks emerged printing their own dollars, literally where the Wildcats roam. And now we're seeing the world invent its own new type of money based on the dollar, because the old dollar wasn't fast enough to get to the parts where it was really needed and where the demand is, and tether is kind of at the forefront of some of that. I am going to pause us here to take a quick break whilst we hear from our sponsors, and we shall 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. Photography to help banks bring fiat currencies on chain. Vtap allows financial institutions to issue Fiat back tokens, improving financial efficiency and enabling programmable finance. You can check out the links in this episode's description to express your interest in vtap. This episode is also brought to you by bridge, a stripe company businesses need easier global money movement. Bridge is the stablecoin orchestration platform that makes it simple to receive store issue and spend using stablecoins. Companies like X, Shopify and airtm already use bridge to lower their costs, simplify their global Treasury operations and expand their global reach. Learn how you can grow your business with instant global money movement using stablecoins at bridge. Dot XYZ, all right, thank you so much to our sponsors. This story came from just about everywhere, but I thought it was fascinating that the UK and the US announced they're going to try and smooth some capital markets access across the transatlantic, across the Atlantic, even with some crypto cooperation as well, they're going to set up a body to reduce red tape for firms seeking access to capital markets on both sides of the Atlantic and Britain's financial services industry has experienced all too well, has struggled to maintain some of his preeminence coming out of the financial crisis, and especially post Brexit. So this potentially moves us closer to the US, Keith, I'm interested in your perspective here, as somebody who has seen both sides of this, working for a US, company with us, heritage and kind of living in the UK as you do. What are your thoughts on this news?
Speaker 2 26:48
I'm very excited about this news. I think it's gonna be great to see both the Treasury teams work together in this task force. And what I would actually love to see come out of it is a crypto czar in the UK who's helping push forward policy. I know this is aimed at capital markets, but I think it would be great to see the UK do more to mirror some of the US policy pushes around these spaces. I agree that the UK needs to solve some of its capital markets issues, but it's still London and New York are the major players, right? This is a place where it makes sense to have a bridge, and I think it's also makes sense for these Treasury Departments to have a bridge as well. So I think it's very vague as to what actually is going to come out of this, right? I think the announcement was quite short, but I think these are the type of things that can lead to really interesting directions where you might actually have real changes in policy approaches on either side of the Atlantic as these parties get together and try and figure out how to simplify things. And I think if they do simplify things and start to move quickly and start to do a whole of government, push around certain policy aspects, I think you can see really interesting things, just like you've seen in the past nine months in the US.
Sy Taylor 27:52
Yeah, that whole of government thing is including a lot of whole some of which involves different parts that might not necessarily be cooperating, I would suspect. But Ed, you also, as a Brit that lives in the States, have almost the equal and opposite perspective to Keith. So interested in your views here,
Speaker 1 28:08
yeah. I mean, that's how Keith and I have bonded. We're respective transplants. I mean, I've lived here since 2015 but yeah, obviously remain a proud Brit. I mean, I think I've got an idea for you, Simon next, crypto Tsar, Lord Taylor's got a nice ring to it, because you'd have to become a Lord to come sit soon. So maybe that's your next gift. Let's see. Let's see. It may be but tempo is a lot of fun. I'll be still become a lord. There we go. Yeah, jokes aside. I mean, I think the UK has a lot of work to do in terms of brigade innovation in crypto and stable coins, and it starts at the very top. But obviously the FCA is independent, but it's public, right? How many firms applied in the UK in a time where the US was very, very negative towards the space, and the UK had incredible opportunity, and the EU was also been pretty challenging as well, and that window is closed. And we just need to acknowledge that that window is closed. If you're looking as a global business right now, where are you spending time? And I think you're spending time in the US, and I think you're spending time in Europe, and some of the announcements that have come out around stable coins and other mechanisms, I think can be incredibly damaging. That said, the UK has a massive opportunity, huge banking infrastructure and a huge remittance global space. That is what people don't understand about the UK. It is this hub of global remittances and this incredible companies, incredible people. But we have an opportunity now, and that window will continue to move further and further ahead. And I'm saying this as a British founder, very, very proud British founder, living in the US, I'm spending close to 0% of my time on the UK, close to zero, and that is in part because of the opportunity that exists in other regions around the world, but part of it is because of the political environment that does exist. And that makes me sad, but it's reality. So innovations like this are true, are good, but as Keith said, you do need the tangible aspects to occur, and there does need to be some changes in the approach. The UK has some advantages. It needs to lean into it. It's not going to be the US lean into where it has advantages and double down on those. And that's kind of my view. But I do think that there is a PR issue that exists right now for the UK in this world that we
Cuy Sheffield 30:28
live in. Well said, I think for me, that the biggest takeaway having no affiliation in any way to the UK.
Sy Taylor 30:35
Boo, hiss,
Cuy Sheffield 30:38
sorry, no affiliation. I'm really interested to see how crypto diplomacy plays out, because it seems like act one in the US is like actually getting things in order. Where there's a path towards regulatory clarity, you get the genius act, sign, you've got clarity act continuing to progress. But crypto is this global ecosystem, and if you want the US to be the crypto capital world like not only is it creating the regulatory clarity here, but then how can you go out and use that as a model to get other countries and other markets to adopt so that the companies that are based in the US can actually serve global markets? And arguably, many crypto technologies and products are really the best product market fit outside the US. And so if you just take stable coins, for example, it's critical to have the genius act and have regulatory clarity for issuers to create $1 back stable coin. But the customers, for many dollar back stable coins are outside the US. And so I'm interested to see how much does the US government actively lean in and look to do outbound diplomacy, explaining why the genius Act is the right approach that other governments don't have to be worried about banks interacting with stable coins, knowing that there's the right oversight that's happening in the US, the benefits that us stable coins could provide. So I think we could see more of this. And then on the other side, are countries going to just kind of follow in pattern match and say, Okay, this is what the US is doing. So now we've got to, like, steer the ship in the other direction, even if there isn't, like, a direct pull that's happening from the US government. Or do you see a reaction against it? And are there countries that say, wait a minute, this whole thing is just about dollarization. We don't want that. That's against our interest. And so maybe we should double down and say, Let's try and stop stable coins from coming to the markets. And so I think there's going to be a whole dynamic of crypto diplomacy that happens over the next few years, and it'll play out in different ways, in different markets.
Sy Taylor 32:36
Kai, that point about dollarization is so crucial. I think the EU in particular, is obsessed with the idea of sovereignty or the lack thereof. Whether it's a conversation about big tech, whether it's conversation about libre or Diem or whatever it was, whether it's conversation about payments more generally, in Epi, in the Vero attempt to build a sort of a European payments player, there's this constant obsession with sovereignty and the fact that 99.9% of stable coins are dollar based probably doesn't help with the perspective there, but also that's an opportunity I saw today that Marik flement and consortium of European banks have announced a European stable coin that can be issued under Mica. That's good. We need that type of innovation, because not everything's going to be top down. Cbdc, digital, Euro, amp, so we need more innovation. And I think creating that space for innovation is really, really crucial. I don't know that anybody is really against the euro existing, or the euro being part of the global stage. If anything, that would be a phenomenal stable coin to have. And so just being a little bit more open to that would be, I think, hugely helpful for all involved. I'm going to move us to the next story, because this one has so much to unpack. And Keith, I'm hopeful you as a Coinbase representative can help us understand a little bit more about it too, which is, Cloudflare and Coinbase have announced they're going to partner to create the x4 02 Foundation, which is aiming to encourage the adoption of the x4 02 protocol. So x4 02 is really, really fascinating protocol that attempts to really revive what Marc andreesson called the original sin of the internet, this idea that we can't pay for things natively on the internet. We even built something called HTTP 402 and right now, a client and a server can send HTTP 402 requests, but then there's no what happens next? There is nothing. And X 402 is designed say, Ah, yes, I understand that you want to make a payment. Here's how you make a payment. Here's who you pay. Let's pass this to a payments network or a payments company to kind of go deal with that. And of course, Coinbase then, has done a lot of work on making sure that's compatible with stable coins. Have I understood it right? Number one and number two, what do you think this means?
Speaker 2 35:00
Yes, yeah, I think you have understood it, right? Maybe I'm dating myself here, but I think the way I would tell everyone what 402 is, is you've probably seen a 404 page, if you've used the web, right, where you've seen a page that can't be reached. Coming from the open banking world before being in crypto, I'm so used to HTTP codes, because we used to get 204 anyone who's worked with an API, right? You're used to getting an HTTP 200 code for a successful API call. So this has been actually built into the HTTP protocol since the beginning, payment requested, payment needed. And so what this has done is said, how do we take this unused piece of internet infrastructure and make it useful for in particular, agentic payments? And I think the reason why this is so interesting and has sort of flown under the radar is if you think about where we might be heading in this very early days, but in this world of the chat gpts and Geminis and topics of the world where instead of humans going to websites and shopping and making payments, you might have agents crawling 1000s of millions of websites making 1000s of millions of micro payments. How do you update the infrastructure of the Internet to handle that? And I think this was a really smart move from CloudFlare, which, for folks that aren't familiar with CloudFlare, they're the ones who protect all these websites from DDoS attacks, right? So they're the ones where you say, hey, please verify you're a human before we let you into this website. They're now working alongside Coinbase and others to say, how can we also make it so agents can pay to access websites, and you can start to monetize this? And I think it's really interested in the concept of crypto, because this is a perfect place for crypto wallets, keys, tokenization of agents, being able to pay each other at very, very, very small amounts and very high volumes. And so I think it's very early days for this innovation, but I think it's really exciting. I think the other sort of thing I can offer here that I think is interesting is this is exactly the type of project that comes out when you have really smart people working on passion projects. This was one of those, sort of like a Google style, 20% project that became something really magical, and now may become a core part of the infrastructure for agentic payments going forward, in the same way that Google Maps grew out of a 20% project at Google. And so I think this is a type of thing around the internet that I love to see. Someone just gets excited. They found, as you say, this original sin. There's a different world now. And said, how can we update this infrastructure? How can we create something really interesting here? And so the fact that we've partnered with Cloudflare to set this up, and that it's open protocol anyone can use it is, I think, what's really exciting.
Sy Taylor 37:30
Hugely exciting. Ed your thoughts on this. And also the fact that Cloudflare has announced they're going to introduce a new stablecoin, the net dollar, which I alluded to earlier, to enable instant secure transactions for agent to agent payments. Your thoughts here? I mean, I
Speaker 1 37:47
can't really add much to what Keith said. I mean, except hearing him talk just got me more excited by the announcement in terms of the Cloudflare launch of their own stablecoin. The only thing I would add is we are obviously seeing a massive fragmentation at both what I would call the blockchain level and the asset level, right? If you think of USDC, they keep announcing new chains on which they're going to be launched. I think Canton is coming up next month, at some point. So there's massive fragmentation even within one asset, which is USDC. And then obviously you're going to see many more companies follow along the asset level. So the asset level. So the complexity of dealing with stable coins is only going one way. I'm certain of that, and I think that's what the infrastructure that we've built and others is around, abstracting away that complexity. But for me, for stable coins to truly become mainstream, it's when we stop talking about the core technology at the blockchain level, and we stop even talking about the asset level, right? And most of this conversation today has been about assets and chains. For this to become truly mainstream. It's when that's completely attracted away, and I think that will occur. But I think that's the key takeaway, for me.
Cuy Sheffield 38:48
It's one of the most interesting developments in areas of the stable coin space right now is this intersection between stable coins and AI really impressed with the Coinbase team, Emil and Lincoln and like the folks have been building that are fantastic. I love the messaging of, like, killing API keys, and how they've explained it. Of like, if you're a developer and you want to sign up for an online service, normally you go and create an account, and then you have to get an API key, and then you pay. And then, just like, what if your wallet was your API key, and this universal API key that you could send a request be able to consume a service and then pay as you go? And I think that that makes a ton of sense. And the question is just going to be, what, what are the use cases that drive this, and how far away are we? It is incredibly early. There's a dune dashboard with like, X 402, volume, last time I checked, I think it's like a few $100 a week. And so there's not significant value moving across this. But I think that the framework that they're creating is really interesting. I like to think about within agentic, there are these two different categories of use cases. One is agent to. Merchant. And if you're a consumer and you want your agent to be able to shop for you, we think the best way to do that is you put your card on file, and we use all the advanced capabilities Visa has around tokenizing that card and capturing the intent and managing the right rules and permissions. And most merchants accept cards, and your agent should be able to spend on your behalf with your card, with all of the right controls in place. I think where x 402 fits in is on that agent to agent or kind of developer to developer friendly service, which is it's more of like a B to B flow, where I don't necessarily see consumers using x 402 to pay a traditional merchant in E commerce. I don't think like that's really where it's well designed, but the idea that as a consumer, I might interact with an agent, I might give it an objective or a task, and then it needs additional information to be able to accomplish that task. And now x 402 also announced this bizarre. So there's a discovery ecosystem where you can find other tools that are embedded to be able to accept X 402, and so I can absolutely see that flow of your agent now needs help to accomplish the task. They're going to go to this open ecosystem, find a service, find some amount of data, some tool that they need, and be able to pay just for that tool to accomplish the task. And so it is incredibly early, but we're really excited to see where it goes. I think that's a great explanation. The one other use case I'll add that sort of fits with that B to B is paying for content that's being used to train these models, right? If you're crawling the web or you're sourcing a source and a response, right? Again, these are super micro payments. But I think exactly that, and I fully agree this is not consumer to merchant. This is Agent to agent. But I think, I think, as you say, it's early days, but I do think it's an interesting technology to track and see if it
Sy Taylor 41:44
does get traction. The agent to agent. Side of it with that early volume doesn't mean there isn't a land grab going on. And I saw last week, Google announced its agent to payment or AP two or a 2p, I can never say it the right way, which is, how do you tell the agent and a merchant, potentially or a recipient, that a human being intended to make that payment? Whereas X 402, I think, works a little bit nicely when there was no human intent, the agent is just out there operating, and they're not doing it on behalf of a human. They are just doing things and they can pay each other, because what stable coins give you is the ability for a non human to have a balance, but for that to operate within a defined window. And I, I'll be honest, as a payments veteran, looking at the tiny volumes and looking at everything going on, I did just think there was a little part of me that's like, are people just taking two buzzwords of like agentic commerce and stable coins, and smushing those together for good hope and going deeper on X 402, looking at AP two last week, looking at what's coming up with the agent transaction protocol in the near future. From some stripe, alumni that just announced some investment, I actually think something else is going on, which is there's a lot of infrastructure that needs to get built, and if these volumes come in three years, five years, 10 years, it doesn't really matter. Now is the time when those protocols will be built, and now is the time when you have an opportunity to shape that future. So it makes it super, super interesting if you want to nerd out on that stuff, but it also means, if you're not paying attention, you might miss out on the opportunity to be serving some of those volumes and to be serving some of those opportunities. And so it's a really difficult time, because no volume, but all of the opportunity for future volume makes it a timing question, not an if question. All right, I'm going to talk about one more story this week, and then I'll wrap very quickly. HSBC announced tokenized deposits are now in the works for four different countries. The tokenized deposit service is available domestically in Hong Kong and Singapore, and now they're enabling its first cross border payment with AU, with USD and ant international as the client. Kai, your thoughts just generally on the amount of financial institutions that are expanding this type of capability,
Cuy Sheffield 44:10
I think that from what we've seen so far, every major global bank, the G simp type banks, either has a live, tokenized deposit product, or it's kind of pretty far along. It's been in development for years and will be going live soon. I think it makes a lot of sense to me, if you can use this technology to enable better 24/7, intra bank transfers, and the banks that have the most challenged with that tend to be banks that have branches and entities all over the world. And it still is like mind boggling to me in the crypto context that, like, you have a single bank, a single entity, and two customers of that bank can't move funds between each other. 24/7 because one customer is in Singapore, and like, one. In the UK. But then you realize, okay, well, actually, like, there were multiple core ledgers under the hood. Then you have different compliance controls, you have acquisitions that were made over time. And so the banking core infrastructure has become complicated to the point where you can't just do 24/7, interbank. It feels like that's going to be solved, and tokenized deposits are going to be a way that any large, global bank, a corporate client, can be able to move funds between customers of the same bank. 24/7, I think that like that is a very clear thing that there's a line of sight to solve. I think the question is, what else? What else will tokenized deposits enable them to do? Do tokenized deposits stay intra bank? How do they inter operate with each other? Are you going to see the ability to move instantly between a tokenized deposit in one bank and another? Are stable coins, the bridge? Is it wholesale? Cbdc? Are tokenized deposits going to go from just these handful of large banks to large regional banks or mid sized banks? And Simon, I think this is probably where you and I are a little different. Of like You're like every like, you're like, every banks can do tokenized deposits, and, like, maybe five will and like, you know, it's like, you know, so we end up somewhere in between. So I think those are the big open questions, but it's clear that it's an area of interest for all the major banks right
Sy Taylor 46:14
now. Ed, any thoughts? No, I mean, I think
Speaker 1 46:15
it goes back to my point about where banks are spending time, right? I do think is on the tokenization element of that. And I think this is just one manifestation of that, but I think Kai kind of capture it perfectly. I probably in terms of actual tokenized deposits, I think I probably skew a little bit closer to Kai. But the one thing that we're all certain of is that we're probably all wrong. At least 50% of this space moves so quickly. So who knows? This will age very, very quickly
Sy Taylor 46:41
indeed it will. And is, these are live conversations that are work in progress. Keith, what are you seeing? What are your thoughts?
Speaker 2 46:47
But I think I'll tie this back to a couple of the previous stories that we talked through, because I think one of the interesting things right, and I think Kai did a great job of talking about the pain that I think does confuse customers, particularly corporate customers, of why can't I move money in the same bank across borders or across these entities instantly? And so you're you're doing these tokenized deposits, but when you're looking at what it really is underneath, this has a huge impact on the FX market, right? And like, you're hedging exposure in those different currencies for these movements, for weekends, for times when banks are closed. And I go back to what we were talking about, and what Ed mentioned earlier about the UK being a center for remittances. The UK is also the biggest market for FX trading. And so when I look at this, and I see major institutions like HSBC doing tokenized deposits in these different currencies, and many other banks looking at it too, I think there's also a question in the back of my head, which is, what happens to FX markets? Where does that go does it become consolidated in some other market? Does it just become at the scale of the internet for all institutions? And I think that's an interesting sort of second or third order question coming out of all of these banks doing tokenized deposits in different currencies, is what happens to FX at that point?
Sy Taylor 47:55
Indeed, it's a fascinating question. We could do a whole episode on this, because I think everybody's trying to get to the bottom of it, and there are so many ways you could do things. It is a live question. People are trying to figure out what they should do, and it's a lot of fun when we're in that sort of phase that nobody knows the answer, and everybody gets to be wrong and learn along the way. And that's what we love doing on this show. And so we're very grateful for all of you for watching, for listening, and we're very grateful to our guests. Ed, where can people find out more about you and zero hash and everything you guys are up to?
Speaker 1 48:27
Yeah, very easy. Zero hash.com or you can follow me on x at E underscore.
Sy Taylor 48:32
Woodford, perfect. Keith, how about you and Coinbase? I'm assuming people have heard of Coinbase.
Speaker 2 48:37
Search us on the App Store, go to coinbase.com and you can find me on Twitter at km gross and Kylie
Cuy Sheffield 48:43
on the next at Kai Sheffield and visa.com/crypto
Sy Taylor 48:47
find me at FinTech, brain food.com tempo XYZ and sy Taylor on all of the socials. And you'll find a lot more tokenized if you go ahead and subscribe. If you've enjoyed this show, please leave a review. It really does help us, and you know, spam all your friends with it as Well. That'd really mean a lot goodbye for now.