← Masters in Business
Loading summary
Transcript38 lines
- [00:00]
Angie Lau
Since you're a subscriber to this Bloomberg podcast, we thought you'd be interested in a sponsored podcast called Evolving Money. Produced by Coinbase and Bloomberg Media Studios, it explains how institutional investors are adopting the world's newest asset class, crypto. Here's a recent episode. You had the government sending a message to innovators and developers that they should basically take any ideas that they may have and take them overseas or put them in a drawer somewhere and just abandon them.
- [00:35]
Interviewer/Host
That's Faryar Shirzad, the Chief Policy officer of Coinbase, talking about the way things used to be with stablecoins. But the message from Washington has changed in the last year.
- [00:46]
Angie Lau
And so what you're seeing now with this sea change in governmental attitude is it's actually a permission structure around developers and innovators who want to think creatively about different payment solutions that could be executed on with the use of stablecoins.
- [01:01]
Interviewer/Host
That unleashed creativity is powering a movement amongst major financial services companies who are now integrating crypto into their operations. In many cases, they're starting with stablecoins. There are a number of reasons for that, including the ability to move money more cheaply and efficiently.
- [01:19]
Angie Lau
By our count, there's about 250 different projects have been announced by know any number of financial players and developers. So the biggest banks, the payment processors, the credit card companies, corporates and others to integrate. And I think we're just at the tip of the iceberg.
- [01:38]
Interviewer/Host
I'll talk more with Faryer about policy trends in a couple of minutes, but first I want to give you a peek into one of those 250 different projects. He referred to checkout.com it's an example of a major financial player investing in stablecoin infrastructure. Right now they are a PSP that's a payment service provider, an invisible intermediary working behind the scenes when you buy something online. Checkout.com started out processing credit cards, then moved into debit cards. And because they're global, they also facilitate currency exchange. Now they're deploying a major upgrade to their platform that will allow consumers to shop using stablecoins and vendors to get paid in stablecoins. That's what we're going to explore today. Stablecoins in practice and in policy. This is evolving money and I'm your host Angie Lau. This show is co produced by Coinbase, one of the largest cryptocurrency platforms in the world, and Bloomberg Media Studios. Now in the series we are exploring how crypto is being adopted by traditional financial institutions as the next logical evolution of the monetary system. And this episode is all about stablecoins, which are cryptocurrencies designed to maintain a stable value because they're pegged to a fiat currency like the US Dollar. So the price is fixed, but the currency is highly liquid. And because it can be moved on crypto rails, it's faster and cheaper to transact compared to legacy banking systems. According to a report In Forbes, C stablecoins were used in more than $30 trillion worth of transactions last year. To give you a sense of scale, that is more than Visa and MasterCard combined. Now, to be clear, the majority of those transactions were trading in cryptocurrencies. But other use cases are growing fast. Payroll, international purchasing, even retail shopping is all increasingly being done with stablecoins. My first guest today is checkout.com's Chief Product Officer, Mehran Kilbeci. I started our conversation by asking him to walk me through the firm's five year relationship with stablecoins.
- [03:56]
Mehran Kilbeci
Back in 2021, we were one of the first payment service providers to offer stablecoin settlement to our merchants. And so this is already a very long time ago in crypto world or in digital?
- [04:09]
Interviewer/Host
In crypto years.
- [04:10]
Mehran Kilbeci
In crypto years, exactly. We offered a service that unfortunately we had to wind down because the regulatory framework was just not there and we were not able to find the right partners in banks and so forth in order to offer that service. But this is something that we are in the process of relaunching as we speak. And essentially it's merchants that are acquiring funds with us want to get settled with stablecoins. What does that mean? It means that they can get settled 24 by 7, which is one of the big advantages. The settlement is immediate. You're not dependent on the bank hours and so on and so forth, and you're not dependent on the bank rails and the merchant will be able to choose how they get settled. Whether they get settled with regular fiat or whether they get settled directly into their wallet will be up to them.
- [05:09]
Interviewer/Host
What are the markets that you're focusing on and how is it all going to roll out in your mind?
- [05:15]
Mehran Kilbeci
We are an enterprise shop, right? Like we support enterprise merchants that almost uniformly are international, like they operate in multiple markets all time. And this is part of what we abstract away that complexity. You know, we give them the ability to accept payments, we with one global API that they can just integrate and accept payments across the world. And so for sure, international is a big part of this in terms of rollout. We're going to start rolling out something which is pretty unique for us because we are a Europe based company, we're a UK based company, but we're going to start with the US and we're going to roll out from there.
- [05:58]
Interviewer/Host
Is the marketplace in the United States already asking for this, demanding it?
- [06:05]
Mehran Kilbeci
So it's a very good question and the honest answer is that I don't know. We believe in the ideology and the philosophy behind stablecoins. We think that there's a future world where stablecoins sit along other type of currency and enable cross border borderless payments across the board. We look at this as an experiment, as something that could potentially do good in the world. Want to put this out there, we want to see how people react to it. And, and the interesting bit is that some of the big merchants in the world are interested in curious because they have customers that are cross border that they have customers that have wallets with stable coins that they're currently not doing anything with except for buying other forms of crypto. And so using it for retail is a logical next step for them as well. And so I think that it's a, it's kind of an experiment within the ecosystem where there's merchant making it available for the consumer and seeing what the consumer adopts and chooses at that point in time.
- [07:10]
Interviewer/Host
Checkout.com is upgrading their platform to handle a payment system that currently handles, relatively speaking, little volume. But the word relatively is doing some pretty heavy lifting there. As I mentioned off the top, stablecoins were used to settle more than US$30 trillion in transactions in 20, 25 and 30 trillion is a number that has even the most traditional financial services companies asking themselves hey, how can we get involved? Mehran says they see this as a market with substantial growth potential around the world, especially in developing economies.
- [07:47]
Mehran Kilbeci
If you're living in an economy that has a very high inflation rate and a very unstable currency, getting exposed to an equivalent of a US dollar is something that is good for you. When you want to buy cross border and obviously not pay cross border fees and FX fees and so on and so forth, then there is another benefit for you. And you know, frankly like in many countries, access to debit and credit card is not ubiquitous and this is an alternative form of payment and it has potentially a lower barrier of entry in multiple geographies. So I can definitely see a very good use case for cross border payments, for cross border retail and for developing markets.
- [08:39]
Interviewer/Host
But what about larger, more established markets
- [08:43]
Mehran Kilbeci
for developed markets like the US and Europe? I think A lot of this is going to come down to preference and people sort of preferring stablecoins because they've traded for other crypto and they have liquidity in their wallets. Rather than trading again to a fiat currency, they just want to use it right there. And the convenience actually of paying with a stablecoin through this experience that we're building is actually it's going to be pretty convenient, it's going to be pretty good. And so I think consumer preference is probably going to drive that usage and utility. And if I switch over to the merchant side, it's all about liquidity and availability of funds. Um, and the more the ecosystem builds itself out, where vendor to vendor payments can happen on stable coins, where cross border payments can happen on stablecoin, then there becomes a flywheel where it starts making more and more sense for merchants to do this. And then down the line I think that some treasury teams are starting to think about, you know, managing their own treasury completely on stablecoins and not having to deal with, you know, cross entity settlement between multiple entities within one company. You can run it on a ledger internally and so that sort of plugs into this settlement and acceptance page. If you look at it down the
- [10:13]
Interviewer/Host
line, when you are getting ready to roll out in the U.S. what is the biggest current constraint that you're experiencing right now? Is it regulation? Is it consumer wallet adoption? Merchant readiness? Operational complexity? Which is it?
- [10:29]
Mehran Kilbeci
Despite the fact that stablecoins have been around for a number of years, for us as a fiat based business, there are still a lot of stakeholders that you need to make sure that they're comfortable. And there are some operationalization hoops that you need to go through. It's about ensuring that our regulators know what we're doing and are happy with it and don't have concerns with it. It's, you know, getting the contracts in order and in place. So nothing is a blocker. But there are challenges, right? Like even in the US there are different regimes, right? Like there's New York, which has its own license versus other states. There's complexity there and how you operate and where your entity is. And all of those things influence the timeline and the implementation path. The technological build is actually the easiest part, right? Everything around it is complexity.
- [11:34]
Interviewer/Host
Complexity is the focus for my next guest, Maryar Shahrzad. Because if the technological build is the easy part and everything around it is complex. Well, Faryar's goal is to make sense out of the complexity. He is the chief Policy officer at Coinbase and his job is to Work with governments and establish the regulatory framework that will let people like Mehran launch their technical solutions. You're starting to see the enterprise and a lot more institutional players coming into the space. But where are we right now in terms of regulations? What is allowed right now and where will we be allowed to go? What is the trajectory?
- [12:20]
Angie Lau
It's a good question. It's also a very sophisticated question because you have two things happening simultaneously that are kind of happening somewhat in parallel, but they will converge down the road. And that is you have the Genius law having been passed by Congress and signed into, into law by the president in July. And this is, as you know well, is the federal framework for regulating stablecoin issuers. And so obviously in a normal kind of calendar of regulatory action, you have legislation and then the implementing regs, and then you go live. But interestingly, with stablecoins, particularly under this administration, you have rapid movement by the regulators to allow use of stablecoins for some of the most complicated payment activities, even before Genius gets fully implemented. So you have Genius getting implemented, but then at the same time you have the cftc, for example, allowing Stable coins to be used for derivatives trade settlement.
- [13:20]
Interviewer/Host
Right.
- [13:21]
Angie Lau
And that is enormously exciting. It's almost like a big sandbox, for example, that is, you know, what they call it in a regulatory perspective, where you've got market participants executing on and using the innovative technology with the blessing of the regulators.
- [13:36]
Interviewer/Host
Yeah.
- [13:36]
Angie Lau
Even as the actual regulations get, you know, bedded down. And, and that's. And that's really powerful. Right.
- [13:43]
Interviewer/Host
And, and Moran Kilbechi from checkout.com I want to bring back what he said, he mentioned earlier that as they design their processes, they have to account for not just different countries regulations, but even different states that have different rules.
- [13:58]
Angie Lau
Well, you know, that's the, that's the big dilemma that I think the industry has at the moment. There's certain issues about how regulation takes place. So for example, for exchanges who intermediate crypto trades spot market transactions, which are the bulk of the crypto trading that you see out there at the moment, that is subject to state regulation. And it's not clear whether there's full federal preemptive authority over the states. And so that just creates a chaotic environment where you have 50 different regulators across 50 different states. Consumers don't know what rules are applied to them depending on where they live. And developers have a hard time implementing and managing the compliance burden of having 50 different rules each different, for each different state. And so there are issues like that, but generally Speaking. You also have, at the same time, a real willingness on the part of the regulators under the Trump administration to use every bit of the authority that they have to provide the clarity that the industry is looking for. So there's legislation's critical. It's our number one objective from a policy perspective. I'm confident we're going to get it done. But we are at the same time working with the regulators to encourage them to provide clear rules. And what I mean by that is, for sure, every time you have a change in administration, new regulators come in and can change the rules. But it's very, it's, it's not as easy as, as it sounds for them to do a 180 if the previous administration has finalized the rules and market practice has adapted and adopted those rules. Because it becomes hard. The courts are careful not to allow regulators to engage in activities as that creates sort of an unfair burden or chaos in the, in the markets. And so there is a really interesting effort by the Trump administration to get legislation done, but at the same time to race ahead with the, with sound regulation that they hope to bed down, have market practice evolve around. So even if legislation doesn't get done, it becomes very hard for a future crypto hostile administration to reverse things.
- [16:12]
Interviewer/Host
If I were to ask you to look at the Doppler radar of crypto regulatory development, what's the temperature right now? What's the weather? What's in the forecast?
- [16:22]
Angie Lau
It's a really, really interesting time because there was a lot of momentum, very fast momentum early in the, in the Trump administration to make these changes that I was talking about. But what really has happened probably since Q3, Q4 of last year, and it's even stronger, I would say now is kind of the incumbent financial players have woken up and have launched some of the most furious attacks on these changes that we're talking about because of fears about what it'll do to the economic rents that come with, you know, their, their incumbency. And so you're seeing all the traditional financial groups kind of jump up and say, oh, wait a minute, we're not against this technology, but please, not so fast, do it more slowly, put more frictions on it, make it harder. And companies are like ours are trying to, you know, be a, be a counterbalance to that resistance.
- [17:27]
Interviewer/Host
What do you think the stickiest issue is right now between incumbents and the crypto industry? The digital assets industry, the platforms, the
- [17:37]
Angie Lau
rewards fight is the most obvious, kind of visible example that you see written about in the press. But the Other example is, is the fight that's occurring at the SEC. The SEC chairman wants to migrate capital markets on chain T 5. T 6 has gone down to T 1 2 or 3. We can take that down to T 0, do instantaneous settlement. But a lot of folks who make their money off of that lag don't want that to happen. It's a big, big issue because it implicates a lot of financial intermediaries who are huge economic rents by sitting in the middle of transactions. But just like you don't need a mailman to send an email to someone, you don't need to have a necessarily have an intermediary to transfer value in the way you used to or transfer a stock or a, you know, or a dollar. And the question is, will public policy stop that or enable that?
- [18:34]
Interviewer/Host
And we've talked a lot about what the US Government is doing. What about internationally?
- [18:39]
Angie Lau
Well, I think of it in two tracks, just to oversimplify it. One is the stablecoin track, and the other is the market structure track. I think a lot of other jurisdictions move well before the US to establish rules around crypto trading, Europe being a great example of mica, the market and crypto assets regulation that they passed. But where the shoes are reversed is with regard to stablecoins or digital money, in that other jurisdictions have moved much more slowly than the United States. And some places like the European Union are, let's say, ambivalent about stablecoins. But what's happened is this genius act passed, you've had massive adoption. And all around the world now there's enormous concern that because the US has gone ahead and adopted so vigorously tokenized dollars, and given the insatiable demand the world has for dollars as a, you know, as a sort of value and as a transaction currency, that there will be enormous pressure on foreign currencies in terms of how relevant they can become if the dollar becomes more accessible in stablecoin form. And so one of the messages that we've delivered to other jurisdictions is whatever you think about this technology, the decision's been made. The US has moved forward dollar stablecoins are going to scale dramatically. The adoptions happening by across the board, by corporates, financials, everybody. And so if you want your currency to remain relevant, you have to have a tokenized version of your currency. And I think that's why you see more, more kind of rapid action in Canada, the UK to adopt stablecoin frameworks for their own currency. And we think that's actually a Good thing, I think the more currencies are available in tokenized form, the healthier dynamic you have of, you know, foreign exchange transactions occurring or transactions occurring in, in, you know, and settled in different currencies. And so we, we hope that will happen.
- [20:45]
Interviewer/Host
So do you think global players need one harmonized model or can the market function with multiple national regulatory regimes?
- [20:54]
Angie Lau
You don't have to have harmonization, but I would say, I would say with stable coins, you know, you'll have situations like right now in the UK where the bank of England is proposing pretty tight caps on how much pound sterling, stablecoin, any individual can, can hold or use. And they're trying to do that because they want to be careful about the transition from the, the analog system to a tokenized system. We think that's a big mistake and that they need to do what the US has done, which is to adopt it rapidly and integrate it into a broad range of institutional and retail use cases. And that flywheel of adoption will be healthy for the development of the, of the pound sterling. So it's not an imperative that the rules be, you know, harmonized, but there's a common sense dimension to it that we've sort of support on the market regulations. That is a place where having more consistent rules makes a lot of sense. Because if you're building a financial product, or let's say you're building an update of a traditional app, you need to have some consistency so that that app can be, you know, accessed by users around the world under the same rules. There are also some kind of more esoteric sounding things like for example, in Coinbase, I'll just give you kind of a more practice, very practical example. We want customers who want to use Coinbase to ultimately be able to source the liquidity for their trade. So if you wanted to buy Bitcoin or whatever, have all of that liquidity as centralized as possible, that's actually a good thing because it creates deeper, more robust markets, it creates more effective price discovery. Deeper, larger pools of liquidity are less susceptible to systemic events. But that requires some harmonization. But that's where you, you, you need a dialogue. And the US and UK happen to have a dialogue right now going on between the two Treasuries coordinating and collaborating on crypto and blockchain based and tokenization market regulation. This is one of those issues that we've urged them to look at, which is creating a system in which they recognize each other's regulatory system. And so UK companies who want to operate in the US can provide US customers access to UK liquidity and vice versa, and that requires harmonization.
- [23:21]
Interviewer/Host
That's Faryar Shirzad, the chief policy officer for Coinbase. It's clear that things are trending in the right direction. The big questions focus on the pace of regulations and whether innovators feel there's enough certainty and stability to build products and push them into the market. Checkout.com certainly feels that way. It's going to be exciting to watch as they roll out their new platform. With that in mind, I want to go back to Mehran Kalbecci and ask him if their rollout goes as planned, stablecoins become more widely used as an easy to move universal currency. How will it change the world if
- [23:59]
Mehran Kilbeci
this were to work? I think that seeing the ecosystem of money movement move to towards rails that are digital and having payments that are borderless, that are free across borders, that that don't suffer from the slowness that the existing system currently has, that don't suffer from the exchange fees that we're seeing. All of that makes for I think a better consumer experience and a better merchant experience and that's what we as checkout are trying to facilitate all the time and trying to find ways to enable. So it's maybe utopic to think about it now, but I think the there is a few years down the line it could happen. So fingers crossed.
- [24:56]
Interviewer/Host
I'm Angie Lau and this is Evolving Money, a co production between Coinbase and Bloomberg Media Studios. Thanks for listening. There are more than a dozen other conversations in our feed for you to check out, so don't hesitate to scroll back in time and listen to some of those today.