← Plain English with Derek Thompson
Plain English with Derek Thompson
Is Crypto Entering a New Golden Age—or Just a New Era of Failed Promises?
00:52:58
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- [00:02]
Brian Phillips
Did you know that scientific studies have found most people lie once every 10 minutes? In my new podcast, Truthless, I'm talking to people about the lies they tell. From faking illnesses in high pressure moments to making up stories on national TV from Spotify and the Ringer Podcast Network. I'm Brian Phillips. Listen to Truthless on Spotify or wherever you get your podcasts.
- [00:32]
Austin Campbell
Foreign.
- [00:40]
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- [01:08]
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- [01:39]
Derek Thompson
We do in fact have to talk about Crypto Again Last week, Bitcoin traded above $100,000 for the first time in its history. Its price has rocketed up 40% since Donald Trump's win as a wave of investors bet that the next four years will mark a golden age for this technology. But this isn't just a time for optimism in crypto. It's also a time for recrimination. In the last few weeks, several major tech figures, including the venture capitalist Marc Andreessen, have condemned the Biden administration for what they described as an illegal conspiracy to wage war on crypto and kick many of its founders and workers out of the traditional banking system. Now, I've been watching both sides of this drama, the optimism and the indignation, with a bit of fascination and a bit of confusion. I am a pro tech person. I want new ideas and I want new ideas to succeed. But I've always struggled to understand the so what of crypto. Like, yes, the prices go up, yes, number to the moon. But I've always been a little puzzled by the gap between the number of crypto zillionaires and the number of people who actually use crypto technology on a daily basis. Use it, not just trade it. And what interests me here is that this story is such A reversal from most of economic history. Like typically, it goes the other way. First, the new technology debuts and it kind of sucks. It can't do anything useful and no one really makes that much money from it. But slowly people figure out how to make it cheaper, more reliable, more scalable. And the industry mints a bunch of zillionaires, right? Like this is the story of cars or televisions, or very basically the computer chip which for years was mostly used on spaceships, right? The Apollo program. Long before we could say that the richest people in the world were software executives, as we can say today, the history of crypto has always seemed to me to be evolving in reverse, as if it's the first technology or one of the first technologies for sure, to create extraordinary wealth before it created extraordinarily broad use cases. But this moment, right now, this apparent dawn of crypto, combined with all these accusations of a government war on the sector, felt like it was crying out for another episode. To take stock of this industry, which is now incredibly important not only within Silicon Valley, but also, it seems now within government policy, to take stock and understand what's happening here, what's it all about. Austin Campbell is a finance vet, an adjunct professor at Columbia Business School, and the founder of Zero Knowledge Consulting. To my mind, he is not only one of the fairest analysis of crypto, someone who clearly enjoys the respect of folks inside the industry, he's also just very, very good at explaining it to the unconverted like me. We talk about the purported war on crypto, starting with the origins of debanking practices under Obama. If that phrase makes no sense to you, don't worry. We'll explain it in about 15 seconds. We talk about why crypto became or seemed to become a Republican technology in an industry that has historically lean Democratic. We talk about the biggest use cases of crypto around the world, the most interesting use case that could be coming down the pike, and why even this crypto famous thinks there is still something quite wrong with how many people within the industry think about the future of finance. I'm Derek Thompson. This is plain English. Austin Campbell, welcome to the show.
- [06:02]
Austin Campbell
Thank you very much. Happy to be here in the open.
- [06:05]
Derek Thompson
I said I wanted this episode to talk about crypto's controversies, its comeback and its future. And I want to start with the controversy. So a week ago or so, the venture capitalist Marc Andreessen went on Joe Rogan's podcast and he made a series of really startling claims about the degree to which the Biden White House has waged war against crypto in the last three years. And these claims really created a firestorm within the crypto industry with lots of different people saying, they waged war on me, they waged war on me. And I first actually just want to play the clip of him describing what happened between the Biden White House DOJ and, and the folks in crypto. Let's play that.
- [06:52]
Marc Andreessen
Basically it's a privatized sanctions regime that lets bureaucrats do to American citizens the same thing that we do to Iran, kick you out of the financial system. And so this has been happening to all the crypto entrepreneurs in the last four years. This has been happening to a lot of the fintech entrepreneurs, anybody trying to start any kind of new banking service. And so a lot of this started about 15 years ago with this thing called Operation Choke Point where they decided to, as marijuana started to become legal, as prostitution started to become legal, and then guns, which, which there's always a fight about. Under the Obama administration, they started to debank legal marijuana businesses, escort businesses, and then gun shops, just like your gun manufacturers. And just like you're done, you're out of the banking system.
- [07:33]
Derek Thompson
Austin, I think the best place to start is this. What is Marc Andreessen talking about? What is debanking and what is Operation Chokepoint 1.0?
- [07:44]
Austin Campbell
Yeah, so I'll start by saying debanking is relatively simple to describe, which is it's the process of somebody losing all of their bank accounts. And as we understand in the modern economy, if you can't participate in electronic payments in any meaningful way, you are largely shut out of the system. And choke point 1.0, which as you correctly noted, happened back under the Obama administration, started as what I will say in my personal opinion, was a well intentioned attempt to sort of interdict some of the highest risk behaviors in the payday lending sector. Obviously that's been a sector where there's a lot of abuse of individuals, where there was fraud, where there a lot of genuine controversy around the activity of some of the companies in this space. And if it had stopped there, I think everybody would have unilaterally regarded it as a good thing. The problem is, like many things that you do in this space that began to take on a life of its own and was expanded to start targeting other things that were, call it politically or socially disfavored. So tobacco companies, adult entertainment, if you want to look at things like online gambling, firearms, what happened there is it moved from targeting people purely for reasons of legitimate concerns about fraud to we don't like the behavior. We think it's high risk for call it reputational reasons. The other part is all of this happened largely through a whisper campaign by banking regulators targeting the banks who served these groups. So this was not pass a law that interdicts all these things. This was behind the scenes whispering so all people would know was their bank account was closed and they wouldn't know why. So that was choke point 1.0.
- [09:27]
Derek Thompson
So you've got this enterprise that begins with the Obama DOJ that goes from choking off businesses that are illegal to choking off businesses that are like porn or gun suppliers, telemarketers, tobacco companies, you know, maybe not any given grandma's favorite industry, but these aren't Colombian drug rings. They're not smuggling children and heroin across the Mexico Texas border. These are legal companies that are just to use your lender language, morally disfavored. And a theme I think we can pick up from operation choke point 1.0 under Obama to what a lot of people in the crypto industry consider, Operation choke point 2.0 under Biden, is that there's a set of legitimate concerns about fraud that can grow into something darker and more irresponsible and possibly borderline illegal. So let's take that idea and drag it 10 years forward, from 2013 to the early 2000s, when there are a ton of people in the US government who are looking at crypto, especially after the fall of Sam Bankman, Fried and ftx and seeing there's a lot of fraud here, there's a lot of money laundering here, we need to do more to debank folks in this industry to keep people safe, to keep customers safe, and to stop folks from laundering money. Describe how operation choke point 2.0 went from legitimate concerns to illegitimate behavior.
- [11:00]
Austin Campbell
Yeah, and I'll, I'll again sort of start with a similar theme, which is there are definitely some bad actors in crypto. Right. If you were to look at what has gone on with the criminal cases around SBF or like Mashinsky and the Celsius resolution and what's going on with Terraform Labs, I think it's incontrovertible that there were some people doing criminal things. And obviously those people should be stopped in a variety, variety of ways, including not being able to take in huge amounts of customer activity for frauds through the banking system. So once again, at the start, we have a very legitimate concern around things that are going on. The problem with choke point 2.0, similar to 1.0, is then you have People begin expanding that sphere beyond where you originally started into things that are increasingly, I would call it, questionable because, okay, so we've deep bagged ftx. Obviously not the worst thing in the world. But then you start looking to other exchange relationships and finance. Not as bad as ftx, but obviously they settled with the doj. You could have some questions there about high risk, but then you move outward to, like, Kraken and Coinbase and Gemini, people who quite frankly, have not been plausibly accused of any wrongdoing.
- [12:15]
Derek Thompson
And now you want to slow down right there. And just to explain what some of these companies do for folks who know what crypto is but don't necessarily follow the TikTok of the industry.
- [12:24]
Austin Campbell
Yes, absolutely. So every one of those companies I just named is a crypto exchange. So basically you can, in the US Case, deposit dollars with them and use those dollars to buy and then sell crypto. So if I want to buy Bitcoin or I want to buy Ethereum, I could use any of those exchanges to do so. You know, to the user, it will feel, though it is not identical. Not financial advice, like logging into a brokerage account like Robinhood or something, and buying a stock, only with crypto.
- [12:51]
Derek Thompson
And keep going with the story, like, what are the most egregious ways that you think Biden's worn crypto that might have ultimately begun with, like, you know, targeting the bad apples in the basket ended up targeting the entire apple basket. The good and the bad, the ripe and the spoiled.
- [13:06]
Austin Campbell
Yeah, and where this ended up going is banks were increasingly under pressure from, in particular the FDIC and to a lesser extent, the Federal Reserve and maybe the occ. They started just throwing overboard anybody who had anything to do with crypto and even one degree removed. So, for instance, there are confirmed stories of individuals who worked for crypto companies, including Coinbase, which I will remind people is a publicly traded company in the United States having their personal bank accounts closed because they worked in the industry. So I want people here to imagine taking a job, for instance, with DraftKings, as, I don't know, an accountant, maybe a lawyer. And the next day your bank accounts are all closed with no explanation. This is essentially what started happening at the tail end, along with very regular operating companies and a couple of law firms just having their business accounts closed and being shut out of the system.
- [14:01]
Derek Thompson
Can we talk about motivations here? Because I'm sure some people listening are thinking this sounds borderline evil. I mean, it would be almost evil for a government regulator to forcibly debank an individual who's just an accountant working for a football betting site. That doesn't seem particularly legitimate at all. And the way Andreessen was talking about this, this was an explicitly political campaign. It was Biden going against crypto or the SEC going against crypto for explicitly political purposes. But it seems to me like there's a portfolio of possible motivations here. Maybe some people are just bad actors, maybe some people are political. Maybe other people are trying to do a good job but doing a good job poorly. And maybe other people are just like kind of. I mean, I don't say dumb, but just not sophisticated enough about these industries to be able to see the line between FTX and a crypto startup that isn't dripping in fraud. So what's a smart way to think about why operation choke point 2.0, as you've described it, got to this point?
- [15:16]
Austin Campbell
So I think there's three threads that you need to pull on to really get to the core of this. And these relate back to your initial starting point with choke point 1.0, which is 1, you have people who I think in their heart of hearts did believe the entire industry was simply a vector for fraud. Now there are some political actors who are obviously lying for self benefit. If you see Elizabeth Warren fundraising off the anti crypto army advertisements, you know what she's really doing there, which is, you know, classic politics. Fine. But I think what is what, you.
- [15:49]
Derek Thompson
Just feel free to spell it out. What is she really doing there, in your opinion?
- [15:53]
Austin Campbell
I was going to say in the case of Warren, I think this is the classic political trend and I want to be clear, Republicans do this too. So this is not a partisan statement of pick an enemy, make a big deal out of that, use that to raise awareness and raise funds. Right? This is just essentially intensity of emotion grabs attention and attention brings fundraising. So both parties use this tactic. So I think for her it's politically expedient, or at least it was thought to be. For others, I think it is more the view that, you know, bitcoin is clearly a scam and everything on a blockchain is like SBF and people who have not adequately done their due diligence, but as many people did in this space sort of sense, at least some of these companies are sketchy. So, you know, just all of them are sketchy. And this is just call it routine bias, right? Like this is assuming from one or two bad apples that an entire group is rotten and therefore they should all be debanked. And I don't Think those people, you know, to what you said earlier, had bad intentions, but they ended up doing an extremely bad job by being very naive and under informed about what was going on. I also think there's a third group of people who I would describe as call it anti competitive, if that makes sense, which is to say big banks don't really like crypto because it is potentially an alternative system to, you know, big banks and the fees they charge you. And there are similar feelings throughout, you know, call it financial markets. These people would certainly be egging on some of the regulators. Some of the policy groups you can see, like the bis, which is the bank of International Settlements and the Bank Policy Institute in this time period publishing some things that were quite frankly hysterically anti crypto and in many cases false. And that seems to have been motivated more by very classic corporate like anti competitive lobbying. Again, a thing that happens across all industries. So put all of those forces together and then put them within a system where all of the communications between supervisors and banks are considered confidential and nobody can talk about it. And then you have a situation that's ripe for abuse.
- [18:04]
Derek Thompson
Right. So as we move from this purported war on crypto to a new regime that will likely take root under the Trump administration, I mean, he has picked Paul Atkins, a very crypto friendly former regulator, to lead the sec. It seems like we're going to get a very different set of rules and a very different set of, let's call them, extra legal activities. I don't mean illegal. I mean that it seems like the way that you're describing the interactions between banks and regulators doesn't exist at the level of a specific written regulation or a specific piece of legislation that the president science, it exists more at the level of, of individual bureaucrat behavior. So as we move into this new regime under Trump, what is it that you think he will do for crypto and how is that different than what you think he should do for crypto to balance the interests of fighting fraud with allowing technological innovation to grow?
- [19:10]
Austin Campbell
Yeah. So let's start with what I think he will do. If you look at the picks, as you were pointing out, Atkins is one them. Howard Lutnick, by the way, for Commerce, is another very pro crypto person as well. He's surrounding himself with people who are very positive on that space. So in terms of executive actions early, I think unwinding a lot of the executive orders or actions under the Biden administration, reigning in treasury, reigning in the irs, reigning in the sec, the banking regulators, is all going to happen. Very early. And the question about that, that quite frankly we won't know until we see the actions, is, is that just deregulation or is this telling them pick and choose targets better and inform people better? Because one of the big critiques which you hit the nail on the head with has been, hey, nobody's writing anything down, right? Like the SEC has been enforcing against a bunch of companies in the crypto space, including lawsuits against Binance, Coinbase and Kraken, and in fact saying in some cases conflicting or mutually contradictory things at different circuit courts about what their theory of law that tokens were securities were. This kind of thing. I expect to stop. The question is, do they just pull the lawsuits or do they sort of come up with one coherent theory and write it down and then proceed? Those will be very different. Right now I think it's probably likely to be more of the just pullback from what we are hearing now, a second part of this that Trump doesn't completely control, but I am sure the administration will have a strong hand in is prompting Congress to pass legislation as well. Because you have Republican, Republican, Republican across the House, the Senate, the presidency. I think they're going to make a push to pass stablecoin legislation, maybe market structure legislation. Now what do I think they should do? One of the things that I think has been troublesome in this debate is we've spent a lot of time arguing about how much regulation there should be and not enough time arguing about what is good regulation and how do we measure it, right? So as somebody who's worked for an entire career in regulated financial markets on a standalone basis, regulations can't be judged as good or bad without trying to understand what you were trying to achieve. So you mentioned some of the goals, which is, I would think about consumer protection, anti financial crime and fraud, but then also preserving innovation and liquidity and transparency for markets. And the question is, how do we do the best job balancing between these concerns? And that is not a more or less question, that is a do better question.
- [21:52]
Derek Thompson
You said something really interesting, that we're possibly likely to get crypto legislation because we have Republican, Republican, Republican across the White House, Senate, Senate and Congress. And as you said that, it made me wonder. It's kind of extraordinary the degree to which crypto has become such a deeply Republican industry. It's hard for me to think of another emerging technology that has such a clear, at the moment, partisan valence. How did crypto become Republican?
- [22:27]
Austin Campbell
So first I'm going to challenge your premise on that. Slightly great. As somebody who, like, talks with a number of staffers in the House and has met some of the Representatives. I will tell you in my top three of most pro crypto people in the entire United States government is Richie Torres, who, for those who are not familiar, Richie is the Democratic congressman from the Bronx, and I can assure you very much not a Republican. I can also assure you very pro crypto. And at one point he was on a podcast where he talked about the fact that the divide within the Democrats correlates strongly with age. Right. So the Democrats who are opposed to crypto are those who, quite frankly, are still probably a little bit uncomfortable with the Internet, whereas many of the younger Democrats, like Richie, like Wiley Nicholl, are much more pro crypto. So, one, I would say what you're seeing is, call it an echo of a generational divide on technology here, and that is highly relevant. Two, I don't think it's so much as crypto wanted to be Republican as it was forced to be Republican, because when the Democratic administration and Senate Banking, which was controlled by Democrats, try to literally destroy your industry and the country by removing all your banking access, it provokes a counter reaction. So I know I will just say this. A lot of Democratic people in crypto who donated money to Republicans and voted for Donald Trump in this last election, not because they like Trump, but when the other side is literally trying to destroy you and force you out of the country, you've kind of only got one option. So I very much think it was an own goal by the Democrats that.
- [24:09]
Derek Thompson
Brought us here, an own goal by the Democrats. And also it's interesting to put it together that it's the interaction effect between ideology and age that you're saying is responsible for this sort of negative polarization against Democrats. It's the fact that Democratic leadership in Congress, in the Senate and in the House at the beginning of the Biden administration were over the age of 70, 75. I'm not looking up Nancy Pelosi and Chuck Schumer's age right now, but they're old enough said. And so there's that interaction effect between the fact that they're Democrats and they might be skeptical of emerging technology. And also I wonder whether there's a little bit of a period effect, which is to say that there was a moment in 2021 and maybe 2022 around FTX where there was a lot of energy around the idea that crypto was much more fraudulent than even its supporters thought. And so maybe that that period effect also interacted with the Fact that Democrats are in power, they wanted, they're maybe skeptical of emerging technologies. They want to help consumers not be defrauded. And all those things came together to create this nauseous stew that, to your point, ended up antagonizing the crypto industry so much that it transformed them, at least temporarily, into a, into a kind of mostly Republican bloc. I won't say entirely because I'm sure there's people who own bitcoin who are Democrats listening to this, and I don't want to call Richie Torres a Republican at all. Let's move a little bit into something that's interested me for years, which is the substantive question of how will crypto become most useful? Let's start with the current most powerful use case of this technology. What is your answer to what is now an impossibly cliched question of what is the most significant use case of crypto today?
- [26:07]
Austin Campbell
So my answer to this has been for a while now, US Dollar stablecoins. And I would say to anybody listening from the United States, that answer hopefully is both a little bit surprising to you and makes you scratch your head. And the reason for that is you're essentially not the intended target audience. Here in the United States, we have the immense privilege of having a banking system that, despite what we said about choke point, for the most part, works pretty well. People could use it like I go to the store, I pay with my debit card. It just works 24 7. We don't have banks constantly failing or stealing people's money. The US Financial system, for all of our complaints about it, is still probably the best in the world. And what that means is if you live in another country, especially another country with a highly degraded financial system, either due to just lack of capacity, incredibly high inflation, extreme corruption, a dollar stablecoin suddenly gives you the option to essentially opt into the US Financial system. So this becomes incredibly powerful from a human rights basis when that opens up.
- [27:15]
Derek Thompson
And can you just take a half step back here and describe, as if to a smart 15 year old who's never heard of crypto, what a stablecoin is, how it works, how it's used?
- [27:26]
Austin Campbell
Yeah. Well, let me start by saying what crypto people call a stablecoin is all over the map. So I would tell anybody, when somebody tells you something is a stablecoin, ask a few more questions after that, because anything that maybe kind of sort of is going to attempt to hold a $1 peg gets called the StableCo. But exactly as we learned the hard way in Finance, in 2008. The fact that you tried doesn't mean you will succeed. I would define a stablecoin and I'm sort of a traditionalist on this, as a token where the way you create it is you literally give somebody a dollar and they give you a token. And then at some point in the future you can go back to them and give them the token and they will give you the dollar back. And what they should do with the dollars in the interim is the exact same kinds of things we would do in the financial system to keep those dollars safe, which is basically go buy T bills or do some very secure forms of bank deposits or overnight lending against Treasuries. And anything fancy or innovative beyond that is probably a recipe for eventually having problems. So that's a stablecoin. Here's the interesting part about those. You don't have to give people the dollars directly because of how blockchains work. And this is where it becomes incredibly powerful. So if I'm in Venezuela, right, I can buy maybe bitcoin or something like that with my local currency and exchange that for a US Dollar Stablecoin that's already on chain who's actually minting and burning the stable coins might be a market maker in the United States. It could be somebody like Galaxy Digital or Hudson River Trading. And what they're doing is seeing when Venezuelans start bidding this up above $1, I can go make a bunch more of them and sell that into Venezuela and make a very small profit just the same. If it falls below $1, I could buy them up and bring it back to the issuer and make a small profit. So it's this market around that $1 peg that keeps them stable. But what that means for everybody else in the world is here are the two things that need to be true for you to buy a dollar stable coin, you need to have the Internet and you need to have something of value to exchange for it.
- [29:41]
Derek Thompson
If I want to understand where stablecoins are most used and most useful, you mentioned Venezuela. What are the other countries where stable coins would be most useful and what is it about those countries, the so called Venezuelas of the world, that make stablecoins such a powerful use case there.
- [30:01]
Austin Campbell
So the places where it's popular tend to have some subset of characteristics that make it very attractive for people to opt into the dollar. So number high inflation, right? If you look around the world at places that seem to like dollar stablecoins, it's places that have a very unstable local currency. Because if your choice is to be in the Turkish lira versus the US dollar and you can get between them pretty easily. That's a simple choice for a lot of people. Two is systems where there's either a highly degraded or non functional banking system. So extreme levels of capital control, very hard to operate systems where just like doing stu your hands is hard. And then the third group is ones where quite frankly there's just terrible rule of law, right? Where leaving your money in the local banking system is usually a recipe for having your money stolen by the local banking system or the governing regime. And so in those three cases and sort of a subset of countries that fall into that is where people use these things. And it's specifically that middle tier where there are educated people, there is economic activity, there are sort of critical masses of money that it's worth moving the mod chain. So the emerging markets like global south parts of Africa, Latin America, South America, Southeast Asia, those tend to be areas where these are really taking off.
- [31:29]
Derek Thompson
So it's sort of like at the rich end, right? Switzerland, the us, Canada, there's not a huge need for stable coins. Those are stable currencies. Inflation's relatively low. The banking systems work, money transfer works. There's not a lot of need for a dollar pegged Cryptocurrency, on the other hand, of the sort of GDP per capita spectrum in a country like, you know, Burkina Faso, there's just not a lot of money and therefore there's not a lot of money to transfer, not a lot of money to exchange for stablecoins or even worse, North Korea. There's no Internet, so there's no way for it to catch on. But in this kind of goldilocks zone, or dark Goldilocks zone, where it's rich enough to not be incredibly poor and cut off from the Internet, but it's not so rich and so stable to be like one of the headliners of the oecd. There's a lot of use case for a financially stable, for a coin of stable value that can be easily exchanged and essentially used for not only exchanging money but also like, you know, like buying sandwiches, I suppose. Like are people using stablecoins to buy sandwiches in, you know, Nigeria, in Medellin? Is this, is this happening at sort of the, the level of the merchant?
- [32:49]
Austin Campbell
Anecdotal evidence certainly suggests yes. There was a theory about stablecoins for a long time that they essentially only powered crypto trading. And if you look at data prior to about call it 2020, that was largely true. But really starting in 2020 and then really taking off in 2022. Stablecoin transfer volumes on chain have kind of decorrelated from crypto trading volumes. And a lot of that seems to be small to medium value one way transfers, which is highly suggestive of commercial activity because in many of these countries these things exist and kind of call it a gray market economy. It's very hard to go survey businesses and be like, hey, are you using stablecoins to pay for things? Because they'll be like of course not. But then you look at their activity and it's like, well, you know, this is interesting. So I would say the data we can find and an important thing to remember about crypto is public blockchains are public. So you can go look at all of this. There's a lot of one way transfer activity of stablecoins to even in small to medium amounts that is very suggestive of real economic activity. The other part is there are starting to be stablecoins that are explicitly used for that. Right. Like PayPal now has a stablecoin. So that should also tell you what the people with the biggest commercial interests are starting to approach, despite how negative the operating environment has been for regulated crypto companies.
- [34:18]
Derek Thompson
I have three follow up questions about stablecoins before we move into like the frontier of crypto technology because I am interested in what you think might be coming down the pike. Question 1. There are a lot of crypto folks who to my ear confidently predict that we're nearing the end of the age of the dollar, that the dollar's global dominance as a reserve currency is near extinction. But if I'm hearing you correctly, the most useful crypto technology is a dollar peg which seems to strengthen the dollar as a reserve currency rather than weaken it. Am I wrong to sense a little bit of an inconsistency or incompatibility between these positions that I guess are both coming from the crypto industry?
- [35:14]
Austin Campbell
Yeah, you've hit on one of the large ideological divides within the crypto space there. And as you correctly identified, I'm clearly on one side of it. So there are some, especially among what you'd call the bitcoin maxis who think, well, bitcoin is going to become global money and people are going to use it for everything. And I will transparently say that although I think bitcoin has value, I am not in that camp. On the other hand, there are a lot of people, and by the way, early to this party are people like Nick Carter and Paul Ryan, former Speaker of the House, who's written about this, pointing out that stablecoins are actually a massive extension of dollar dominance. Stablecoins combined are something like the 11th largest buyer of US debt now. And this trend only is poised to accelerate because as nation states are sort of dialing down their dollar reserves, their individual people through stablecoins are dialing them up. So it does become a way to project the dollar both in terms of buyers of our debt and people using it to pay for things. And I, I am actually of the opinion that it's very possible over the next 30 years that dollar stablecoins may wipe out a lot of smaller currencies being run by countries that just didn't do a good job. Because why would I own a local currency that's not particularly useful globally with a double digit inflation rate when I can just own a US dollar? Stablecoin.
- [36:36]
Derek Thompson
Okay, I didn't realize you were going to end there, but that is the perfect on ramp to the second follow up question that I had as a macroeconomic issue. What happens to the global economy as more global economic activity becomes dollar pegged? I mean I don't even have the right mental model to think about this, but I could imagine it has an impact on inflation, on FX in terms of currency stabilization which could therefore redound to sort of export strength between the developing and developed world. In a world where, let me pose the question to you this way. In a world where stablecoin usage went on fire so much that it went from the 11th biggest currency in the world to say the third biggest currency type in the world, what would you expect to be the most important global macroeconomic consequences of that?
- [37:36]
Austin Campbell
Yeah, so the first one which I think a lot of people have under considered is the human rights angle of that. Right? Which is to say stablecoin adoption is voluntary. Nobody is forcing you to buy a US dollar stablecoin. What we're essentially seeing here is call it democracy writ large on a global scale of people voting to leave a local regime and opt into the dollar. So what it's going to do is drag hundreds of millions to billions of people into a more reliable and call it rule of law responsive system for exchanging value. So as a result of that, I think one side effect is greater reach for talent pools, innovation and business growth when people can be confident I can build things and keep money in a way where I won't be disrupted by corrupt local actors, or at least not as disrupted. Two, I think you're absolutely right about things like import, export, currency strength. The answer there is essentially what happens when you dollarize economies, which is to say the downside is the tail is going to wag the dog, AKA you are now attached to US monetary policy whether you like it or not. The flip side of the coin is in many of these places the dog was pretty terrible to begin with. So that may be a net benefit. And so there's a trade off. And I want to be clear that trade off is not always good. There are some countries that it's probably a net negative to dollarize if they go that way. On the other hand, as you pointed out, those are the countries right now with some of the least demand for stablecoins. So another side effect is it probably raises the level of local governance for currencies that remain because to remain you have to do a good job. The last part about that is specific to the nature of the stablecoin. I think it makes global money transfer much faster and much cheaper. I don't know if anybody listening has ever sent an international bank wire, but I'm going to very abstractly describe the process to you, which is you go to your bank bank, you give them paperwork and then tell them the amount of money you want to send. They quote you an amount of money that will seem insane for just being like, yeah, but I literally want you to make like an electronic entry. They're like, we understand that's $200 and then your money vanishes for five days. Maybe it shows up at the other end or maybe it gets lost and then it's going to take you three months to figure out what happened and get it sent to the right place. And people just kind of accept this as how the system works. It's a little bit crazy when you think about it that in 2024 we're still almost like playing a game of telephone to move money internationally. Stablecoin is a one hop cent that can cost less than pennies. And I think that also has big implications for global trade.
- [40:18]
Derek Thompson
Right, because the way that I'm imagining it from your first description is sort of like when I transfer money I bank with bank of America. I don't think I'm disclosing too much. There's when I transfer money within bank of America, it's a snap. But transferring money out of bank of America and certainly transferring money internationally between bank of America and a bank that's based in Switzerland, the uk, that takes forever. But what if everywhere I transferred was within bank of America? It would just be essentially switching to pieces of a ledger. Right? Bank of America has the whole ledger and they're just saying, you know, the 10,000 leaves this part of the Excel chart and it enters this part of the Excel chart, metaphorically speaking, there's no concern. It's only when it's going between banks that then you pull in Swift and you bring in all of these intermediaries that I suppose responsible for this lag time that you're talking about. And it is interesting to think, yeah, what if essentially everything could be within a system. There might be details that, sophisticated details that I'm missing there, but that's just what it made me think of. The final. The third follow up question that I had from your description of stablecoins is, you know, when I think of the future of any particular frontier technology like artificial intelligence, when I try to predict the future of that industry, I think, where are most of the startups working? So if I had in front of me some graph that said within AI, 40% of the startups are working in artificial intelligence applications for advertising, I'd think, well, it seems like we're about to get a lot of applications for advertising that come from AI, whereas if only 1% are working in say, AI for science, I'll say, oh, well, that's a shame. I think AI and science be fantastic. But it turns out that no one's working on that. If I was going to apply that same mental model for crypto, if I was going to look at, say, some kind of genre breakdown of where all the startups in crypto are right now, is there some kind of clustering effect that would lead me to say, oh, everyone's working on, or an unusually large number of people are working on this problem. What's that problem? What's like the hot cluster point within crypto that you see outside of stablecoins?
- [42:37]
Austin Campbell
Yeah. So I will transparently say in crypto right now, one of my critiques of the space, and I think one of the cluster points is people have this habit of building, call it more crypto for crypto. So a lot of things that are increasingly niche applications within decentralized finance are related to crypto trading are where quite frankly, a lot of the attention still exists. And I would tell you to your earlier point, I think this is something of a market structure failure and it's one that we've also seen previously. Right. And relates to, call it some underlying market problems, which is the areas where crypto is probably most helpful involve money transfer at scale and core problems with the financial system. And the issue you run into with that is 25 year olds who just came out of college who are really excited and have the risk tolerance to launch a startup are uniquely unsuited to be good at doing those things because you need to have the subject matter expertise to understand how the system works. Right. There's a reason that if you look around at successful fintech founders, they tend to be older than successful social media founders, for instance, and I would suggest not coincidence. So I think part of what we're experiencing crypto with that is a misallocation of resources. And it relates back to where we started, this conversation of, call it the hysterically negative views from the traditional financial system that maybe haven't been totally grounded in reality. That's caused the tech people and the finance people to just be talking past each other instead of collaborating.
- [44:12]
Derek Thompson
An interesting wrinkle on the idea that youth is wasted on the young, that the applications of crypto are most interesting to people under 30, but might be most profitably applied for the human race among startup founders over, say, 40. That's an interesting wrinkle. Why don't you end with your own prediction? If there is one area in crypto outside of stablecoins that you think is the next big thing, that if I had you back in this podcast two years from now, you know, to check in on the new regime, the new dawn, the new renaissance for crypto under this administration, for better and maybe for worse, what do you think that new hot thing is going to be in crypto?
- [44:55]
Austin Campbell
All right, so I'm going to eat my own cooking on what I just said about traditional financial services actually being very amenable to this. So back in the 70s, there was a bank called Her Staat that failed in Germany. It's actually the failure that kind of caused the current Basel supervisory regime to emerge. And what happened there was you had a bank involved in FX that was taking in Deutsche marks during the day in Germany and then sending out dollars in New York. It just stood in the middle of what were at the time perceived to be very vanilla transactions. The problem is, after the close of business, Herrstadt failed one day. And so you have a bunch of Deutsche Marks that came in and no money has gone out. This is a big problem to unwind. Suddenly you have people who are like, where's my money? It never shows up. And people who are like, I paid you. What happened? And they never sent the money. And so it's this hairball to unwind. And this sort of delay persists in US markets to this day. When you, for instance, go into Your Robinhood app, and you buy a stock. To you, it appears instantly like on the app. But what's really going on is money. And shares are being settled T +1, which means one business day later on the other side of that transaction. So there's a long delay in there where if things fail or break, there could be a real problem with the system. And for people who really want to understand why Robinhood had to halt trading and the whole GME thing, this is why their outstanding liabilities were so big. Everybody said, slow your roll. We want you to settle before we're going to trust you more. Crypto essentially can solve that. With blockchains, you have the capability to do instantaneous settlement of both sides of a trade with a 24.7ledger, because exactly as you said, blockchains are just a ledger. Right. The mental model you should have in your head is like Microsoft Excel or maybe a SQL database just writ large. And so if I have one of those that's highly performing, 24. 7 operational, I can just settle that GME trade instantly. I can settle T bills instantly. I can settle that FX trade instantly. And what it means is we can live in a world where one of the big outstanding problems from 2008 can be solved by this technology in a way where also it's not just one super centralized entity running it, because quite frankly, the last thing we need is the too big to fail banks getting even bigger.
- [47:19]
Derek Thompson
What I like about that answer is that it's so resonant with, I think, a general approach to crypto that you have that I find very persuasive. It's the distinction between crypto as a blowtorch and crypto as a scalpel. The idea of crypto that I find sort of inherently resistant to is this burn down the system mode, this the Fed is corrupt, dollar downfall, replace journalism with the blockchain. And that I'm very allergic to. But the points that I'm hearing you make are the financial system in the US is pretty good, but it has some problems like delays in trade settlements. And the global financial system is often not very good. It has problems like inflation, it has problems with money transfer in many different ways. And stablecoins in some places can help. And this idea of crypto is a scalpel rather than a blowchort blowtorch. I find so much more persuasive, ironically, because it promises a little bit less. And because it promises less, I can imagine or may in some cases literally see how it's actually working. So, Austin, I really appreciate the care and detail with which you walked me through this. I do not consider myself a crypto master at all. And I just feel like I learned a lot here, so thank you very much.
- [48:44]
Austin Campbell
No, I appreciate that. And I will say, one of the constant problems in this space is everybody's learning at warp speed. So if you feel confused, don't feel bad. I feel confused all the time, too. It's not a unique condition.
- [48:56]
Derek Thompson
Awesome. Thanks so much.
- [48:57]
Austin Campbell
Thank you. It.