BBW23 – Day 2 – Keynote: U.S. Stablecoin Policy vs. Offshore USD Stablecoin Growth

[Music] it's good to be back thank you for the invitation once again I'm glad it's not raining this year so uh we're going to talk about stable coins today um I think a lot of people realize stable coins are pretty much the killer op of crypto at least the one we have so far and uh I think in particular what I want to talk about is domestic policy the effect of domestic policy on stable coins and what it's doing to the market um and uh yeah we'll do some questions at the end as well so is it I hope you can see the charts here this is actually a pretty data heavy uh discussion so if you can't see you know I recommend maybe getting a little closer to the monitors here so I'm going to first introduce the topic and uh talk about how big stable coins are I think people sometimes don't realize a lot of that is because we don't have good data because a lot of the stable coin activity happens on Tron one of the most questionable and annoying to index blockchains out there I can tell you this cuz I coin metric uh my firm that came up with the data for me they run Tron nodes so it's just terrible it's terrible to do it so nobody had the Tron data but turns out tether on Tron is the world's number one stable coin by transactional usage right so uh that's actually where a ton of these transactions are happening it's just nobody knew it was too annoying to run a note so uh what we have here is in the gray is the transactional value on chain these are onchain settlements and uh you can see stable coins Eclipse other uh blockchain Assets in terms of being used as a medium of exchange on public blockchain so this is an exchange volume this is is uh onchain transaction volume orange is Bitcoin blue is ether and green is every other major L1 so what is emerging that's clear we've only just kind of realized this as an industry is people use stable coins to make transactions far more than any type of other blockchain asset which may not be that surprising because there's no tax implications when you transact in Stables it's still a pretty big deal though so another way to visualize this is this is a fully stacked area plot of the market cap of Bitcoin ethereum other major l1s and stable coins stable coins are 10% of market cap right around uh 30 billion right now stable coins they're only 10% of market cap but they do about 80% 70 to 80% of onchain transaction value and it's just been growing linearly since 2018 so I just want to impress upon you how consequential stable coins are as an transactional instrument on blockchains at the moment and this sample includes basically every stable coin in every blockchain uh was very annoying to get the data so I really hope you appreciate it um now in terms of what stable coins uh what unit of account they actually refer to it's pretty much all dollars it's all dollars it's never not been dollars it's 99% dollars nobody wants Euros um Yuan anything else it's really just dollars and this is kind of crazy to me because if you look at official foreign exchange reserves globally that uh the dollar is only 60% of that if you look at how trade is invoiced globally the dollar is only 50% of that and the crypto industry is This Global industry right certainly not just a us only thing but for some reason there's like this enormous Network effect with stable coins on public blockchains the only thing that stable coins refer to is dollars and we've never seen any other Sovereign currency even come closer to to to um pushing dollars out so right now as currently configured the stable coin Market is incredibly accretive to us interests it's an incredibly good thing for the US that stable coins are the way that they are but we're totally fumbling the ball we're totally fumbling the ball so just to kind of refresh our fiscal position as a nation I think we all know this this is official government data um you know it's kind of scary when they the government's own projections of the debt doing a complete Parabola but that's what we're in for uh according to the CBO so uh you know right now we're at a time of Peace but we still have debt levels debt to GDP that's similar to where we exited World War II for some reason uh and our deficit is high it's growing it's only projected to grow uh we have a few kind of time bombs ahead of us too with entitlements as well so point is you is highly indebted um and we need people to buy our debt but uh in fact the large buyers of our debt are pretty much doing the opposite of that in fact they're selling our debt so China is the second largest holder of us treasuries um they are currently engaged in a divestment of treasuries whether they think treasuries are a bad store value that could well be the case if you think it's going to be inflationary or they don't want exposure to to us treasuries cuz they're worried that we might do what we did to Russia in 2022 and just seize them um if they offend us so they're selling down our debt which has the net effect of ultimately driving up interest rates and making our interest expense higher right now we're spending about a trillion dollars a year on our interest payments is very high and that's probably going to continue to increase if this happens it's worth noting Japan is the largest holder of our debt and they're also selling it to defend the the Yen so this is the aggregate picture of all of the foreign official holders of us treasuries and you can see on the chart it's going the wrong direction since 2014 foreign central banks foreign governments have been selling out of their treasuries so we need to find new buyers uh but uh it's not a trivial thing so I would venture that stable coins are a potential new buyer stable coins could potentially be a source of inflows uh into uh our debt which the US desperately needs to sell so that we can Finance our operations and continue running these huge deficits so it may not look like much but you know recall that stable coins only existed meaningfully for five or six years even in uh 2018 stable coins R in the single billion dollar market cap level um today there's around 1201 130 billion dollar worth of stable coins they've grown incredibly quickly so what this chart shows is uh if you considered stable coins as a Sovereign Nation where they would fall in that ranking of the largest holders of us treasuries they'd actually be the 16th largest ahead of the Saudis ahead of uh South Korea ahead of Germany ahead of Mexico and this is only in the space of six years stable coins have gone from nothing to being this big and the fact that stable coins are all issued against dollars is why it's us treasuries that they're holding in reserve cuz you want to hold naset that it's the same characteristics as the liability right so if you have a dollar liability you want to hold 30-day us treasuries right cuz they match uh so again you you know stable coin is still pretty small in the grand scheme so is crypto right crypto is pretty small balance sheets in crypto aren't that big uh but there's still a very meaningful buyer of us treasuries now what's actually happening with public blockchains well uh what we're seeing is stable coin issuers are issuing stable coins not just in the US obviously we've Circle here right in Boston our backyard um but they're issuing US dollar stable coins in a whole bunch of jurisdictions globally right so everyone acknowledges that we want dollars on blockchains uh but they're finding ways to do it out of more permissive jurisdictions out of jurisdictions that aren't as hostile as the US has men uh so the primary ones that I'm seeing where I'm seeing Regulators actually put forth meaningful crypto policy to attract crypto inflows and capital and entrepreneurs are Singapore uh they have new regulation in place they passed a stable coin rule earlier this year which allows the issuance of foreign currency stable coins in Singapore um Hong Kong where they're uh planning a stable coin regulation for next year there's already a dollar stable coin issued out of Hong Kong first digital it's very interesting that Hong Kong is doing this because China itself is hostile to crypto Hong Kong themselves have received the dispensation from Beijing to uh incubate a crypto industry there um so whether that is genuine or it's a Honeypot we don't know but uh certainly very interesting that they're actively cultivating the crypto space as the US is moving away from it I think they see the opportunity if the US is is becoming more hostile uh other interesting jurisdictions the EU Germany uh we have mic regulation in the EU uh you have Bermuda which has become uh very Pro crypto um I just backed a stable coin out of Bermuda interest bearing called Mountain protocol they were the first ones to get that license in Bermuda uh then you have the BVI so what's and many of these projects named on this uh chart these are tokenized us treasuries so they actually Bear interest so basically either stable coin coin or a tokenized treasury you hold it in your wallet you you acre the interest that comes from the underlying us treasuries held um and you wouldn't be able to do that interest bearing product to retail in the US the SEC would consider a security and sue you other jurisdictions are more permissive uh so public blockchains are a vector to globalize the dollar this we're definitely seeing this we're seeing this in the data in particular in Emerging Markets um Latin America southeast Asia Eastern Europe Africa we're seeing this happen people don't have easy ready access to dollars they certainly don't have access to US treasuries public blockchains make this possible it's profoundly disruptive I think you'll see a lot of weaker Fiat currencies around the world go to zero because blockchains exist because they're so efficient at moving Dollars around specifically dollars okay so what's happening in this country well we had a hellish Year from a regulatory perspective in the US it really quite terrible um the US government the major Financial agencies decided they want to kill crypto activity domestically we dealt with this firsthand in January the fed and the other major Financial Regulators uh told Banks they couldn't touch stable coins in March we a banking crisis and as part of that some of the crypto focused banks that failed uh the FDIC refused to allow them to sell their crypto projects like signature failed the FD took receivership over them they refused to allow the sale of the Signet assets Signet was a Fiat clearing Network that enhanced liquidity for stable coins it's a huge scandal in my opinion no one's talking about it uh in August the Federal Reserve uh told Banks again that you basically couldn't um do stable coin stuff as a bank in the US they said uh what they actually said was you need a non-objection letter from us no one's going to get the letter they're not going to give anyone a letter so they're basically creating this bureaucratic process allows to to do a thing which you're never going to be allowed to do it's completely ridiculous there have been some small key wins like the stable coin bill in the house made out of committee onto the house floor but the Senate's not going to pass it that's a move Point PayPal launched their stable coin the only thing you're going to see in this country is non-bank finex launching stable coins the banks can't do it meanwhile on the top of this chart you see rest of the world things are going swimmingly they're embracing stable coins even dollar stable coins in other jurisdictions so this is just summarizing what I said in the last slide there are four key things US government did this year to marginalize the stable coin space they basically took out sen and signat which as I said are these Fiat clearing networks that allow stable coins to function 24/7 they took them out behind the Woodshed and shot them the second thing is they said Banks can't touch stable coins at all the third thing is they refused Congress refused to pass any stable coin legislation fourth thing is uh the SEC made it clear that that no interest bearing stable coins are going to be allowed but when inflation is fairly high and or interest rates are very high having a non-interest bearing stable coin is kind of a problem it'll become a bigger problem in coming years so that SEC posture is also going to harm the stable coin industry here so this is a way to very visually see what's happened the blue line is onshore Stables issued out of the US the red line is offshore Stables before FDX happened late last year they were almost parity after what I call operation choke point 2.0 after the US government crack down on crypto via the banks after FTX happened after svb collapsed the domestic stable coin Market was really harmed people fled out of that they fled they offshored their balance sheet which may have been in usdc and they basically put it in a tether or they redeemed the usdc for domestic Bank dollars or for treasuries right the other thing that happened is rates went up a lot and uh if you're holding a zero yielding stable coin rates go from zero basis points to 550 basis points um you're probably going to start to question why your cash is yielding you zero so as those rates went up the domestic holders of usdc uh they are you know very approximate to the financial system they're e you know easily able to redeem those staes they went back into treasuries and so we saw outflows for that reason so um it is timed perfectly if you look at the chart as uh you know Legacy Fiat interest rates went up and crypto rates came down you saw this outflow out of stable coins so the fact that in the US you can't pass along those uh yields to stable coin holders is also harming the domestic industry uh as I said in the beginning of the presentation stable coins are really the killer app of crypto and these charts really show it so the first one you have is the value of transactions uh flowing through the uh the stable coin space on public blockchains this this is a the chart covers a threeyear period so those have been stable for two years if you look at monthly active or daily active users for stable coins it's just growing and growing even throughout this bare Market but if you look at exchange volumes for crypto in general they're collapsing right we're at a it's been going down for about 2 years now so stable coins are doing something interesting we're seeing utility from stable coins we're seeing traction throughout the bare market right so this is why I'm so focused on them that the first product that we've created in crypto it's actually really independent of the market Cycles they're actually creating real utility for people uh despite the fact that nobody wants to trade no one wants to touch nfts these days um and if you look at the numbers you compare stable coins to Legacy Fiat settlement networks they're basically a parody with Visa now so Vis Visa did 11 trillion in uh settlements last year stable coins were close to that 9 to 12 trillion depending on how you count it um they've surpassed PayPal surpassed Global remittance volume and this is in the space of just 6 years so uh you know I can't underscore enough how significant Stables have become there's also uh the emergence of Crypt backed stable coins these the dollar stable coins that are backed by crypto assets namely eth typically eth um so I won't spend too much time on this but that's an important thing to remember as we get to the punch line um the last slide which I'll just skip to uh which is basically in the US we have a choice right so um you know the question is will stable coins be Pro us interests or hostile us interests uh I can't actually answer that for you the answer lies with the administration with the US government it's their choice whether stable coins help them or harm them and there's basically two ways that could go and we're going right now we're going for the offshore path the one on the right uh which is the bad way um so one thing you could do is push stable coins out of this country which is what the US government's already been doing what you get then is a network of unaccountable issuers like tether that maybe aren't very interested in listening to you they may not care if you ask them to sanction someone uh they may not care if law enforcement goes to them and says hey we need you to freeze These funds and seize them and do this and that so you may face that loss of accountability across the financial system also so you might end up with more stable coins being issued against crypto assets as as opposed to Dollar assets and then that eliminates the value that we get from stable coins which is um you know stable coin issuers buying us treasuries which is a great thing for the government especially as it grows so that's the offshore Paradigm that's the direction we're going right now that's the direction we've been going my mind not a good direction the onshore Paradigm stable coins keep buying us treasuries and increasing numbers they replace those foreign buyers with treasuries which have been falling off the US retains its ability to influence blockchains um as a tool of you know power projection as a policy tool law enforcement retains those linkages to the stable coin issuers they become more accountable to the government the US spreads the dollar worldwide which is pretty much good for everyone dollar has strong property rights it's a great thing uh it's somewhat inflationary it's less worse than the other Fiat currencies and importantly the US Remains the center of global Capital markets in the US we have 50% of public Equity market cap globally so of all the public Equity that exists us is about 50% that's against only about 25% of global GDP that's a huge Advantage for us our Securities markets we are the center we are the Global Hub but as I've shown you with this presentation we are losing that Advantage when it comes to public blockchains I was just in Singapore last week in Hong Kong the enthusi iasm the excitement in the crypto space there is far more than it is here and it's embarrassing right we need to take the advantage back US Government needs to change course and they need to create normal ordinary regulation that supports the stable coin sector they need stop limiting Banks access to stable coins and let the entrepreneurs do what they do best so we about 5 minutes here I'll uh pause questions we have a mic as well oh well we we'll get to hey Nick great talk I really appreciate the data you pulled I imagine getting the treasury data from tether must have been next so impossible so thank you for doing that for for our benefit I'm asking you to take out your crystal ball for a second and if you could maybe tell us where you think the biggest stable coins will be in the next five years and and why maybe by market cap yeah great question um I think tether is going to lose market share because they're unwilling to move to an interest bearing model usdc I worry about as well I worry about uh Circle they're very limited by virtue of the the fact that they're here in the US um so I I don't know I think it' be really aggressive to say there'll be a new third stable coin that becomes bigger than usdc or tether because the two of them together have like I don't know 85 90% market share um but I think both of them will lose market share to new emerging staes explosion of creativity in the stable coin space right now particularly around interest bearing yeah I so pivoting off or or piggybacking off of that you know I was really excited to hear that PayPal just released a stable coin for because for me that's that's a big step in Mass adoption because of so many people have PayPal already so we're like you basically have a situation here where all these holders now can start transacting in crypto with a whole lot less friction do you think that you know they're going to make a big space you know big play in this space or what what do you think about that so yeah I'm very excited about py USD I don't like the ticker it makes me think of Pyongyang I don't know why they would do that um the question is like why would you if you have access to USC already why would you use paypals maybe okay they've got like 100 million clients globally or 300 million something crazy so yeah maybe they'll integrate it fully into these flows and create much more convenient crossb flows um I think it's very early it's only been a few weeks since it it came out but yeah I'm pretty excited about it thanks Nick great talk uh question along the lines of State regulation so uh in California in assembly Bill 39 uh for stable coins it would effectively mean that the regulator would have to approve of the stable coin before it was offered for support or for exchange are you seeing anything like that in any other states or are you tracking at a state level you mentioned Federal which of course is very important I don't know if you're following any of the state developments and how could that be a little bit more adversely impact as opposed to something Federal yeah I mean first of all I think states have should have more power here relative to the federal government one thing I didn't mention it's in the presentation is um there's been a big Power struggle between the states and the federal government in terms of who can Charter new Banks specifically a lot of States want to Charter Banks and issue stable coins and the FED said no which is crazy to me that's the power the states have had in the past actually in the whole history of this country answer your question yeah New York is very interventionist in terms of like the things you're allowed to do what blockchains you're allowed to use what crypto assets you're allowed to transact with um other states are less opinionated um so it really varies some states have no crypto view whatsoever others like New York are super in interventionist Hey so uh my question is more on the retail side in terms of adoption um in I just kind of notied the discrepancy between market cap of other cryptos um but then obviously the vice versa for stable coin usage um are you seeing or could you predict more coming from for example swaps coming in uh on the retail side in terms of uh how you get into these Stables um as for example interoperability becomes better or are you would you predict or are you seeing more coming from Fiat on ramps uh maybe from other jurisdictions so the number one way people get access to stables and EMS is actually on peer-to-peer markets like WhatsApp groups like uh in Argentina you use a money changer you uh literally exchange physical cash uh you meet them on a telegram or Whatsapp group the number two way is through large centralized exchanges like binance which is like effectively a bank for 100 million people globally um so but actually for the most part Stables aren't really retail technology um like average stable coin transaction size is pretty high um what we are seeing is a lot of fintech apps or neobank app apps especially in EMS using stable coins on the back end so it looks like an ordinary banking um you know mobile money app on the front end but then all the settlements happen in the back end you may not know it's a stable coin so I describe that as still like a B2B style transfer B2 BTC basically Nick I think you mentioned that uh Protocols are blockchains people should be really skeptical to receive the token that that blockchain or protocol uh produces and wants to give you and we should start to consider uh receiving the dollar or a stable coin how long do you think it will take crypto to really understand that and do you see any catalysts um you know or can you elaborate on that more yeah I mean part of the reason I have been collecting this data is because people haven't realized how much things have changed um so I think people know now that that uh the medium of exchange on public blockchain seems to be dollars or fiat currency uh there's been a shift in like the last year or so historically people have thought that there would be payment tokens like that was part of the Ripple story it was part of the Stellar story even part of the Bitcoin story but it just hasn't worked uh that was the mobile coin the telegram idea like empirically that hasn't worked so I think people are going to cease trying those experiments and realize hey like probably just do stable coins cuz I don't want to do a tax analysis whenever I buy something on using a public blockchain that's way too annoying and cumbersome so I think at this point people realize it's it's about [Music] dollars