EN | Stablecoins Beyond Payments Institutional Use Cases in Finance and Markets | MERGE São Paulo

Next session is a conversation on stable coins beyond payments. Institutional use case in financial and markets. Please welcome our moderator Guilherme Camara, journalist at Brazil Economy. My name is Guilherme Camara. I am journalist from Brazil Economy.

And it's a pleasure to be here merge with this good discussions about this about stable coins beyond payments. And I want to call Maria Dabara, head of commercial in Everybank. Emanuele Rossi, head of stable coins business in Ankura Digital. Manuel Echanove, director in Polygon Labs. And Finn Vegi, director in Rain.

So, we can start? Yep. Okay. So, there is much discussion about the role of stable coins as form of payment. But this panel, our goal is more discuss about how stable coins can be used institutionally in the market, including when you talk about financial market.

So, the first question I want to start with Maria. Uh Stable coins have been more traction not only in the payments, but also in institutional model. How far do you think the world and Brazil have progressed with this model? Uh I think we made huge progress especially in the past 12 months. So, when we look outside Brazil, and then we look at legislations like a genius act in the US and we kind of Europe.

Uh for sure I think they they helped um the crypto landscape move to a uh I would say speculation framework to a more institutional framework. And in Brazil last November we had the the regulations from the Brazilian Central Bank which was also a huge step in um making the market more uh institutionalize it. So when the Brazilian Central Bank came and said what were the requirements for a company to operate as a VASP I think this opened several opportunities in market and also helped its uh institutionalization like in a general way. So Emanuele what do you think? Yeah, Anchorage Digital is a federal bank out of the United States.

We are regulated by the national bank regulators so really operating like all of the other major US banks that you might be familiar with and think of when it comes to institutionalization it's easy to just see the headlines and understand who's coming to play this game. Anchorage issues stablecoins for companies like Western Union, one of the largest payments institutions in the world. We are seeing companies like traditional banking institutions coming launching stablecoin products whether it's again major G-sips banks or smaller regional banks coming and playing these games. We are seeing FinTechs established companies like SoFi, Revolut talking about launching stablecoin products. So it is clear that institutionalization is happening and many players are interested again in developing their own technology and participating in this new infrastructure.

We need more regulatory clarity. Again we have great regulatory clarity already but we need more. The passage of the genius act has been a good starting point in the United States. Formal rule making is going to help progress things even further. The passage of additional legislation in the United States such as the Clarity Act can help with additional institutionalization.

And the same trend is happening all over the world, whether we're talking about Brazil, whether we're talking about LATAM, Africa, Europe, Asia. Again, the companies are seeing the benefits that are unlocked by this technology and they're ready to come in, play, upgrade the rails, and participate in this new ecosystem. Okay, so we have two Europeans as active here. Emanuele from Italy and Manuel from Spain. And I want to know about what you think about that, especially especially in Europe.

Yeah, absolutely. Thank you very much for having me. So, just just to give some context like I'm representing here Polygon Labs and Polygon is basically like a a global blockchain company, one of the most successful ones in terms of adoption and traction. Fun fact, like we we are the blockchain that has bigger market share of number of transactions with stable coins, not in, you know, aggregated volume, but in terms of number of transactions and wallets interacting with stables. We're leading the the way.

And since 6-9 months ago, we decided to become like a or pivot to towards a regulated payments fintech. Of course, like full on chain. We acquired MTL licenses in the US, also wallet infrastructure and we're trying to provide like this full stack full stack offer of payments. So, in terms of institutional adoption in in Europe like I also say another good thing is that I cover Europe but also LATAM so I can see the differences. I would say I see more direct interest and practical and real utility here in LATAM because of the historical need of, you know, the basic use case of or for crypto which was like access to to dollars dollarization in in in markets where, you know a local currencies were not as strong.

Uh but at the same time in the US uh as Emmanuel and Maria mentioned with uh Mika regulation being placed Mika one, Mika two. Um we are uh starting to see you know like big uh banks fintechs and so on like gearing up. Uh they're starting to have like their own digital assets. No one says crypto teams but in the end you know digital assets teams. Uh we're also seeing uh for instance Revolut uh Revolut has already moved more than 1 billion of US dollars uh settled on on Polygon POS.

Uh and that's just one just the tip of the iceberg no? We're seeing also in Africa that Emmanuel was saying like Dasha Pay for instance they're moving a lot of money with us. Uh and we are also you know like working with with big you know PSPs and and so on alongside these institutional adoption. Fine. Tim?

Yeah it's a it's an interesting question. I think regulation breeds room for growth more than anything and that's why I think if you look at the last year I think everyone here is trying to build like a 100 year business and the only way you can do that is if large banks and large fintechs are willing to trust you and they're not going to trust you if the government doesn't provide them a framework on how to. Um you know we're working closely with Anchorage with the Western Union solution and them bringing US DP to market. I think it's very curious. I mean that's a very consumer facing product but I think there's tons of business application that will untap a powder keg of volume cuz the volume is so high right?

You're talking about Brazil to China trade corridors or large PSPs like TerraPay de local I mean they're running treasury options that if they could use stable coins to go purchase at banks right? Like they absolutely would. Um I think a very interesting piece here is also like there are so many new players that have adopted this technology much sooner than the rest but I do think that you know banks at the end of the year are actually some of the best positioned companies to continue to serve their clients. It's just about updating their back end, right? And I think that's where all the players here really you know, provide solutions to that.

Whether it's issuance, whether it's custodial custodial solutions, whether it's moving it, whether it's spending it. I think that's the role that we play going forward. Okay. And start now with Manuel. What are the future challenges for institutional stable coins now, you think?

Yeah. General.

Yeah. Yeah. Yeah. Absolutely. So, I would say, I mean, we have already like touched base on this, but, you know, adapting it to to the existing or developing regulatory framework.

I think that's probably the one of the biggest challenges because, you know, there is uncertainty on the way. There are some stable coins that have decided go on like probably less uh you know, direct you know, regulation standards right away. And there are others that, you know, they are fully compliant day one. I think the work for instance that Anchorage is doing is like, you know, fully regulated. Like we want to that that's our brand, you know, like we are a fully regulated and security charter company.

Whereas others are more like maybe they started earlier when there was this full web three ethos of full decentralization etc. etc. etc. Don't want to get into into that. Um but yeah, I would say that that was number one.

And there's also this conversation about, hey, if a stable coin can, you know, share yield or not for instance. If a stable coin is just like a for payments or they also can become like financial markets core infrastructure. Uh so, it could be a security. So, those kind of conversations and uh are are are there and are extremely like challenging to really, you know, tap into. And I would say the the the second big challenge stable coin have for institutional adoption in general is Like actually, you know, like the pockets, no?

The liquidity depth, which in in the end makes them usable, no? Because what happens is that if you think of the asset, uh maybe an asset by itself, so for instance, USDC, is like global by design, it's fully composable, it can get into any like web3 protocol. But the problem is that if if regulation per market is different, then you need to start reissuing, and that reissuance brings uh extra fragmentation, which brings which reduces the utility of the actual stable, no? So, if we see a world where there are like hundreds or even thousands of a stable, then who's in charge of them speaking to each other, of them moving seamlessly, which is what we're trying to do here and between each other, no? So, I would say those those two things are what worry me the most.

Okay. Phil, please. Yeah, I think I would really agree with Manuel's second point, which is like liquidity. I think drives so much of especially cross-border trade and FX. And if you're moving trillions of dollars every day, your sensitivity to margin compression is very, very sensitive, right?

So, it's an assumption that stable coins solve that solution in every single market. It's true they're faster in most cases, right? Then, you know, wiring money via Swift or maybe even interbanking like transfers, but you know, in Southeast Asia and in Latin America, I think you can find a lot of arbitrage using stable coins to purchase local currencies or maybe even doing on-chain swaps with local stable coins. But I think in much of the world, the demand is not yet there, right? As much as you would like to put all of your treasury on chain, it's not really feasible because you're likely going to get less local currencies back in some markets if you trade.

And that is a market maturity problem, right? That I mean, not even a problem, right? Like you you solve problems where they exist. Um but that's something that we will see develop over time, right? And I think you see probably, you know, markets like Europe or the United States that are going to be slower movers because what they have worked quite well and stable coins kind of fit less of a gap.

So I think in terms of institutional growth all over the world, I think we'll see it very effectively regionally like we already have and it's going to be the long tail countries that pick it up first. So you're very optimistic now. Yeah, I'm I'm optimistic but I think there's some larger markets that are going to take quite a while to come around to it because it's a matter of how much money does it save them? How much problems does it solve? Of course.

Manuel, please. Yeah, not to repeat their points around regulation and liquidity which are critical. We see a lot of questions and comments from corporate treasury team institutional enterprise partners which means that there is a still a big education gap in the space that needs to be filled and we're looking to play the role as the advisor again the long-term thought and design partner for these folks. Really help them wrap around what stable coins are and how can they can fit within their businesses. In the end stable coins are technology.

It's a digital form of money that compresses payments, treasury, investments and so forth. And the way in which these products are embedded within a specific business use case really varies. So coming in and providing that technology understanding, that business case understanding, really guiding these large institutional folks through the process of integrating and using stable coins is something that we're spending a lot of time on. Another important piece I guess that ties into liquidity is infrastructure. A lot of these institutions are not ready to handle digital assets and I'm not talking about running complex operations involving stable coins, you know, programmable money, DeFi integrations.

I'm talking about as simple as I receive a stable coin, I send out a stable coin. So we're also very interested in making these operations very easy for banks, payment companies, financial institutions, so that they can really participate in the space through a safe, trusted counterpart, and without having to rely on, you know, unlicensed type of entity or lightly licensed businesses. So, that's a little bit overview in here again, and there is definitely a lot that has to do with regulation and liquidity that's critical to the growth of the space. Well, I agree with all of the points as well. Liquidity, regulation, and also the technological infrastructure that companies that are entering in this market needs to have like to offer good services.

But, sharing just a little bit of my perception of what has been happening in Brazil because stablecoins is like the hot topic of the moment. I I have been seeing every day more companies looking for that solution, and that's why, as you said, as a bank, we realized that we were in the best position to expand our offer and then to to act as stablecoins liquidity providers. Not only for crypto native companies like for companies that are already operating this the crypto landscape such as arbitrage funds, OTCs, exchanges, PSPs, but also to our clients and to non-native crypto companies or stablecoin companies that are willing to operate with stablecoins because of the efficiency that they bring. So, that's why we launched at our operation recently here in Brazil, and I think that when I look at the Brazilian landscape, I think one of the main challenges would be like for us to implement all of the regulatory requirements that is now has been required by the Brazilian Central Bank, and and bringing as little friction as possible to our clients because we we need to to offer like to act in this market and offer say what kind of liquidity with the the same efficiency as other markets and other players do. Okay, and Maria is in fact the only Brazilian I am.

And I was just ask her about the Brazilian case, but please would any of you like to talk about Brazil? Yeah, like yeah, of course like um um my opinion on Brazil from from a polygon perspective and Maria has already talked a lot about the regulation and and and the new past requirements and that of course worries us in a sense. Um but we have a a very good experience with um Brazilian real effects stable coins like non-USD stable coins. So in polygon we have uh I think right now it's five of them. Um and what is curious or very interesting about them is that each of them has a uh different structure and covers a different use case, no?

So for instance uh BRC from Transfero is more focused on on the on the payments or on the B2B payment stuff. But then if you look at BRL BRLA from a Vinia, they are more focused on on DeFi and it's one of the biggest non-USD actually like liquidity pools uh out there in the market. Uh if you look at BRLT one which comes from a consortium of Foxbit, Bitso, and Mercado Bitcoin, it's more on arbitrage and settlement between regional and local exchanges. Uh and if you look at Crown, they are more on the deal bearing stuff. So it's it's really amazing like the the the myriad of opportunities and going back to what Emanuele says, linked to programmable money, no?

Like this is this is Brazilian reals, but with different use cases at its core at its product design, no? And I think that's the beauty of uh of stable coins in this case in in Brazil. Yeah, and if I may add something just from being in institutional crypto for a few years at this point, uh Brazil has always been at the forefront of adoption of stable coins and of crypto assets as an asset class within an investable portfolio, a tradeable portfolio. For a few years now, some of the largest Brazilian banks have been trading crypto products and offering crypto products to their customers for stable coins are becoming more and more relevant. So, now there is appetite to play a bigger role within the specific ecosystem, but again, Brazilians have been at the forefront of the adoption of this technology, whether it's you know, speculation or whether it's real world type of use cases tied to savings, payments operations, and so forth.

And I wouldn't be surprised if we're going to keep seeing innovation coming from this market and you know, we, and I'm talking about myself who's based in the United States, look at Brazil, we look at LatAm as again channels for innovation and for inspiration in how the technology is getting used to make life easier for people every day and also to become more innovative and creative around investment opportunities and trading opportunities. Philip? No, I completely agree with that. I'm always blown away every time I come down to Brazil and much of Latin and South America because it feels like the products being developed here are four or five years ahead of their time compared to what we have in the United States, right? Like and I think in large part it's because there is liquidity demand and a liquidity problem to solve here.

So, businesses filled that gap, right? And the fact that we see really large Brazilian banks already developing solutions in this space is incredible. I feel like there's two different maturity curves. There's the US market maturity curve where you know, maybe you have kind of fintech web 2.5 companies stepping into the space and then it's the Brazilian maturity curve where some of the largest banks in all of you know, the southern hemisphere are actually building and adopting these products.

So, I think it's very impressive. It's no surprise that it's one of the top areas of volume and spend for rain because we serve consumers that want to hold dollars and they you know those businesses don't want them to off-ramp it to their their local bank accounts. They want to be able to swipe their cards and use it and the adoption here has just been radical. We've seen a ton of growth. Yeah, and talking about Europe again like Europe has been one of the first markets in the world that were actually past crypto regulation with Mika.

Yet the adoption curve of Europe is still relatively suppressed compared to Latin markets whether it's Brazil or else where people are actually saving spending using these products on a day-to-day basis. So this goes back to the point that Phil made earlier how much money are you saving by using digital assets blockchain technology? How much do you really need this product? And again it's clear that there is a need in this market for stablecoins and this type of technology. Okay, so Emmanuel spoke about the importance of education.

Educating people about stablecoins. So to finish our discussion we have 5 minutes. I would like to heard a little more about Maria about the importance of of the education. Education, I think it's it's essentially like almost for anything in life but especially when we're talking about stablecoins. We as a bank we are in a process to to get as much information as possible because we need to offer a product and to and to give our clients the security they need I like to trade with us.

And it's it's easy it's easier when we have a client that is a crypto native client that is happy because it's a client that it's a company that already understand the the stablecoins landscape. So it's it's I would say an easier conversation but then we also need to to be prepared to help our our non crypto native clients. So clients like cross border payments clients uh, our traditional effects clients that are now willing to operate with stable coins because, as I said, of the efficiency that they bring. And then they they are like not only they they come to us not only, uh, looking for, uh, stable coin solutions but looking, uh, for a better understanding of the market of how the market will uh, how the market will revolve, how it will grow in Brazil. So, I think it's a huge, uh, and very important part of of the of the process.

yes. Yes. It is a challenge as well, for for sure. What do you think about this? Yeah, I think a key part of being successful in ushering some of the world's largest enterprises into this era is your ability to serve as a design partner, right?

And that means in some cases abstracting away a lot of the web 3 and crypto of it and explaining it to it the way they know how, right? Which is it's not a wallet, it's a US dollar global account. And uh, it's it's not a chain, it's a it's a settlement rail, right? Like these are terms that everyone's very familiar with and in large part, uh, it's the same principles, right? It's the same first principles.

We're building banks, we're building, uh, you know, payment systems. We're just building them on faster back ends, right? So, I think it's meeting people where they're at. I think the other piece is really actually maybe even consolidation as well, right? I think it's overwhelming to expect, uh, you know, an industry veteran of a bank to go and learn about non-custodial wallet providers and custodial wallet providers and issuers and settlement rails and card issuers, right?

Because that is a massive undertaking, right? Um, you used the word smart contract and it usually gets you a dizzy look back, right? So, I think the goal is really like how much of this service can you bring under the hood through trusted partners, right? And I think a lot of us here on the stage work together and that's kind of why we go, you know, together into a lot of these, uh, new partnerships. It's you have to kind of consolidate a lot of that offering, right?

Reduce the amount of partners and problems that they have to solve for, bring them a cogent workable solution that, you know, they can understand the high-level principles of it, you can implement for them, and you take their four-year timeline and you turn it into a year and a half. So, I think I'd actually predict that a little bit. I think you're probably going to see a decent amount of consolidation in terms of providers that try to acquire like the vertical stack in order to kind of go more cleanly to sell to large enterprises. And we have a nice example just like a couple of days back, right? There was uh Mastercard buying a company called BVNK.

I believe this is the largest acquisition in the crypto market that we've seen to date. Mastercard bought this business for $1.8 billion, right? Like we're not talking about small numbers. We saw Stripe a few months back, maybe a year back at this point, buying Bridge and Privy, two other crypto businesses for a billion dollars each.

Companies that are getting serious about the technology, they understand the value they can they can add to their customers, and again, acquisition sometimes it's a faster way to market, and I'm People are worried about trad-fi, right? There's always this crypto type of persona that uh wants to not have to deal with the banks and so forth, but indeed, and banks are distribution channels. They are the original on and off-ramps, them and all of their related peers. So, we should rely on them to broaden the access of this technology to other people all over the world, to institutions over the world, and ultimately to improve the financial system. So, there is a lot to do, but yeah, definitely consolidation is going to be a big trend to follow.

Yeah, I I just 100% align with what the team here is saying. Like on my end, I can my my personal experience working at PolySign is that I spend more time doing workshops in order to really, you know, like teach or or or share what we know uh rather than actual sales. No, I don't I I don't consider us here like a on the on the the bad uh understanding of a pure sales people, but more of a, you know, co-creators, co-design, design partners, as you were saying. Because that's what they value, you know? We need to to teach them, we need to educate them, and then we need to bring the out-of-the-box solution, which none of us can do alone at this point in time.

We need to to partner up, you know? So, that's the beauty also of of this of this stage of of this industry today. Okay, so thank you very much, Marie, Emanuele, Manuel, Finn. Thanks for everyone. Thank you.