Speaker 1: It isn't easy to launch a stable coin.
Speaker 2: You've seen a lot of people launch stable coins and
Speaker 2: it's hard for them to get to scale because there
Speaker 2: is an embedded network of that and so you have
Speaker 2: to think long and hard about whether you want to
Speaker 2: do it yourself or could you potentially use somebody else's
Speaker 2: or potentially do something that well, let's say the community coin,
Speaker 2: which is something we just launched last lead.
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Speaker 3: in the description. Welcome into the Thinking Crypto podcast. I'm
Speaker 3: your host, Tony Edward and my guest today is Charles Cascarillo,
Speaker 3: who's the CEO and co founder at Paxo's. Charles, welcome back,
Speaker 3: Good to see.
Speaker 1: You, great to be here. Thanks for having me.
Speaker 3: Charles. The last time we spoke, as we were talking
Speaker 3: before the recording, was in twenty twenty two. Very different environment,
Speaker 3: definite a different time in the market, right, but it
Speaker 3: seems brighter days are here and ahead of us. Are
Speaker 3: you surprised by the growth this acid class and industry
Speaker 3: has seen. With ETFs, the stable coing market is booming
Speaker 3: and much more well.
Speaker 2: I mean, things have changed dramatically in the last six
Speaker 2: or eight months, and I think what really kicked that
Speaker 2: off was the Bitcoin IPO, which is the ETF launching
Speaker 2: or ETF's launching and that really I think set the
Speaker 2: stage for bitcoin to become a traditional asset that could
Speaker 2: be held by institutions, and it kind of broke things
Speaker 2: open to a point where it'd be very hard to
Speaker 2: unwind at least bitcoin. But now we also had bitcoin
Speaker 2: ETFs and e ETFs that will be coming. And of
Speaker 2: course we've now had a change in administration, and this
Speaker 2: incoming administration is very receptive to crypto and it has
Speaker 2: taken a lot of least campaign positions that are very
Speaker 2: pro the industry. And so from the Bitcoin ETF through
Speaker 2: to a bottoming out of prices and move forward now
Speaker 2: to all time highs, lots of exciting projects, stable coins,
Speaker 2: continuing interaction all the way through to now with the campaign,
Speaker 2: there's just been a series of positive events that is
Speaker 2: really changing the backdrop and landscape for crypto, for businesses
Speaker 2: in crypto, and I think for the operating environment now
Speaker 2: in the United States.
Speaker 3: So Charles Paxos has been a leader in blockchain infrastructure
Speaker 3: and helping companies launch stable coins and much more. But
Speaker 3: since I would say twenty twenty two or even twenty
Speaker 3: twenty three, we've seen a lot of players enter to
Speaker 3: stable coin market, ripple is going to be around the
Speaker 3: corner of van k launched a stable coin. There's just
Speaker 3: a lot of different folks working on different things. You know,
Speaker 3: is stable coin if not the I wouldn't say the only,
Speaker 3: But is it the killer app of blockchain and crypto
Speaker 3: at the moment?
Speaker 1: Yes? The short answer is yes. The reality is everybody.
Speaker 2: Wants a dollar. The dollar is a killer product for
Speaker 2: payments and store value for the average person. Store value,
Speaker 2: I should say, of course, it depreciates over time, and
Speaker 2: that's why people on gold or want to on bitcoin.
Speaker 2: But for the average person anywhere in the world, the
Speaker 2: dollar is a much better currency than the one that
Speaker 2: they're using. And I think what's exciting about stable coins
Speaker 2: is we're going from solving the use case for crypto
Speaker 2: native people where you need a payment asset that moves
Speaker 2: twenty four to seven instantaneously, to solving payment use cases
Speaker 2: for the general society where they need dollars where they
Speaker 2: needed to move twenty four to seven. They need to
Speaker 2: move instantaneously, they need to move cheaply, they need to
Speaker 2: move programmably, and stable coins to me, really are that
Speaker 2: killer app. It's used every single day, it's used in
Speaker 2: wholesale it's used in retail. It's been used in eighty
Speaker 2: percent of FX transactions, the dollars on one side of
Speaker 2: the transaction. So it's really the lingual fronca, if you will,
Speaker 2: of the financial system. And so having stable coins begin
Speaker 2: to move from cryptal use cases to everyday use cases,
Speaker 2: to remittances, to payments to people who are living in
Speaker 2: countries where you can't get dollar bank accounts is a
Speaker 2: tremendous innovation. And you're just at the very beginning, because
Speaker 2: you're talking about not just one hundreds of billions, but
Speaker 2: you're really talking about tens of trillions of dollars. If
Speaker 2: you look forward five or ten years, it's hard to
Speaker 2: imagine a world where stable coin is not the mechanism
Speaker 2: for any FIAC currency to move. Now, maybe that would
Speaker 2: be stable coins as we understand them today, it could
Speaker 2: be cbdc's, it could be something completely different, but it's
Speaker 2: going to be an open system for moving payments because
Speaker 2: nobody wants the financial system that's stuck on the entrontete.
Speaker 2: They want a financial system that's operating on the int
Speaker 2: and that's what blockchain enables is a safe, secure financial
Speaker 2: system operating in an open way like the Internet, and
Speaker 2: that is a real game changer, and stable coins are
Speaker 2: the mechanism to create that change.
Speaker 3: Absolutely, And Charles, I'm sure you've seen and heard about this,
Speaker 3: but it seems there's more dialogue in DC now as
Speaker 3: to the importance of a US dollar back stable coin
Speaker 3: or stable coins in preserving the world reserve currency status,
Speaker 3: which is the US dollar. What do you think about
Speaker 3: those conversations that are, you know, kind of unfolding now.
Speaker 2: I think it's very important. I think it's an important
Speaker 2: recognition that stablecoin holders have more US dollar debt than say,
Speaker 2: Saudi Arabia. I mean, that's enormous statement. It's up I
Speaker 2: think maybe sixteen or seventeen now in terms of the
Speaker 2: largest holder would.
Speaker 1: The stable coin if it's tect them as one holistic group.
Speaker 2: And I think that's important because the US is sharing
Speaker 2: a lot of debt and it needs holders of that debt.
Speaker 2: And central banks generally around the world are selling US debt.
Speaker 2: But central bank selling is not an indication of the
Speaker 2: demand for US dollars. Retail and even wholesale. There's more
Speaker 2: demand than ever for US dollars. The average person wants dollars,
Speaker 2: they can't get it and the reason is the fictional
Speaker 2: banking system is operating like the post office. It takes
Speaker 2: days and days and days for dollars to move, and
Speaker 2: it's high fees. And that doesn't make any sense because
Speaker 2: all electronic dollars sit in the bank. We're not trying
Speaker 2: to move.
Speaker 1: Around physical cash.
Speaker 2: Why is it taking as long as a physical movement
Speaker 2: mechanism like the post office?
Speaker 1: But it is. And really, blockchain.
Speaker 2: Is now enabling your money to move at the speed
Speaker 2: of the internet, just like anything else. Now, don't get
Speaker 2: me wrong. Money is valuable and is regulated, and so
Speaker 2: you have to have an.
Speaker 1: Overlay that's put into place.
Speaker 2: But fundamentally, it's just like moving an email, and you
Speaker 2: can put the right structures in place so that it
Speaker 2: can move like an email yet have other protections. And
Speaker 2: the way the banking system and a payment system is
Speaker 2: operating today, that's not the case. And we've put certain
Speaker 2: abstractions in place, but generally, if you want to move
Speaker 2: money overseas, it's many days. And if you want to
Speaker 2: move money between someone who doesn't have a bank account
Speaker 2: and you, you're going to pay big fees because there's
Speaker 2: remittances and last miles. The way it works today is
Speaker 2: anybody with a smartphone can now have a wault.
Speaker 1: And the fascinating thing is, in fifteen.
Speaker 2: Years, the penetration rate of smartphones is eighty five percent
Speaker 2: of the world's population. Meanwhile, underbanked and unbanked people still
Speaker 2: represent about forty tho's somewhere around thirty five to forty
Speaker 2: percent of.
Speaker 1: The world's population.
Speaker 2: So the penetration rate of smartphones is now higher than
Speaker 2: people getting out of put banking services, and banking has
Speaker 2: been around for centuries, and it just shows you the
Speaker 2: distribution mechanism for US dollars has not kept up with
Speaker 2: the demand.
Speaker 1: People want the product in a different way.
Speaker 2: And by the way, if the US dollar doesn't provide that,
Speaker 2: people are gonna have to go get it somewhere else
Speaker 2: because the demand is so much. That's where people might
Speaker 2: use digitized goal, or they use bitcoin, or they can
Speaker 2: use a CBDC from China or some other country. People
Speaker 2: need a payment mechanism that can solve the problems in
Speaker 2: their daily lives, and the way the dollars operate today
Speaker 2: it doesn't do that.
Speaker 1: But stable points offer the capacity for the dollar to
Speaker 1: do that, and.
Speaker 2: That's really positive for the dollar in general, you know
Speaker 2: you have to have distribution for a great product, otherwise
Speaker 2: you know you're going to fall behind and you're going
Speaker 2: to face the innovator's je Lama and someone's going to
Speaker 2: come in and they're going to disrupt you.
Speaker 3: Yeah. Absolutely, well put and you know we're headed to
Speaker 3: a more digital world, not a less digital world. And
Speaker 3: to your point smartphone penetration. I've seen people in developing
Speaker 3: countries that have a smartphone. They don't even have a computer,
Speaker 3: but have a smartphone. And the way people transact now
Speaker 3: it's digital payment. They want fast, cheap, easy to use
Speaker 3: and obviously there's a demand for the World Reserve currency.
Speaker 3: So you're spot on there. What are your thoughts on
Speaker 3: stable coin legislation that is being worked on here in
Speaker 3: the United States? We saw the EU pass a version
Speaker 3: that kind of disrupted a bit of what Tether was
Speaker 3: doing there and they're positioning in the EU. What are
Speaker 3: your thoughts and all of that.
Speaker 2: Well, the US has a number of different bills on
Speaker 2: the stable coin side, some in the Senate and one
Speaker 2: that has passed through the House Financial Services Committee, and
Speaker 2: that one is something that was very strong in support
Speaker 2: and it creates a steal a clear state pathway for
Speaker 2: firms to issue stable coins.
Speaker 1: The reason I think.
Speaker 2: That is so important is because fundamentally, stable coins are
Speaker 2: really not risky, and they're really not all that scary.
Speaker 2: There are six point six trillion dollars of money market fonts.
Speaker 2: There's also six point three trillion dollars of banking assets
Speaker 2: that doesn't.
Speaker 1: Even go to a Federal Reserve regulated institution.
Speaker 2: So you have thirteen trillion dollars of either money market
Speaker 2: funds or banking assets that doesn't have Federal Reserve oversight,
Speaker 2: and yet everything is fine, and stable coins are safer
Speaker 2: than money market funds, at least when you issue them
Speaker 2: like TAXOS does, through a trust company or a ring
Speaker 2: fence issuer, like we do in both ABADAVII and Singapore.
Speaker 2: That means if anything happens to paxos, your assets can
Speaker 2: return to you immediately. They are separate from our operating business.
Speaker 2: They are held in client name, bankruptcy protected. Something happens,
Speaker 2: you get it returned, and that's safer than any other
Speaker 2: type of financial asset, and so it's safe for that.
Speaker 2: A money market fund doesn't exist today, and it's certainly
Speaker 2: safer than having money in the bank where you only
Speaker 2: are protected up to your FDIC insurance loan. So there's
Speaker 2: thirteen trillion dollars and they're not overseen by the FED.
Speaker 2: We don't think that stable coins need to be overseen
Speaker 2: by the FED. They just need to make sure that
Speaker 2: you have a clear set of frameworks that everyone has
Speaker 2: to follow, like Singapore has done, like Abudabi is done,
Speaker 2: like New York has done, because buying key bills and
Speaker 2: putting them in a vault is about the safest thing
Speaker 2: in the world, and then taking those tea bills and
Speaker 2: creating a stable coin on a blockchain is also really
Speaker 2: very simple to do, especially if you have an oversight
Speaker 2: from a regulator and if you're following the right reserve requirements.
Speaker 1: All the things you need to do.
Speaker 2: Now, Europe has codified legislation as well, as you point
Speaker 2: it out, and that's something that we're also going to
Speaker 2: comply with. What's unique about Paxos is that we have
Speaker 2: a primary regulator that oversees each one of our stable
Speaker 2: coins in New York, in Singapore, or abad Abi, and
Speaker 2: that's not true for either Circle or Tether. I'm not
Speaker 2: saying that there's something wrong with their product. It's just
Speaker 2: that they don't have a regulator, they don't have a
Speaker 2: regular that oversees the issuance. So that makes it a
Speaker 2: little bit trickier when you're trying to comply with different
Speaker 2: j stiction's rules, because you've got to follow the rules
Speaker 2: of your home regulator, and then you also want to
Speaker 2: follow the rules of a regulator in the market that
Speaker 2: are operating in, and so we're working on that. I
Speaker 2: think it's good to have a set of rules, you know,
Speaker 2: I think certain ones were more supportive of than others.
Speaker 1: But from the very beginning we've been regulated.
Speaker 2: We've first got a New York Trust all the way
Speaker 2: back in May twenty fifteen, the first trust in the
Speaker 2: whole country that was approved to operate in crypto watching.
Speaker 1: So we've clearly asked.
Speaker 2: For permission, not for forgiveness, and we've not just done
Speaker 2: that in the US and around the world.
Speaker 1: And so we're all for it. But you know, not
Speaker 1: all regulation is created equal. Not all regulation promotes a.
Speaker 2: Healthy functioning market, and that's what we want to make
Speaker 2: sure exists.
Speaker 3: Talk to us a bit about the issuance process and
Speaker 3: what the regulators want to see is a kyc AML.
Speaker 3: Also that you have the respective reserves and there's a
Speaker 3: one to one correlation, so to speak.
Speaker 1: I think those are the key outlines. They also want
Speaker 1: to make sure you have the right operational procedures. So
Speaker 1: what are in your reserves?
Speaker 2: How are you making sure that those reserves equal the
Speaker 2: number of tokens, so it's one to one, backed and
Speaker 2: backed by what and back where what jurisdictions are held in.
Speaker 2: And then when you have customers using the product, who
Speaker 2: are those customers and what are they using it for?
Speaker 1: And these are the key components.
Speaker 2: And then how do you make sure that operationally you
Speaker 2: can handle different types of risks that might arise, whether
Speaker 2: for redemptions or creations, for.
Speaker 1: Hot minting and cold minting, et cetera.
Speaker 2: So there's a whole number of things that you have
Speaker 2: to do for what seems like a relatively simple product.
Speaker 1: And of course you need to make sure that you're
Speaker 1: monitoring your.
Speaker 2: Asset is maintaining its PEG even out in the broader ecosystem.
Speaker 2: And so that's a whole process that's, you know, takes
Speaker 2: a lot ofication to.
Speaker 1: Do it right. We've done it more than anybody.
Speaker 2: We've now issued six different regulated stable coins on different kinds,
Speaker 2: and we even tokenized US equities in the past. So
Speaker 2: we've done so much to build a lot of credibility
Speaker 2: around how to do this, and I think that's part
Speaker 2: of the reason why we were able to go in
Speaker 2: and really have a good influence on the policy making process.
Speaker 2: But all regulators are concerned with some version of you know, reserves,
Speaker 2: issuance customers.
Speaker 3: Earlier, you mentioned that this stable point in the market
Speaker 3: doesn't necessarily need to have federal reserve oversight. But do
Speaker 3: you think here in the United States that because there's
Speaker 3: so much control of the currency and the world being
Speaker 3: the role of reserve currency as well, that they may
Speaker 3: want to plug in to your infrastructure or even to
Speaker 3: different blockchains to monitor this so they know where the
Speaker 3: currency is going, how it's moving around the world, and
Speaker 3: so forth. Once again, from the government's point of I
Speaker 3: don't personally agree with her, but you know, I'm thinking
Speaker 3: about the Treasury and Janet Yellen and these folks, right,
Speaker 3: maybe part of the problem why they were trying to
Speaker 3: slow down crypto through regulators is they don't they have
Speaker 3: a blind spot. They don't know where the currency is going.
Speaker 2: Yeah, well, look, ultimately the US government is the issue
Speaker 2: or of dollars, and it makes sense that they want
Speaker 2: to know where the dollars are being used. That's a
Speaker 2: liability of the US government enough taxpayers, and so you know,
Speaker 2: there's pros and cons around the government being able.
Speaker 1: To see where payments are and what they're doing.
Speaker 2: That's a different debate from US as an issuer, and
Speaker 2: not necessarily you know one that is something that we
Speaker 2: should even be weighing in on. And so we'll follow
Speaker 2: the right rules around what should the government know, how
Speaker 2: do you share information, howpan they see information and aggregates,
Speaker 2: and we'd of course be happy to make that available
Speaker 2: if that's what is required.
Speaker 1: And I think having information sharing totably fine.
Speaker 2: I think there are things the FED could do, like,
Speaker 2: for instance, allowing issuing firms to have master accounts of
Speaker 2: the FED, which would be like inquidement having a bank account,
Speaker 2: but having a bank account of the FED. But you
Speaker 2: just can't go into debt. I mean, we can't be
Speaker 2: borrowing from the FED, but you could have a bank
Speaker 2: account there and they there are other countries that have
Speaker 2: done that for non bank payment service providers. It's a mouthful,
Speaker 2: but for instance, the Bank of England has done that
Speaker 2: where Revolute has an account there, and you know, you
Speaker 2: could do that and the FED could see then all
Speaker 2: of the reserves because they'd be sitting in their own
Speaker 2: bank account against what you're issuing, and it'd be very
Speaker 2: simple for them to.
Speaker 1: Make sure that you're maintaining the peg.
Speaker 2: Your liquidity would be perfect, your maturity profile would be
Speaker 2: exactly perfect. You know, but at the end of the day,
Speaker 2: if a stable point issue. We like ourselves and for instance,
Speaker 2: we had a stable point that twenty five billion dollars
Speaker 2: out of standing at its peak, and we were able
Speaker 2: to redeem six billion dollars in one day or five
Speaker 2: or six five billion dollars one day. So you run
Speaker 2: the right profile, you can manage is it's not all
Speaker 2: that complex. You own t bills or overnight repo over
Speaker 2: clouds by treasuries, and you have an issuance and you know,
Speaker 2: people can see what it is. We publish down to
Speaker 2: the QSIP number. You can literally see the exact security
Speaker 2: that we own. We publish that monthly. You know, it
Speaker 2: could be done more frequently. I don't know if that's
Speaker 2: necessarily practical, but anyways, you know, you just can be
Speaker 2: extremely transparent, and of course it's not a blockchain, so
Speaker 2: that's all public as well.
Speaker 1: So there's just a lot of logic to stable coins.
Speaker 2: And I think another thing to really impress upon listeners
Speaker 2: here is the stable point market is clearly gaining product traction,
Speaker 2: but it's also clearly very early. What chain is going
Speaker 2: to scale to the sidal wide level. Nobody knows, None
Speaker 2: could right now, So nobody really knows. What could you
Speaker 2: want to use an L one or an L two?
Speaker 2: Do you create netting layers?
Speaker 1: You know?
Speaker 2: How are you going to move trailllions and trillions and
Speaker 2: trillions of dollars in transaction every single day? I don't
Speaker 2: think we have the right answer for that, yes, but
Speaker 2: I can tell you the private market is going to
Speaker 2: iterate and figure that out and feel the need to
Speaker 2: solve customer problems much better than a mature organization that
Speaker 2: has historically not innovated at the speed with which the
Speaker 2: market is moving. And that's why you need the private sector.
Speaker 2: That's why you need staplepoint issuers. But why you also
Speaker 2: want to have a regulatory framework that creates a set
Speaker 2: of rules but doesn't stifle innovation.
Speaker 3: Absolutely. Now you mentioned you know the different l ones
Speaker 3: and so forth. Last time we spoke, I know you
Speaker 3: guys were primarily using Ethereum as your l one to
Speaker 3: issue these stable coins. Have you expanded to other blockchains
Speaker 3: like Solana and so forth?
Speaker 1: We have expected.
Speaker 2: We have expanded to Solana, Arbitrum, We're working on a
Speaker 2: Stellar and Polygon. There's a a whole number of chains
Speaker 2: that we're going to be issuing on over the next
Speaker 2: six and twelve months.
Speaker 1: You know, there's always a tension.
Speaker 2: Between issuing on the chain versus making sure that there's
Speaker 2: enough activity on that chain to warrant all the controls
Speaker 2: they need to put into place. And again, because we're regulated,
Speaker 2: we go to our regulators and we talk to them
Speaker 2: about the chain. We get it approved as an issuance mechanism,
Speaker 2: you know, And that's different from a regulator along someone
Speaker 2: to own the token of the chain.
Speaker 1: This is about enabling issuance onto a chain.
Speaker 2: And I do think that, you know, it should probably
Speaker 2: be a little bit easier to issue regulated dollars on
Speaker 2: more chains.
Speaker 1: We just saw a.
Speaker 2: Bid all get issued on a whole number of different
Speaker 2: chains as an example, and I think that makes sense.
Speaker 2: You know, Tether and Circle are on all kinds of chains.
Speaker 2: But again, they don't have a regulator that they have
Speaker 2: to go to in order to get approval. We do,
Speaker 2: and so that is oftentimes really the gating factor for us,
Speaker 2: making sure that all of the investments we have to
Speaker 2: make in order to issue is commensurate with the amount
Speaker 2: of activity that we're going to see.
Speaker 1: But I do think that.
Speaker 2: There's so many different chains that people are on and
Speaker 2: experimenting with and using cross chain swaps, and there's a
Speaker 2: kailorization that's happening for stable coins and stable coins that
Speaker 2: are then being wrapped into other types of stable coins.
Speaker 1: It's just proliferating at an enormous rate because.
Speaker 2: You're able to customize, and you know, people customize their
Speaker 2: credit cards in a million different ways. What do they
Speaker 2: look like? What's going on? Why wouldn't they want to
Speaker 2: customize on their own chain?
Speaker 1: And they do.
Speaker 3: Now, you guys help PayPal to launch pyu as the
Speaker 3: how did that relationship come about and how how how
Speaker 3: did you end up getting the execution of this going well?
Speaker 2: Pyu see is something that's very exciting for us as
Speaker 2: the issuer, and that means in the background, we are
Speaker 2: running the compliance, we're running the reserves, we're running the technology,
Speaker 2: we're running the operational procedures, but it has PayPal's name
Speaker 2: on it, and they are the distribution partner with their name,
Speaker 2: you know, this is their asset. They can go distribute
Speaker 2: as they would like. This is very similar to how
Speaker 2: white label credit cards work. There's so many institutions that
Speaker 2: have a credit cards. Almost none of them do it
Speaker 2: in the background. They utilize other services like Alliance Data
Speaker 2: Systems or City Group or whatever. And me, have you
Speaker 2: heard of some of these companies, probably, And yet they
Speaker 2: exist and they provide this white label service.
Speaker 1: And that's what we've done here.
Speaker 2: We have done other white labels in the past, the
Speaker 2: finance and others. And to me, this is a really
Speaker 2: interesting strategy for a company that has a big system,
Speaker 2: certainly paypals amongst the biggest systems, because they have a
Speaker 2: con sumer wallets both on the PayPal and the Venmo side.
Speaker 2: And then they have merchants that they.
Speaker 1: Solve transaction processing for and they do that through brain.
Speaker 2: Tree and PayPal and otherwise, and so they have both sides.
Speaker 1: And some of the biggest costs for them is.
Speaker 2: Their network costs and if they can get their customers
Speaker 2: to be able to pay merchants directly. In stable coin,
Speaker 2: you change your cost curve substantially. And now PayPal ultimately
Speaker 2: has their own strategy for how they want to handle this,
Speaker 2: but I think you know clearly it's indicative that stable
Speaker 2: coins have an important place in the payment ecosystem for
Speaker 2: someone like PayPal to decide to adopt.
Speaker 1: No, they've been a first mover.
Speaker 2: They offered crypto to their customers years ago coming out
Speaker 2: of the last bear market, and then they launched pyos
Speaker 2: during this past bear market, both times essentially marking the bottom.
Speaker 2: So they've done some really great innovative things in the
Speaker 2: crypto ecosystem, recognizing how this is going to be the
Speaker 2: future and it will change cost curves, delivery mechanisms, the
Speaker 2: way in which customers have a daily interaction, and in
Speaker 2: a very important way.
Speaker 1: And they're not the only one. We have these conversations
Speaker 1: with companies almost every.
Speaker 2: Day, who do you want to do a stable coin
Speaker 2: or do you not want to do a stable coin?
Speaker 1: And that's a tricky thing because it isn't easy to
Speaker 1: launch a stable coin.
Speaker 2: We've seen a lot of people launch stable coins and
Speaker 2: it's hard for them to get to scale because there
Speaker 2: is an embedded network eff and so you get to
Speaker 2: think long and hard about whether you want to do
Speaker 2: it yourself or could you potentially use somebody else's or
Speaker 2: potentially do something that almost looks like the community coin,
Speaker 2: which is something we just launched last week.
Speaker 3: Yeah, So on that note is that the Global Dollars
Speaker 3: thing coin news where it's backed by robinhood crack a
Speaker 3: crack in Exchange and some other folks like Galaxy Digital exactly.
Speaker 2: And so the way we've set that community coin out
Speaker 2: is that there are two elements. One is that you
Speaker 2: have the actual regulated token USDG issued out of Singapore.
Speaker 1: It's a dollar stable coin.
Speaker 2: It's issued by a ring fence entity, so then it
Speaker 2: doesn't do anything aside from issue, and it holds dollars
Speaker 2: in key bills and overnight repo, so extremely secure one
Speaker 2: to one backs. And it's a traditional dollar stable coin
Speaker 2: that is creudentially regulated by a primary regulator, which is
Speaker 2: the Montery Thornia Singapore.
Speaker 1: And we earn a fee as.
Speaker 2: The issue and that's to management fee, and so that's
Speaker 2: the token. Then there is the network, which we're calling
Speaker 2: the Global Dollar Network, and that's actually open for any
Speaker 2: institution or company to join, so anybody can join. The
Speaker 2: launch partners were robin Hood and Anchorage, crack in Galaxy,
Speaker 2: Bullish Neuvey. If you notice there are fintech firms, there
Speaker 2: are payment companies, there are exchanges, there are custodians.
Speaker 1: Anybody can join.
Speaker 2: And the concept here is if you're a member of
Speaker 2: the network, almost all of the interests that.
Speaker 1: We earn on our reserves is return to.
Speaker 2: The network members, and that's based on assets under custody
Speaker 2: as well as net minting, as well as accepting the
Speaker 2: stable coin. And so people can earn interest in rewards
Speaker 2: by any of these different activities, and you're not just
Speaker 2: limited to one thing of holding balances. It could be
Speaker 2: that you're growing the usage of the network by doing
Speaker 2: a lot of net minting or by receiving the stable
Speaker 2: coin in as a payment mechanism, and so we also
Speaker 2: reward that as well.
Speaker 1: But again, anybody can join an open network.
Speaker 2: All the economics are returned to the network itself.
Speaker 1: We are simply the issuer.
Speaker 2: We're also a member of the network, but they're suffered
Speaker 2: and it's meant to be suffered.
Speaker 3: So what would be the benefits of this network if
Speaker 3: I'm a let's say I'm Microsoft, right versus launching my
Speaker 3: own staplecoin versus joining this network? Is it kind of
Speaker 3: metcaps slow becomes stronger, there's more trust and having more institutions,
Speaker 3: there's more eyeballs on this, and maybe I get a
Speaker 3: larger network effect.
Speaker 2: Well, there's generally, I think two zero to one problems
Speaker 2: than anyone faces, and then I want to stay one.
Speaker 1: The first zero to one is can you get your
Speaker 1: internal system to be able to recognize and.
Speaker 2: Use your new asset that you just created and embed
Speaker 2: it really well within your systems? And then can you
Speaker 2: also go out into the broader world and get it
Speaker 2: embedded and you is on a broader basis. And what
Speaker 2: we found is that those two problems are complex to solve, even.
Speaker 1: For very sophisticated institutions.
Speaker 2: And if you're smaller, you know it might be easier
Speaker 2: for you to solve your own network problem, but harder
Speaker 2: to solve the external network problem. If you're bigger, you
Speaker 2: know you have more weight, but your internal network problem
Speaker 2: is quite significant, and getting the external one is still meaningful.
Speaker 1: And that's the whole point of the Global.
Speaker 2: Dollar network is everyone is working together. The network is
Speaker 2: an open network, so everyone can come in, and so
Speaker 2: you of course might still want to have your own
Speaker 2: stable coin.
Speaker 1: And this is not exclusive. You can still use other
Speaker 1: stable coins.
Speaker 2: But the point here is that everyone is being rewarded collectively,
Speaker 2: and as the network grows, that collective pool gets bigger
Speaker 2: and bigger as it gets allocated. So you're getting, i
Speaker 2: think from everything that we see, actually better economics by
Speaker 2: being part of a network like.
Speaker 1: This than you would if you just ran your own.
Speaker 2: That's not necessarily always going to be the case, but
Speaker 2: I think that's generally the case, and.
Speaker 1: That's why a lot of these institutions join.
Speaker 2: You know, I think that they look and they thought
Speaker 2: about where what doesn't make the most sense for their businesses,
Speaker 2: and these are still very significant, you know size institutions,
Speaker 2: and for them being part of this network was I
Speaker 2: think their answer.
Speaker 1: Yeah.
Speaker 3: Absolutely. Is there a cap to the number of participants
Speaker 3: that can go on this network or it's you know,
Speaker 3: unlimited to a certain degree.
Speaker 2: It's unlimited and everyone has the same terms. So that's
Speaker 2: the great thing about it. You join, if you do
Speaker 2: a lot of activity, you can make more than someone
Speaker 2: who does a little bit of activity, and anybody can
Speaker 2: come on board, and so or different tiers for activity,
Speaker 2: but everyone has the same term.
Speaker 1: The whole point was this isn't about somebody owning it.
Speaker 2: It's about the users getting the return from the work
Speaker 2: that they put in and from the usage.
Speaker 1: That they do.
Speaker 3: Why is Singapore not the US.
Speaker 2: Well, Singapore is someplace that has put together a framework
Speaker 2: where it makes a lot of sense and it's.
Speaker 1: Very easy to do.
Speaker 2: You know, this is something that's a global asset that's
Speaker 2: used globally. Singapore is a global financial hub. The reality
Speaker 2: is the US hasn't put into place a stable coin
Speaker 2: framework yet, and so you know, we're trying to really
Speaker 2: think innovatively about, you know, where can we operate that
Speaker 2: will create the largest pool of potential users, because ultimately
Speaker 2: this is a global business.
Speaker 1: Stable coins are a global asset.
Speaker 2: And you know, I think there's a really important place
Speaker 2: for the US to play in this. But we need
Speaker 2: regulatory certainty, regulatory clarity, regulatory consistency to be able to
Speaker 2: invest not for just the next six months, but the
Speaker 2: next year, the next five years, more important, in the
Speaker 2: next ten years. This is what we're going to do
Speaker 2: for you know, for decades. And so when you think
Speaker 2: in those types of timeframes, it's it was hard to
Speaker 2: do that in the United States, where.
Speaker 1: We just don't have that.
Speaker 3: Yeah, absolutely makes sense. But I love this idea. Charle's uh, Like,
Speaker 3: would I feel more comfortable using a stable coin where
Speaker 3: all these participants well known names like Robin and I
Speaker 3: use Robinhood, I've used kracking, I know about Galaxy Digital,
Speaker 3: Mike Novograts and so forth, having these folks backing the
Speaker 3: network and you know, monitoring, so to speak, would I
Speaker 3: feel more comfortable absolutely versus one institution stable coin which
Speaker 3: may have been launched you know, sooner or I should
Speaker 3: say recently. So I love this idea well.
Speaker 2: Also, what's really important is because it has a primary regulator.
Speaker 2: If something happens to us, your assets get a return
Speaker 2: to you. They are your assets. Every other stable point
Speaker 2: is sure, and there are, I guess some who launch
Speaker 2: out of trust, but of the major ones. You are
Speaker 2: a creditor of an issuing entity. You're not the owner
Speaker 2: of the assets. You are lending money to these institutions,
Speaker 2: and of course it doesn't mean that they can't pay
Speaker 2: you back, but if something that was alread to go wrong,
Speaker 2: it could take you a long time before you get
Speaker 2: paid back. In this case, it is set up where
Speaker 2: we have a ring fence entity, the money can be
Speaker 2: returned to you. It's creating regulatory certainty, it's creating financial certainty.
Speaker 2: It's creating also I know this is sometimes a little obscure,
Speaker 2: but it's creating accounting certainty.
Speaker 1: What exactly is it that you have?
Speaker 2: And all those things come together to create a trusted
Speaker 2: stable point that can scale to what I think is
Speaker 2: socidal wide levels. You know, we're not just thinking, you know,
Speaker 2: how can this work at one billion or ten billion?
Speaker 1: But how does this work at trillions?
Speaker 3: Absolutely? Now I read that this is launching an etherorem,
Speaker 3: I'm assuming the planet is to have it go to
Speaker 3: other chains as well, eventually, exactly.
Speaker 2: The first place we've launched is Ethereum. We're ready to
Speaker 2: start rolling this out on other chains. We've already issued
Speaker 2: our other stable coins on other chains, so it's just
Speaker 2: a question of sequencing.
Speaker 3: I have a question. This may seem like a weird question,
Speaker 3: but I'm very curious about it, and I think you
Speaker 3: touched on it. How do stable coin issuers like a
Speaker 3: PayPal or USD how do they make money? Is it
Speaker 3: interests on the reserves, the t bills and also fees
Speaker 3: on the transaction fees on the blockchain.
Speaker 2: Yeah, I think there's a couple of ways you could
Speaker 2: earn it. Not every single one does the same. In
Speaker 2: our case, we are earning an asset management fee, so
Speaker 2: we are managing the reserves. We're taking an asset management
Speaker 2: You could instead of earning an asthmatic feed, just earn
Speaker 2: all of the interest on the reserves, and so you
Speaker 2: earn the interest. You're not taking a fee per se,
Speaker 2: You're just keeping the interests. Another mechanism could be certain
Speaker 2: types of transaction fees. We don't happen to take any,
Speaker 2: but for instance, you could charge a redemption fee, so
Speaker 2: you come to redeem and get something and there's issuers
Speaker 2: that are charging five or ten basis point redemption fee.
Speaker 2: You could also charge a minting fee. You could charge
Speaker 2: certain transaction fees so you know that you're doing You
Speaker 2: could charge not necessarily even for any type of issuance
Speaker 2: and you're just charging it on infrastructure that you're providing
Speaker 2: API calls.
Speaker 1: So there are.
Speaker 2: Different mechanisms that you could do. I think what we've
Speaker 2: tried to do is think about where is the puck going,
Speaker 2: how do you run towards where you think the ball
Speaker 2: will be. And I think it's hard to imagine from
Speaker 2: a historical analogy standpoint, an issue where keeping all of
Speaker 2: the interest it just doesn't make any sense to me.
Speaker 2: The whole point of stable coins is that you democratize
Speaker 2: access to the dollar.
Speaker 1: Very powerful, very useful.
Speaker 2: But once you democratize access to the dollar, it's almost
Speaker 2: immediately after that that the question becomes, how do you
Speaker 2: democratize access to the risk free rate? How can you
Speaker 2: make it so that anybody can get the risk free rate?
Speaker 2: Because frankly, everybody should be able to get the risk
Speaker 2: free rate. Why shouldn't everybody be able to get the
Speaker 2: same return on T bills that institution can get? Now,
Speaker 2: you can if you go to a money market fund,
Speaker 2: but not if you're keeping your money in something that's
Speaker 2: transaction enabled. Today, if you kept your money in the bank,
Speaker 2: you're getting zero to two percent interest. The wholesale rate is,
Speaker 2: let's say five percent. In what world does the retail
Speaker 2: wholesale spread exist at that wide of a level. You know,
Speaker 2: you're talking about sixty seventy eighty one hundred percent difference
Speaker 2: between retail wholesale That is completely anachronistic, and it doesn't
Speaker 2: make any sense because putting your money in a bank
Speaker 2: is not risk free. You have risk by putting money
Speaker 2: in a bank, whereas with a stable coin you have
Speaker 2: no risk. The risk is the t bills that are
Speaker 2: being held in trust. It's very, very tiny in the
Speaker 2: grand scheme of things. It's the less risky than a
Speaker 2: bank and less risky than.
Speaker 1: A money market fund.
Speaker 2: So you have basically the safest dollar in the world
Speaker 2: paying you potentially the highest return. That's where the financial
Speaker 2: system needs to go. That's where it should be for everybody.
Speaker 2: I can get dollars and I can get the risk
Speaker 2: free rate, and you can completely change the financial system
Speaker 2: and people's lives. They're financial lives all over the world.
Speaker 2: That's why everybody wants a dollar. They don't want a paso,
Speaker 2: that's the valuing. They don't want any other fiat currency
Speaker 2: where you have potential political instability.
Speaker 1: They want dollars. But they want also be able to
Speaker 1: get interest on it.
Speaker 2: And we have a mechanism for that, and that is
Speaker 2: actually really good for the US government to be able
Speaker 2: to issue.
Speaker 1: Maybe it's too good because then we can run even
Speaker 1: bigger deticens.
Speaker 2: So that's not necessarily positive, but it's still fundamentally what
Speaker 2: you want as the reserve currency.
Speaker 3: Yeah, that absolutely makes sense, Charles. I know we're bringing
Speaker 3: up in time, so I want to ask you about
Speaker 3: your outlook for twenty twenty five. We got a pro
Speaker 3: crypto president, we had a pro crypto Congress coming in,
Speaker 3: and there's bills being worked on in the House and
Speaker 3: Senate and so forth. Are you optimistic that we see
Speaker 3: you a crypto boom in twenty twenty five and going
Speaker 3: into the further years, we're going to have.
Speaker 2: A cryptal golden age. In my opinion, this is going
Speaker 2: to be unbelievable. I hope we don't overdo it as
Speaker 2: an industry, but this is going to be phenomenal in
Speaker 2: terms of how it opens things up. And the US
Speaker 2: has been lagging behind, but it hasn't by any way,
Speaker 2: by any means, completely fallen behind to the point where
Speaker 2: I can't recover. And the US puts the right type
Speaker 2: of incentives in place, and companies like our set where
Speaker 2: we've been moving jobs overseas, will not necessarily move the
Speaker 2: jobs back, but we'll invest so much more in the US,
Speaker 2: and I think that is an exciting opportunity for the
Speaker 2: whole industry.
Speaker 1: For the United States, I think the key thing here
Speaker 1: is not.
Speaker 2: Just having a pro crypto president and a procrypto Congress,
Speaker 2: but having procrypto regulators. And of course, because you have
Speaker 2: a pro crypto Congress and pro crypto administration, you'll end
Speaker 2: up with pro crypto regulators. But it takes time, and
Speaker 2: that means that it's not going to be a light switch.
Speaker 2: There are certain things like say SAB one twenty one,
Speaker 2: some accounting rules or Operation Chow point two point zero
Speaker 2: that you can try and like you can just reel
Speaker 2: that back in. Some things might require legislation. I think
Speaker 2: that means you're going to be looking probably at the
Speaker 2: end of twenty twenty five, maybe even beginning of twenty
Speaker 2: twenty six, for getting a bunch of legislation through. But
Speaker 2: with all of these pieces in place, you can really
Speaker 2: open up the floodgates of opportunity of projects in a
Speaker 2: nation that has been held back really unnecessarily.
Speaker 1: Now.
Speaker 2: I think the key is just to be making sure
Speaker 2: that we do it right, because if you overdo it,
Speaker 2: you see, you know, you sow the seeds of your
Speaker 2: own demise, and that's not healthy.
Speaker 1: But you know, look, I would certainly take this open
Speaker 1: opportunity in this crypt of golden age all day long
Speaker 1: over where we just came from over the last two years,
Speaker 1: which was you know, really a weaponization of the regulatory
Speaker 1: apparatus against the industry in a really unjust and unfair way.
Speaker 2: And you know, we suffered that, but so did everybody
Speaker 2: else in some different level degree.
Speaker 3: Yeah. Absolutely, I mean it was so brutal, but I
Speaker 3: think the industry came together, you started fighting back, taking
Speaker 3: cases to the courts, and then obviously spending in the election,
Speaker 3: and we're seeing a big change.
Speaker 1: Now.
Speaker 3: What's on Paxos's roadmap for the Reindeer of twenty twenty
Speaker 3: four in early twenty twenty five, Well.
Speaker 2: We've had a lot that we've done so are in
Speaker 2: this fourth quarter and even the second half of this year.
Speaker 2: We launch our yield daring stable coin atab Abu Dhabi.
Speaker 2: It's called USDL Lift Dollar that pays interest daily. We
Speaker 2: have launched this USDG in the Global dollar network. We've
Speaker 2: also launched our stable cooin infrastructure product, we power Strike,
Speaker 2: and that enables someone to be able to pay with
Speaker 2: a stable coin to a merchant and be able to
Speaker 2: settle it out, which we do, and we're working on that.
Speaker 2: That's called pay ins. We're working on other aspects on
Speaker 2: payment infrastructure here, and so we have a number of
Speaker 2: things that we're launching to really improve the user experience
Speaker 2: and to scale these products, launch on new chains, add
Speaker 2: more partners.
Speaker 1: There's a lot of scaling that we need to do.
Speaker 2: We spent all this time building into new jurisdictions and
Speaker 2: building new products, and we're going to keep launching products.
Speaker 2: But a lot of it is, you know, how do
Speaker 2: we keep solving our customer problems as fast.
Speaker 1: As you can.
Speaker 2: It's the only thing that makes you endure is your
Speaker 2: ability to innovate and keep solving your customer problems because
Speaker 2: they don't say the same.
Speaker 1: That's the nature of the world we live in.
Speaker 2: More than any other time, customer problems change fast and
Speaker 2: you have to respond to that or you're going to
Speaker 2: get a lot behind.
Speaker 3: Charles amazing, and I need to have you on very
Speaker 3: often because you guys are doing a lot of great
Speaker 3: things innovating, working with some very big institutions and launching
Speaker 3: great products. So it's exciting stuff. And thank you so
Speaker 3: much for joining me.
Speaker 1: It's great to be on Tony. It's always a lot
Speaker 1: of fun talking with you. It's been too long