Circle CEO Jeremy Allaire on US Crypto Regulation

that volatile. The idea is that these tokens hold their value, and that value is pegged one to one to something like a US dollar or a euro or the Japanese yen. Now that hasn't always turned out to be true, notably in the case of a type of stable coin known as algorithmic, but across the board, stable coins continue to be both one of the most popularly traded forms of crypto tokens and one of the ones under the most

amounts of regulatory scrutiny right now. Just recently, in New York, regulators demanded that a company called Paxos, which had partnered with Finance on a switchain type of stable coin, immediately stopped creating any new ones of the tokens. These are just some of the reasons that we asked Circle Internet Financial CEO Jeremy Alair to join me in the studio.

Circle is the issuer of what's currently the second largest stable coin, usd Coin or USDC, and Jeremy Lair himself has some very specific opinions on who should and who should not regulate stable coins. Our conversation lasted about an hour, so we pull the highlights for you. Here's my conversation with Circle CEO Jeremy Lair, edited for length and clarity. Jeremy, Welcome to Bloomberg. Thank you. It is a pleasure to

have you in the podcast studio. What we can describe as a fairly interesting time for stable cooin stablecoin issuer. As folks working in the crypto space, it's always interesting in crypto land. So tell our listeners who you are. So, I'm Jeremy A. Lair. I'm the co founder and CEO of Circle and Circle is a issue of a stable cooin, as we'll talk about more, but it's a company that I co founded ten years ago to build a new layer for how money can be stored and used and

accessed on the Internet. So you're almost as old as bitcoin. Yeah, I mean almost almost as old as bitcoin. Yeah. The reason that I asked that is because sometimes when folks hear crypto, they will thank immediately of a bitcoin or an ether. Some of them might think of a non fungible token or a board ape. It's reasonable to say they're a few were people whose minds immediately jump to a USDC, a stable coin like yours. Where do stable

coins fit in that overall crypto ecosystem. One thing to note is, you know, the most widely used digital currencies are stable coins, are dollar based digital currencies. And I think the important thing to maybe you know, sort of step back and realize is cryptodis stands for cryptography, and the methods that became available with advancements in cryptography made it possible to solve problems on the Internet that weren't possible to solve until really recently, like the last ten

or fifteen years. You know, the Internet is a medium where there's a lot of hacks, there's a lot of data issues, cybersecurity issues, there's cyber threats, and you know, there's no underlying basis for knowing what's true what's false. We've seen that proliferate in things like social media, and so cryptography allows you to verify data cryptographically approve of a way. In other words, that's a fancy way of saying,

in a mathematically certain way one can prove something. And so the birth of crypto the category is really applying the advancements in cryptography and mathematics to be able to be sure about certain pieces of data and transactions around that data, and to do that on the public Internet, to do that as a kind of shared good on the public Internet. And that's really the breakthrough innovation of crypto. What is the problem that Circle solves on? Who are

they solving this problem for? When we founded the company ten years ago, approximately our vision ten years ago was we believe that there could become like a protocol for dollars on the internet. How do I take my computer my device and connect to an information source that's out there. So the idea is, wow, what if I could have a device and I could connect to any other device and the protocol would be something that could kind of carry dollars and do that like we carry data on

the Internet. So that was the big idea and technologically, it wasn't possible. For the first few years, we tried to build ways to make it possible using bitcoin, the technology layer of bitcoin, but eventually five years in so now five years ago, we were able to invent what

is now known as USDC, a digital currency. And you know, the goal was exactly that, how do we create something that allows for dollars to be issued as digital currency units that can then float around the Internet, just like an image file or a text file, but with the certainty that any individual token is unique, can't be counterfeit, and then has all of the superpowers of the Internet kind of applied to that medium of exchange, which is I think really the heart of this, which is, hey,

the Internet's got superpowers, how do we give those superpowers to the dollar? And so that's what we built up over the last five years. And so Circle really runs that infrastructure of USDC, and we're regulated as a global Payment Technology company, and you know we store any dollars

in a safe and transparent way, literal safe. Well, you know, Bank of New York Malon holds the Treasury bills in their custody, and you know, they got twenty five trillion dollars of assets that they're holding, and black Rock manages the you know, tens of billions of dollars of of of Treasury bill liquidity, buying and selling those on our behalf. And then you know, publicly traded banks in the United States, you know, hold in the aggregate about twenty percent of

the reserves in cash. And so you know, a USDC token that you hold is always redeemable for a dollar, and it's backed by the most reliable dollar assets in the world. So we do that. And the important thing though, is that once that person has a USDC token, they can transact it and transmit it, just like they transact

and transmit information and data on the internet. You have a lot of folks who are like, why would I need some kind of cryptoe coin when I have zell or PayPal or Venmo, or I can do a swift transfer from my bank. What is the actual specific use case that isn't being solved by any of these more traditional or even more recent financial technology innovations. There are huge problems today with the way that money works. Money all almost all forms of payment live inside what I

liked referred to as walled gardens. There's a zell walled garden, and there's a Venmo walled garden. What if you want to send one hundred thousand dollars transaction over Zell or PayPal, you can't do it. What if you want to send a billion dollar transaction, you can't do it. If if you want to send a dollar transaction, you can't do that because they have too many embedded costs. Now, what if you want to send value from Venmo to someone

who has Revolute in Europe? You can't do that. What if someone has GRAB in Asia and wants to pay someone in Africa, you can't do it. So you have all these walled gardens. They tend to be narrowly defined around small value transactions in a closed loop system. So compare that to the Internet. I have a mobile device, I have a messaging app. I can reach anyone in

the world. What digital currency does, what things like USDC do is basically say any device endpoint in the world can connect to an open network and transact at the speed of the Internet at a very low cost, with very high security and privacy assurances, and can do that directly counterparty to counterparty, And that makes it possible to transact act with anyone anywhere in the world at the

speed of the Internet. With that efficiency, there are a lot of people in a lot of countries who cannot access certain websites or cannot even access the public Internet at all. And there are criticisms right now of products like crypto very broadly, and stable coins in some cases in particular, because the reason that it is hard for you to send one hundred thousand dollars or a billion dollars is because there are a lot of people who have questions like where did you get that money from?

And how do we know you didn't steal it? And so stable coins are finding themselves at a particularly pointy end of a regulatory stick at the moment where you know, folks are asking questions like, well, how do you make sure that those counterparties are who they say they are, and how do you make sure that in an environment in which Russia is facing sanctions from most countries in the world, the person of the other end of that

billion dollar transaction isn't someone in a sanctions list somewhere. The invention of digital cash that exists on the Internet

is a big deal. It's a really big deal, and I think people and businesses when presented with a product of digital cash that has the safety and soundness and assurance of ust bills and cash that has the medium of exchange properties of the Internet, like, that's going to be far preferable as a store of value and a medium of exchange to the existing banking and many households and firms in many places they don't trust even their local banks, even if they had dollar banks, or they

don't trust their local currencies, and so the advent of digital cash, of dollar based digital cash is a big breakthrough and it's something that people want. Coming up next, you'll hear more from my conversation with Circle CEO Jeremy Laire. We'll be right back. One of the most interesting criticisms of blockchain is that it's actually very difficult to launder money on it because so much of it is visible

to these kinds of governments. But I think in twenty twenty three, the specific objections regulators have had two stable coins in crypto is less about the hacks, the frauds, and the scams, because as you've just described, there's this robust and frankly very intense framework to stop terror cells from trying to have access to this kinds of technology for them. They're making an argument from the perspective of sovereignty right that these products undermine their ability to control

what they perceived to be their currency. Is if you are a dollar backed product, the United States is going to have opinions about what you do with treasury bills or however else you're representing that. Or if you are eurobacked product, same thing for the European Union. So they're you know, they're worried about what does this mean for

our cross border control? And they're worried about consumer protection because one of the big things that happened in twenty twenty two is the crypto institutions that ever but he thought looked like things you could trust, turned out to be less than reliable. Those are social contract ish but also very macro problems. I'll start with the ladder, which is the transparency and disclosure are hallmarks of sound financial products.

And I think first of all, the good news about products like USDC is that they have always been issued under a very rigorous regulatory framework for electronic money in the United States, and that is a framework that has made it both possible but also allowed individuals to feel comfortable transacting with things like PayPal and Venmo and Apple

Pay or Stripe or cash app. All of these software innovations that are payment system innovations are all rounded under these electronic money transmission rules, and those rules are very specific.

You have to hold one to one in stored value for any of these electronic representations, and if you don't, you're breaking the law and you're examined on it, and the regulators are looking at where's the money, show me the show me the data, etc. Now we've gone above and beyond that, so we are regulated under that framework, but we've gone to greater lengths for transparency because people get more freaked out in crypto, let's just be honest.

So monthly incremental attestations that are from major accounting firms. We're now at a point where we provide for substantially all of the USDC reserves, daily reporting on every single short duration T bill that is in the reserve. And so there's increasing transparency, and I think what you're seeing around the world is regulators are saying, yes, we need very low risks, highly liquid reserves, you need reporting, you need transparency. This is what these are allowed to do.

Largely follows the way we operate, but that's good because it'll sort of make these a known safe instrument that people can use in different currency zones and around the world. So that piece, I think is being addressed, and there needs to be more. We could come back to that, like there needs to be in my view, federal statutes that sort of define the requirements of being one of these digital dollar issuers. And as Chairman Powell likes to say, that is the dollar money creation and so that's a

federal banking like activity. It's not lending, but it's it's sort of a you know, sits inside of the risk and prudential kind of supervisory requirements of the core money and payment systems of the country. And you're seeing that replicated in the EU law in the UK, proposed law in Singapore and Hong Kong other places. So we're seeing normalization. And so in twenty twenty three we're going to, i believe, see consistent stable coin regulation passed into law and go

effective in twenty twenty four. The SEC has, alongside other regulators, kind of taken the position that one they're not necessarily going to say new things about why they're paying so much attention to everybody, they're going to double down some of the previous things. But we've also started to hear, especially in the US from other kinds of senators, that actually, we do need new things because we need to be thinking about crypto and we need to be thinking about

stable coins both as money and also as technology. And you know, within technology, you mentioned that like the need for privacy, the need for guidance around which types of countries you can operate in what you can do, even

just like representation of how you do different products. When you look at the regulatory landscape right now, what are the biggest things that you are seeing that are you know, however you want to characterize them, existential threats, opportunities, challenges to get to this sort of a utopian ecosystem that

you're describing. The highest priority from regulators has been how do we make sure that businesses that are you know, providing services using what regulators called virtual assets, that they follow you know, your customer procedures and any money launching procedures and trying you know, kind of Ponzi schemes. The basis, yeah, so and having firms need to register with a competent regulator who's going to do background checks on the operators,

and he's going to do periodic examinations. I think you're seeing a lot more focus on what i'll call the enterprise risk side of this, which has to do with the safeguarding itself. What kind of legal structure exists around the safeguarded assets. Are the bankruptcy remote from the firm that's operating it. So things that have existed in other custodial spaces you're starting to see come into this space. And clearly, with some of the things that we've seen happen,

that's an import thing. We're seeing markets regulators approach things very differently around the world. So, you know, legislators need to legislate in these moments and this is where new rule books are required. And good news is you're seeing a lot of that out around the world. But in the United States, it's time for Congress to act. The White House and major regulators have been compelling Congress, we need you to act. It's urgent that Congress acts. Congress

hasn't acted. Lots of reasons for that. We've got a new Congress, We've got you know, new leadership in different financial services committees, and I think we will see legislation finally and the American people and industry and regulators and academics can all come together and say, Okay, what do we want this to be for the United States? Is the sec the right regulator for stable coins? No? I

don't think so. And there's a reason why everywhere in the world, including in the United States, the government is specifically saying payment stable coins are a payment system and banking regulator activity. Now, does that mean that all projects that hold themselves out as a stable coin are in fact? That is it possible that there are products that hold themselves out as stable coins that could in fact be implicitly securities or have various types of derivative or synthetic

instruments embedded in them. And there's lots of different flavors. We'd like to say not all stable coins are created equal, but clearly from a policy perspective, the uniform view around the world is this is a payment system predential regulator space. But it'll define what is included in that and what's not included in that will end up somewhere else. Jeremy, thank you for coming on the show. Thank you, Thank

you to Jeremy Laire for joining the show today. For more on all things stable coins and of course, everything else in crypto, subscribe to our twice weekly news less of It's also cooled, Bloomber crypt Do. This is Bloomberg Crypto, a daily podcast from Bloomberg and iHeartRadio. For more shows from iHeartRadio, visit the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Send us your comments, questions, or suggestions for the show to Crypto at Bloomberg dot net.

The supervising producer of Bloomberg Crypto is Vicky Vergelina. Our senior producer is Janet Babin. Our producers are Mohammed Faroup and Sharon Barrero. Our associate producers are Ty Butler and Moses on Desto. Wander Ad is our engineer. Original music by Leo Sidron. I'm Stacy Mariechmal. We'll be back tomorrow