Since you're a subscriber to this Bloomberg podcast, we thought you'd be interested in a sponsored podcast called Evolving Money, produced by Coinbase and Bloomberg Media Studios. It explains how institutional investors are adopting the world's newest asset class, crypto. Here's a recent episode.
You had the government sending a message to innovators and developers that they should basically take any ideas that they may have and take them overseas or put them in a drawer somewhere and just abandon them.
That's forr. Shuerzode, the chief policy officer of Coinbase, talking about the way things used to be with stable coins. But the message from Washington has changed in the last year.
And so what you're seeing now with this sea change in governmental attitude is it's actually a permission structure around developers and innovators who want to think creatively about different payment solutions that could be executed on with the use of stable coins.
That unleashed creativity is powering a movement amongst major financial services companies who are now integrating crypto into their operations. In many cases, they're starting with stable coins. There are a number of reasons for that including the ability to move money more cheaply and efficiently.
By our account, there's about two hundred and fifty different projects have been announced by any number of financial players and developers, So the biggest banks, the payment processors, the credit card companies, corporates and others to integrate, and I think we're just at the tip of the iceberg.
I'll talk more with Fayr about policy trends in a couple of minutes, but first I want to give you a peek into one of those two hundred and fifty different projects he referred to check out dot Com. It's an example of a major financial player investing in stable coin infrastructure right now. They are a PSP that's a payment service provider, visible intermediary working behind the scenes when
you buy something online. Checkout dot Com started out processing credit cards, then moved into debit cards, and because they're global, they also facilitate currency exchange. Now they're deploying a major upgrade to their platform that will allow consumers to shop using stable coins and vendors to get paid in stable coins. That's what we're going to explore today. Stable coins in practice and in policy. This is evolving money and I'm
your host, Angie Lao. The show is co produced by Coinbase, one of the largest cryptocurrency platforms in the world, and Bloomberg Media Studios. Now in the series, we are exploring how crypto is being adopted by traditional financial institutions as
the next logical evolution of the monetary system. And this episode is all about stable coins, which are cryptocurrencies designed to maintain a stable value because they're to a fiat currency like the US dollar, so the price is fixed, but the currency is highly liquid, and because it can be moved on crypto rails, it's faster and cheaper to transact compared to legacy banking systems. According to a report in Forbes, stable coins were used in more than thirty
trillion dollars worth of transactions last year. To give you a sense of scale, that is more than Visa and MasterCard combined. Now, to be clear, the majority of those transactions were trading in cryptocurrencies, but other use cases are growing fast. Payroll, international purchasing, even retail shopping is all increasingly being done with stable coins. My first guest today
is checkout dot COM's chief product officer, Moron Kilbeggi. I started our conversation by asking him to walk me through the firm's five year relationship with stable coins.
Back in twenty twenty one, we were one of the first payment service provider to offer stable coins settlement to our merchants, and so this is already a very long time ago in crypto world, or in digital crypto years.
In crypto years exactly.
We offered a service that unfortunately we had to wind down because the regulatory framework was just not there and we were not able to find the right partners in banks and so forth in order to offer that service. But this is something that we are in the process of re launching as we speak. And essentially it's merchants that are acquiring funds with us want to get settled with stable coins. What does that mean. It means that they can settle. They can get settled twenty four by seven,
which is one of the big advantages. The settlement is immediate, you're not dependent on the bank hours and so on and so forth, and you're not dependent on the bank rails, and the merchant will be able to you to choose how they get settled, whether they get settled with regular fiat or whether they get settled directly into their wallet will be up to them.
What are the markets that you're focusing on and how is it all going to roll out?
In your mind, we are an enterprise shop, right like, we support enterprise merchants that almost uniformly are international, like they operate in multiple markets all time, and this is part of what we abstract away that complexity.
You know, we give them the ability to accept payments with one global API that they can just integrate and accept payment across the world. And so for sure international is a big part of this. You know, in terms of rollout, we're going to start rolling out something which is pretty unique for US because we're a europe based company, where a UK based company, But we're going to start with the US and we're going to roll out from there.
Is the marketplace in the United States already asking for this, demanding it.
So it's a very good question, and the honest answer is that I don't know. You know, we believe in the theology and the philosophy behind stable coins. We think that there's a future world where stable coins sit along other type of currency and enable cross border like borderless payments across the board. We look at this as an experiment as something that could potentially.
Do good in the world.
We want to put this out there, we want to see how people react to it. And the interesting bit is that in some of the big merchants in the world are interested and curious because they have customers that are cross border, that they have customers that have wallets with stable coins that they're currently not doing anything with except for buying other forms of crypto, and so using it for retail is a logical next step for them
as well. And so I think that it's a it's kind of an experiment within the ecoss them where there's a merchant making it available for the consumer and seeing what the consumer adopts and chooses at that point in time.
Checkout dot Com is upgrading their platform to handle a payment system that currently handles relatively speaking, little volume, but the word relatively is doing some pretty heavy lifting there. As I mentioned off the top, stable coins were used to settle more than thirty trillion US dollars in transactions in twenty twenty five, and thirty trillion is a number that has even the most traditional financial services companies asking themselves, Hey,
how can we get involved. Morn says they see this as a market with substantial growth potential around the world, especially in developing economies.
If you're living in in an economy that has a very high inflation rate and a very unstable currency, getting exposed to an equivalent of a US dollar is something that is good for you. You want to buy cross border and obviously not pay cross border fees and FX fees and so on and so forth, then there is another benefit for you. And you know, frankly, like in many countries, access to debit and credit card is not ubiquitous, and this is an alternative form of payment that has
potentially a lower barrier of entry in multiple geographies. So I can definitely see a very good use case for cross border payments for cross border retail and for developing markets.
But what about larger, more established markets.
For developed markets like the US and Europe. I think a lot of this is going to come down to preference, and people sort of preferring stable coins because you know, they've they've traded to for other crypto and they have liquidity in their in their wallets, and you know, rather than trading again to a fiat currency, they just want to use it right there. And the convenience actually of paying with a stable coin through this experience that we're
building is actually, it's going to be pretty convenient. It's going to be pretty good, and so I think consumer preference is probably going to drive that usage and utility. And if I switch over to the merchant side, it's
all about liquidity and availability of funds. And the more the ecosystem builds itself out where vendor to vendor payments can happen on stable coins, where cross border payments can happen on stable coin, then there becomes a flywheel where it starts making more and more sense for merchants to
do this. And then down the line, I think that some treasury teams are starting to think about, you know, managing their own treasury completely on stable coins and not having to deal with you know, cross entity settlement between multiple entities within one company. You can run it on a ledger internally, and so that sort of plugs into this settlement and acceptance page.
If you look at it down the line.
When you are getting ready to roll out in the US, what is the biggest current constraint that you're experiencing right now? Is it regulation? Is it consumer wallet adoption? Run't it readiness? Operational complexity? Which is it?
Despite the fact that stable coins have been around for a number of years for US as a fiat based business, there are still a lot of stakeholders that you need to make sure that they're comfortable, and there are some operationalization hoops that you need to go through. It's about ensuring that our regulators know what we're doing and are happy with it and don't have concerns with it. It's
getting the contracts in order and in place. Nothing is a blocker, but there are challenges, right like, even in the US, they are in different regimes, right Like there's New York which has its own license versus other states. There's complexity there and how you operate and where your entity is, and all of those things influence the timeline and the implementation path. The technological build is actually the easiest part, right everything around it is complexity.
Complexity is the focus for my next guest, fiarshire Zod, because if the technological build is the easy part and everything around it is complex well, Farrier's goal is to make sense out of the complexity. He is the chief policy officer at coinbase, and his job is to work with governments and establish the regulatory framework that will let people like Moron launch their technical solutions. You're starting to see the enterprise and a lot more institutional players coming
into the space. But where are we right now in terms of regulations? What is allowed right now? And where will we be allowed to go? What is the trajectory?
It's a good question. It's also a very sophisticated question because you have two things happening simultaneously that are happy somewhat in parallel, but they will converge down the road. And that is you have the Genius Law having been passed by Congress and signed into law by the President in July, and this, as you know, well as the
federal framework for regulating stable coin issuers. And so obviously, in a normal kind of calendar of regulatory action, you have legislation and then the implementing rags and then you go live. But interestingly with stable cooins, particularly under this administration, you have rapid movement by the regulators to allow a use of stable coins for some of the most complicated
payment activities, even before Genius gets fully implemented. So you have Genius getting implemented, but then at the same time you have the CFTC, for example, allowing stable coins to be used for derivatives trade settlement, right, and that is
enormously exciting. It's almost like a big sandbox for example, that is, you know what they call it in a regulatory perspective, where you've got market participants executing on and using the innovative technology with the blessing of the regulators, even as the actual regulations get you know, bedded down. And that's and that's really powerful.
Right And and Moran Niclbetchy from checkout dot com I want to bring back what he said he mentioned earlier that as they design their processes, they have to account for not just different countries regulations, but even different states that have different rules.
Well, you know, that's the that's the big dilemma I think the industry has at the moment. There's certain issues
about how regulation takes place. So, for example, for exchanges who intermediate crypto trades spot market transactions, which are the bulk of the crypto trading that you see out there at the moment, that is subject to state regulation and it's not clear whether there's full federal preemptive authority over the states, and so that just creates a chaotic environment where you have fifty different regulators across fifty different states.
Consumers don't know what rules are applied to them depending on where they live, and developers have a hard time implementing and managing the compliance burden of having fifty different rules, each different for each different state. And so there are issues like that, But generally speaking, you also have at the same time a real willingness on the part of the regulators under the Trumpe administration to use every bit of the authority that they have to provide the clarity
that the street is looking for. So there's legislations critical. It's our number one objective from a policy perspective. I'm confident we're going to get it done, but we are at the same time working with the regulators to encourage
them to provide clear rules. And what I mean by that is, for sure, every time you have a change in administration, new regulators come in and can change the rules, but it's very It's not as easy as it sounds for them to do a one eighty if the previous administration has finalized the rules and market practice has adapted and adopted those rules, because it becomes hard. The courts are careful not to allow regulators to engage in activities that creates sort of an unfair burden or chaos in
the markets. And so there is a really interesting effort by the Trump administration to get legislation done, but at the same time to race ahead with sound regulation that they hope to bed down have market practice evolve around. So even if legislation doesn't get done, it becomes very hard for a future crypto hostile administration to reverse things.
If I were to ask you to look at the Doppler radar of crypto regulatory development, what's the temperature right now, what's the weather, what's in the forecast.
It's a really really interesting time because there's a lot of momentum, very fast momentum early in the in the Trump administration to make these changes that I was talking about.
But what really has happened probably since Q three Q four of last year, and it's even stronger I would say now, is kind of the incumbent financial players have woken up and have launched some of the most furious attacks on these changes that we're talking about because of fears about what it'll do to the economic rents that come with you know, their incumbency, and so you see all the traditional financial groups kind of jump up and say, a wait a minute, we're not against this technology, but
please not so fast. Do it more slowly, put more frictions on it, make it harder. And companies are like ours, are trying to be a counterbalance so that resistance.
What do you think the stickiest issue is right now between incumbents and the crypto industry, the digital assets industry, the platforms.
The rewards fight is the most obvious kind of visible example that you see written about in the press. But the other example is is the fight that's occurring at the SEC. The SEC chairman wants to migrate capital markets on chain T plus five, T plus six has gone down to T plus one plus two or three. We can take that down to teas plus zero do instantane settlement. But a lot of folks who make their money off
of that lag don't want that to happen. It's a big, big issue because it implicates a lot of financial intermedias or huge economic rents by sitting in the middle of transactions. But just like you don't need a mailman to send an email to someone, you don't need to have necessarily have an intermediary to transfer value in the way you used to or transfer a stock or or a dollar. And the question is will public policy stop that or enable that?
And we've talked a lot about what the US government is doing.
What about internationally, Well, I think of it in two tracks, just to oversimplify it. One is the stable coin track, and the other is the market structure track. I think a lot of other jurisdictions move well before the US to establish rules around crypto trading, Europe being a great example of MIKA, the market and crypto assets regulation that they pass. Where the shoes are reversed is with regard to stable coins or digital money. In that other jurisdictions
have moved much more slowly than the United States. In some places like the European Union are let's say, ambivalent about stable coins. But what's happened is this genius Act passed, You've had massive adoption and all around the world. Now there's an enormous concern that because the US has gone ahead and adopted so vigorously tokenized dollars, and given the insatiable demand the world has for dollars as a sore
of value and as a transaction currency. That there will be enormous pressure on foreign currencies in terms of how relevant they can become if the dollar becomes more accessible in stable coin form. And so one of the messages that we've delivered to other jurisdictions is, whatever you think about this technology, the decision has been made. The US
has moved forward dollars. Stable coins are going to scale dramatically, the adoptions happening by across the board, by corporates, financials, everybody. And so if you want your currency to remain relevant, you have to have a tokenized version of your currency. And I think that's why you see more more kind of rapid action in Canada the UK to adopt stable coin frameworks for their own currency, and we think that's
actually a good thing. I think the more currencies are available in tokenized form, the healthier dynamic you have of you know, foreign exchange transactions occurring or transactions occurring in you know and settled in different currencies. And so we hope that will happen.
So do you think global players need one harmonized model or can the market function with multiple national regulatory regimes.
You don't have to have harmonization, but I would say I would say with stable coins, you know you'll have situations like right now in the UK where the Bank of England is proposing pretty tight caps on how much pound sterling stable coin any individual can hold or use, and they're trying to do that because they want to be careful about the transition from the analog system to
a token I system. We think that's a big mistake and that they need to do what the US has done, which is to adopt it rapidly and integrate it into a broad range of institutional and retail use cases, and that flywheel of adoption will be healthy for the development of the pound sterling. So it's not an imperative that there are rules be harmonized, but there's a common sense dimension to it that we've sort of support on the
market regulations. That is a place where having more consistent rules makes a lot of sense, because if you're building a financial product, or let's say you're building an update of a traditional app, you need to have some consistency so that that app can be accessed by users around the world under the same rules. There are also some kind of more esoteric sounding things like, for example, in Coinbase. I'll just give you kind of a more practically, very
practical example. We want customers who want to use coinbase to ultimately be able to source the liquidity for their trade. So if you wanted to buy a bitcoin or whatever, have all of thatquidity as centralized as possible. That's actually a good thing because it creates deeper, more robust markets, It creates more effective price discovery, deeper larger pools of liquidity, or less susceptible to systemic events. But that requires some harmonization.
But that's where you need a dialogue, and the US and UK happen to have a dialogue right now going on between the two treasuries coordinating and collaborating on crypto
and blockchain based tokenization market regulation. This is one of those issues that we've verged them to look at, which is creating a system in which they recognize each other's regulatory system and so UK companies wo want to operate in the US can provide US customers access to UK liquidity and vice versa, and that requires harmonization.
That's far our Cherzade, the chief policy officer for Coinbase. It's clear that things are trending in the right direction. The big questions focus on the pace of regulations and whether innovators feel there's enough certainty and stability to build products and push them into the market. Checkout dot Com certainly feels that way. It's going to be exciting to
watch as they roll out their new platform. With that in mind, I want to go back to Moran Calbetcy and ask him if their rollout goes as planned and stable coins become more widely used as an easy to move, universal currency, how will it change the world.
If this were to work.
I think that seeing the ecosystem of money movement move towards rails that are digital, and having payments that are border less, that are free across borders, that don't suffer from the slowness that the existing system currently has, that don't suffer from the exchange fees that we're seeing.
All of that makes for.
I think, a better consumer experience and a better merchant experience, and that's what we as check Out are trying to facilitate all the time and trying to find.
Ways to enable.
So it's maybe utopic to think about it now, but I think that there is a few years down the line it could happen so fingers crossed.
I'm Angie Lao and this is Evolving Money, a co production between Coinba and Bloomberg Media Studios. Thanks for listening. There are more than a dozen other conversations in our feed for you to check out, so don't hesitate to scroll back in time and listen to some of those today