Stablecoins, Bitcoin, and the Future of Payments

Good morning, Federico. Good morning, Super happy to have you here.

We’re going to spend a little bit more talking about stable coin, the biggest topic at the moment in the crypto digital asset space. Before we get into the topic, I’d love to hear more what you’re working on at Tether. been working in the industry for a while. I’ve been over 10 years working in the industry. I saw it growing. currently I’m working at Tether on a research and development project because Tether is not only

a financial company but also a technology company specifically, our team is working on contributing to open source development to enable the possibility to have tokenized assets on top of Bitcoin and the Latin network because we believe that the security guarantees and stability that Bitcoin offers are unmatched in the crypto ecosystem so it will be very important to have

in the future the possibility to develop the tokenized ecosystem that is growing very fast in this period, not on altcoins that sometimes can have some degree of centralization, but to be able to do it directly on the real deal, directly on top of Bitcoin. Super interesting. I definitely want to go back on the idea of using the Bitcoin blockchain as your level for underlying source for token.

Talking

about tokenization, let’s stick to the tokenization of your money. So stablecoin, you can see them as the killer app. It’s arguably the only product with an established product market fit. What is your view there? We have a market of about 230 billion as of today. Where do you see this evolving? I will make a step back. First of all, I think in general, when we look at the crypto industry, there are probably three product market fit.

like Bitcoin for the store of value, you have stablecoin for fiat payments that actually have a good user experience, unlike the traditional fiat payments that in many cases they are not so convenient to use. And then you have all the rest that I will put it under sort of umbrella of decentralized casino, decentralized gambling that is still a use case that the market wants.

we can still call it a market fit in a way. yes, the Volcoin are actually very interesting. Maybe they were a bit unexpected to emerge, if we look back a few years. Because for example, Tether has been around for a while, since 2013, 2014, Tether was available. But for a while there was not much interest in the market. But then, as the

the crypto industry grew especially around 2017.

the players in the market, especially the traders, they need to have a tool to move US dollar, the nominated collateral, between exchanges without having to go through the traditional fiat race. Because if you wanted to do arbitrage between two Bitcoin exchanges that were quite significant arbitrage opportunity because of different jurisdiction and difficulty to move fiat around,

If you wanted to sell Bitcoin high on a Japanese exchange and buy low on a European exchange, nice trade you did, but then now you suddenly have fiat that you need to move from Japan to Europe and it’s gonna take a while. So it’s not gonna be very efficient arbitrage. So with the introduction of stablecoin, that made it as fast as a Bitcoin transaction. So that really changed the game and they really made the market much more efficient across

different venue in different jurisdictions. So this is why stablecoin started growing at exponential rate, but actually that’s only part of the potential.

Because like the same problem that crypto trader had, actually a lot of industry have the same problem that moving fiat around across the international border is a problem. And not only that, like in certain jurisdiction, in certain parts of the world, it’s even just hard just to get exposure to the US dollar. Like now, if we come from a country with a developed financial system, we take this for granted. Okay, we just go to the bank.

you can easily get exposure to the US dollar in various ways.

most part of the world this is not possible and a lot of people they prefer to have exposure to the US dollar compared to the local currency that is always subject to a per-inflection. So that is where stablecoin can really have an impact in the real economy because crypto trading is fun, like if international commerce and letting people in developing country be able to easily save in US dollar that can really be a game

So that is where the stablecoin industry needs to go. So not much for developed countries. Stablecoins, I’m seeing they are for Americans, for Europeans, developed Asian nations. It really makes an impact for those places where having exposure to USD is currently not possible because the banks don’t want to do business there.

because there is not enough money to make for them. you touched on a few very interesting points. First, I’ll bounce on your point that stablecoin was seen as boring. And I do remember that there was nothing really exciting about that. You mentioned 2017, there was a lot of excitement in the ICO place and didn’t people necessarily pay attention to stablecoin? But yet, in particular, when the market is calming down, the risk appetite is disappearing, people refocus on the basic stablecoin.

Not everything needs to be fun. Yeah, exactly. can be boring, but useful. Useful and stable. The second point that you mentioned is an interesting one about emerging markets. another topic that I’ve seen be seen as boring was central bank digital currency, CBDCs. And the case has been made and I was pretty much also most of the time on this side to say, what do we really need CBDCs in developed economies? I this seems to be making more

sense in the emerging market. So you think also in the case of stablecoin, especially talking about the use case of cross-border transaction, this will be specifically for emerging market and not so much for a developed market? Well, sometimes cross-border transaction can be complicated also between developed markets. even bank transfer between the UAE and Hong Kong is not always the thesis. there is for sure appetite

for stable coins also among big players like commodity traders. Not because they don’t have access to US dollar, but because the way they have access to US dollar often is not good enough. So if it takes even just four days to set three or four days to settle US dollar payments,

In some industry, four days have a cost. Imagine you’re a commodity trader, so you have a bunch of goods on a cargo ship, on a vessel, ready to depart, and you need to wait for the US dollar settlement to actually accept the goods or let the vessel go. Those are like real money. Every day the vessel stays in a port, it’s a lot of money. And same in many other industries where,

time is money so if you are able to have an instant settlement of your US dollar payments it really improves the operation, really reduces the cost and the benefits can also go down the value chain to the end customer, whoever the end customer will be. So yeah I think there is value for

for on one side for developing markets, but also for connecting developed economies that are not so well connected by traditional fiat rails. In this context, so do you see stablecoin as working as a complement to traditional payment rail or as a substitute?

right now it’s working more as a compliment. this is my personal opinion. But the way I it is that currently, like many people that use stablecoin, they’re still like on one side of the flow, maybe through some third party, there is still like a fiat hook, like somewhere like the stablecoin is still get converted into fiat.

And this is like as long as I mean this takes away part of the potential. think like once stable coins, the stable coin adoption is more widespread than when you don’t need the fiat hook anymore, you don’t need that fiat leg in the flow anymore, then it’s going to become much more efficient because I get paid in stable coin, I pay my supplier in stable coin and we don’t need to touch fiat.

at any point of the flow anymore. So also like it’s, you don’t have the cost of moving stable coin into fiat. You don’t have the free friction of the traditional fiat banking rates. So that is gonna be like, yeah, the real game changer, but it’s gonna take some time because yeah, you need time to create a network effect around stable coins so that…

all market participants along the value chain are able to accept it as payment and use it as payment. We focus a lot on the use of stablecoin for payment. Now, as you mentioned, it’s still a very small share of the market. The traditional payment really still representing the lion’s share. So I’d like to talk a little bit more of the other use cases of stablecoin. Back in 2019, I had the opportunity to work with the World Economic Forum, BCG Group,

to look at how stablecoin could be used for instance for financial inclusion. We explore different ways to use this especially in emerging markets but as of today the lion’s share of the stablecoin is still being used to more oil the trading, the trading activities. So in terms of other use cases we talk about payment, trading, do you see other areas where stablecoin could be playing a key role? in the value market I think they will

be used also for saving as well. Because if we like to complain that the US dollar lose value with inflation, which is true, which is why also we have Bitcoin. But if your local currency like is as like 20 % inflation per years, then you don’t care too much about the three, 4 % that US dollar has. So you can save in US dollar, it’s already

a massive improvement for you. Myself, I like Bitcoin, I like to save in Bitcoin, I understand that I can be comfortable with Bitcoin volatility and I can be comfortable with the complexity of dealing with Bitcoin. But for many people, the US dollar is already such an improvement that it really solves most of their problems and the value is not so volatile.

It’s really what they really want. So yes, stable coin can can be used here in developed country We see more like as for for trading for payments because we will never want to have savings Just in cash in Fiat like we will have what savings we usually want to have them invested in something but When the alternative is lose 20 % of your value then even just the cash US dollar. It’s already amazing so for a lot of

of people around the world, there is also the use case of stablecoin for saving. So you mentioned also an interesting point. You talk about the use case of stablecoin for saving, more like focusing on the US dollar. So I’d like you to shift a little bit and look at the different models of stablecoin. So for now, we’ve been mostly talking about fiat-back stablecoin, which represent about 90 % of all the stablecoin typically in US dollar. What you view on the

the

additional new models that are emerging with different collateral. was very excited when Dai emerged and I started questioning or being a bit disappointed with, I was looking at the reserves that were shifting increasingly to USDC. it was like, derivative on top of the stablecoins. But they are all the example like Athena, for instance, that I’ve started introducing a new model of stablecoin.

innovation you see in this space? you the specific model that you find exciting? think that innovation is great, but it’s fundamentally different from stablecoin. they call them same stablecoin, but in the end, it’s more like an investment vehicle to have exposure to some sort of return, whether it be like from the cash and carry trade or from exposure to treasury or stuff like this. There is a thin line between hedge funds,

and stable coin. think it’s a bit of…

They like to use the branding stable coin because everyone talks about stable coin is so cool. I see them as a very different product because it’s basically an investment product. like low yield, low risk investment product, which is amazing. Its value is going to be very close to the US dollar because it’s a low risk. But fundamentally, different product is like buying treasury.

same thing as having dollars in your bank account. And also, so you cannot expect also to them to reach the same level of network. we all prefer to have a treasure instead of dollar in the bank account, but we are not really going to pay for stuff in US treasury because there is also a lot of complexity, also the fungibility of different investment products. So think those tools, they for sure have a role. are quite useful, especially again, like for people that

that

can just go to the bank and buy a treasury or maybe they can do it but the bank will charge a ridiculous fee for it. So there is for sure a market for those products but I see them as fundamentally different product than the stable coins. So they are a range of product that hide behind the logo stable coin from real stable coin to more like investment vehicle. How do you guys go about education, right? It’s one of the challenge of increasing

option is making people comfortable with stablecoin. What is Tether doing in this space? Tether actually is very active on the education side. have multiple initiatives that promote education, not only around stablecoin, but around Bitcoin and crypto industry in general, because the biggest challenge is education around the technology part of it, especially when it comes to stablecoin, because everybody understands US dollar, but maybe they don’t understand the

how to interact with the technology behind the stablecoin so to have your own wallet, if you want to do self-custody to manage your keys, what does it mean to manage your keys, what are the trade-offs, nobody saw that. Tetra is promoting multiple educational initiatives around the globe, both in developed market and in emerging markets for example in Salvador.

a lot of educational initiative, so as in other places. it is a very important educational part because it’s the…

One of the great, I think there are two barriers for adoptions. One is motivation and the other is education. So people are starting to see the value in stable coin and Bitcoin and crypto in general. So the motivation part start to become like easier.

But then maybe they’re still scared about like, how do I handle this? Like I’m used to just have like my bank doing everything, know, suddenly when I do a payment, it’s a bit different experience. and also like to understand also the risk involved in self-custody or when it comes to digital asset in general, the risk that each digital asset can carry. So education is a place

big roles, it takes some time to provide dividends because it takes a lot of time to educate all the people in a specific industry or in general. over time, can really make a difference because suddenly if the technology part is no longer scary, then it’s only a matter of market fit. Like do I need this or not? In this respect, market fit education

How big a difference do you see between the retail clientele and the institutional clientele? So we’ve seen a lot of institutional players starting to onboard stablecoin. How do you differentiate between the education and the understanding level? sometimes for the institutional players, it’s more that

They move slowly in general. They don’t have the flexibility that a normal retail guy would have to adopt a new technology. they have all kinds of processes in place or they interact with other players. they struggle sometimes not maybe to understand the value, but on the execution side to actually being able to adopt a new technology. Also because sometimes they have

to double check with the regulatory requirements or if their business partner are okay with them using this tool. So the institutional player, it’s more a matter of they’re a bit too big to move faster, so it will take time. While on the retail side, it’s probably more of an educational issue. they usually are not aware or they don’t care too much or the

efficiency gains retail people they are less attentive about this improvements in okay, you will take me maybe My transaction will be a bit faster will be a bit cheaper. I mean, are less sensitive as individual business. Sorry, also on the side they will there is a bit of inertia so the education can connect with it because if if you don’t spend the time to look into

then it’s easy not to care and to move on with other things in your life. you talk about adoption with retail investors. Retail investors look at different vehicles that they have. We talk about savings for instance. And in the case of stablecoin, the criticism comes sometimes about the fact that it’s the stablecoin issuer that benefits from high interest rates on the reserve via treasury and that is not being paid out to the user of the stablecoin.

coin. So what is your view on the evolution of this model of yield generating stable coin and how a holder of stable can continue to get some yield out of their holdings? I think it’s the same situation with the banks. if I have money in my current account, often like you get no interest at all or like sometimes like a very small one but the thing is that there should be

Stablecoin should be seen more as the equivalent of the available cash that you have for immediate expenses that you plan to have. We say that for some people it’s also good for savings.

But it’s good for savings because, but maybe this will also change over time because it’s good for saving because right now they don’t have access to any like good investment opportunities. like if you are in a developing country, banks don’t want to open an account for you because you’re not rich enough to be an interesting customer for them. Then like what do you do? You either keep in cash or like in some countries very popular to buy small amounts of gold.

But like as people are onboarding into the digital asset economy, they will start with stablecoin and maybe later on they will transition also to actually have a saving account with actually investments in product that can either appreciate or generate an interest. that’s actually continuing on this topic. You mentioned that a like

the comparison with the stable coin being the cash available. Now we’ve seen also over the years, new type of simple investment product being tokenized like money market fund. So where do you see this evolution? Because I could argue like, give me a tokenized fund instead of tokenized US dollar. least I some. absolutely. there is for sure a market for that because if you live in a country with a good financial ecosystem, then you say, I can just

go to my banking gap and buy treasury, why do I need it tokenized? But that’s not the case everywhere. So to have tokenized treasury or tokenized like a financial instrument, like tokenized stocks, tokenized ETF, whatever, can be very interesting for places where people cannot just go to the bank and they have exposure to those instruments or they can, maybe it’s for a huge fees. So I think like once people have their start,

having exposure to stablecoin then they can also easily access this tokenized investment instrument easily and then they will start

using stablecoin for payments and eventually have part of their savings into this tool. that also requires some education because again, like sometimes people they just don’t care, they just think your dollar is good enough. But it also requires some financial education that is needed everywhere, only in developing countries, in close to developed countries. Financial education is still very much missing. To understand that, over time it’s better if you keep your savings in

something that can generate some interest or can appreciate in value. but you need to manage the risks so there is some complexity there. But once it’s…

it’s just a click away, then it’s also easier to educate people because they can try right away. It’s not only something abstract that they won’t actually be able to do it in practice. literally stable coin can work as a gateway to this more sophisticated type of product. if we can imagine like the future, stable coin can take the role that now is like cash or like cash in your bank account. And then you have this tokenized product that can

take the place of the current buying bonds, buying treasury in your bank account, like you can do it directly from a variety of providers through the tokenized products. And then you have Bitcoin and tokenized gold for protection for inflation, for the role that they should have in the investment portfolio.

different use case, different instrument. One question that I wanted to ask you, we talk a little bit about the central bank digital currency, the CBDCs, which used to be hot. And one of the things that I found amusing, I’m talking like three years ago, when suddenly the expectation was for every country to issue the CBDC. And I thought, what’s the improvement if you move from hundreds of fiat currency to 100 CBDC, which technically are fiat.

So looking at stable coin, so we have obviously a market that is pretty concentrated. It’s like the two top players taking the lion’s share of the market. But we have seen over the past year or so, also an increase in interest from bank, from tech provider, from payment provider to launch their own stable coin. And we are potentially moving into an environment where there could be dozen, if not hundreds of stable coin.

Do you see value add from having so many stable coin? Is it really an improvement or are we moving backward in the sense that you’re going to have a stable coin but yet you need to swap it for other? if we have a lot of argumentation with the multiple stable coins, then people will have to swap it around to be able to do payments, but it still can be an improvement. if they are liquid enough, then the swapping between them should be cheap enough that it still makes sense to use them to make

payments around and

there can be fragmentation on the distribution side. Different players can be able to distribute to different markets, to different segments. If a bank already has a customer base, will be able to distribute among its customers very well. It’s not going to easy for a single player to distribute to every human in the world. That’s for sure. There is for sure a role for fragmentation on the distribution

side

but on the liquidity side it’s gonna be harder. So on the liquidity side there will still be concentration when you want to swap from the stablecoin in Salvador to the stablecoin in Vietnam you will still have to go through one of the big liquid stablecoins that have global liquidity. So there will be a

coins that have global liquidity and then there will be probably, it’s realistic to believe that there will be a bunch of smaller stable coins that can target specific markets, specific jurisdictions, specific segments, they can just onboard the existing customer from other businesses to the stable economy. That’s it’s possible, it’s not an easy job because distribution is the hard part of this job but it’s definitely a possible future.

So I’d like to drill a little bit into the topic of distribution as you mentioned it’s a hard one and we’ve seen emerging a lot of models where not just a bank but the bank and maybe a telecom provider or a tech company would create a consortium. I think the idea is to simplify their thinking in terms of the distribution and make it more readily available. In terms of distribution which are the models that you think are the most promising in terms

of increasing the use or AUM of a stablecoin? the point is where stablecoins are needed, it like mostly in the developed market. So you actually need to go on the ground and do the hard work or going on the ground and push for like stablecoin usage among, either…

business partner and the final retail users. So that’s an hard job that not everyone is willing to do. You many players in the industry that they are very much focused on the US market, on the European market, where everything is easier, but then it’s less useful because you already have a very efficient financial infrastructure. So think those that will be willing to do that

job to go boots on the ground in places where it’s harder than they can actually gain the adoption and the network effect to be able to have global liquidity all over the world. So once you’ve gone through the adoption threshold, educated people, then you need to have boots on the ground and figure out how you can… to people on the ground that talk with all possible

partners to have it integrated to educate people to use the stablecoin to integrate it with like local wallets like right now you still need like some fiat rails so like all of this job I mean it takes time it takes effort and yeah like to coordinate the teams in different countries I mean it’s not in this job so yeah whoever is gonna be good at executing it is gonna be

winner of this race but first thing you need to have the willingness because if you see some participants into this industry that they are more focused on the fancy markets rather than the hard ones. the concept of partnership even like getting cash back on the transaction that you execute with your stablecoin this little incentive for people to actually adopt your stablecoin. you don’t need to partner with JP Morgan you need to partner with a local ATM provider in Brazil and this kind of stuff.

What about the industry itself? we’re seeing now Circle which is moving toward IPO which is very much like a legitimation of the business model. Where do you see this trend, if there is a trend, evolving and how other players think are going to position themselves?

I for sure, a lot of people want to have a share of this business because they saw how profitable it can be, especially when there are high interest rates. So, yeah, as we already seen, there will be more and more players that will try to enter this business, especially also from the big incumbent in the banking and financial world. think, we’ll see more banks, more big financial institutions that will try to get their piece of

the share of the pie.

But again, if they are not willing then to do their job to go where the stable coin actually have a true value proposition, they really bring value, can have maybe that they will be able to say that they have a lot of maybe billions in the stable coin because it’s like the banks itself, they put the billions, but it’s not gonna be able to have the same level of distribution. I mean, it’s great. mean, in general, it is important

if as an industry we solve problems for people. So if more players are into the industry, more chance there is that actually the problem gets solved for the end-to-end users, for the people that can benefit from this. But it needs to be like…

with the right attitude and with the right understanding of for which people these tools are actually there. I like your point about the high interest rates background because this has been a rush to build your reserve like printing money literally for free. it will be interesting to see like if there will still be so much interest when interest rate will eventually go down because now it seems like

money business, that people give you money and you make money very easily without doing anything. eventually there will be a point where interest rates will go down. It will be interesting to see who is still going to be willing to be into this industry and who is going to like move to other things.

Federico, it’s been a pleasure sharing all this information with you and discussing. Is there a last point that you wanted to highlight in terms of your thinking of where this industry is going or the type of talent that we need to bring in this market or regulation or anything that can be helping this industry to move forward? First of all, I think many people often argue that if the US dollar is eventually

keep inflating this value away, why do we need stable coins? And that’s a valid point. stable coins, as we know them today, are not gonna be here forever, because eventually people will not be interested to have exposure to the US dollar anymore, because if it keeps losing value and there are better alternatives, it doesn’t make sense anymore. sometimes people ask what is gonna be the next thing?

The next thing is just going to be that Bitcoin is considered stable enough that people can directly use Bitcoin or also like product like tokenized gold also can play a role into a future where the people don’t really want to have exposure to the US dollar as much anymore for for either like for inflation related reasons or for could be for geopolitical reasons that yes some countries don’t want to have exposure.

to the US dollar. So think this interest is starting with Bitcoin. Now stablecoin are like the cool thing, but eventually it will go back to Bitcoin because at the end it’s the hard asset where you can store value and if you can store value then you can also be happy to accept it. The problem right now is it’s too volatile and everything is denominated in US dollar so it’s too convenient to use US dollar but eventually we will go back there.

Regarding the talents that we need to bring, for sure this is not an easy business so there will be need to have.

more people that journey to the industry if he really wants to become like a to get five billion people on boarded and it’s going to be people that are able to distribute into markets. They need to know the market well, they need to have the ability to know how to distribute this product into all kinds of markets where they actually need it. I love the view. I’ve shared this view that Bitcoin is probably the best monetary

that we’ve seen and what stablecoin, if I follow you thinking, are doing at the moment is actually establishing this adoption, establishing this… Preparing us for Bitcoin. And then swapping the collateral. in a way it’s great because there are two factors that create friction for Bitcoin adoption. One is the asset volatility, the fact that it can be scary, and two, the tech part. For people it’s easier to use

legacy technology. if stablecoin can be seen not as scary on the asset side because it’s stable in dollar and so people can do the effort of learning the tech.

Once people have learned the tech, then switching to Bitcoin, it’s much easier because it’s just about switching the understanding that the US dollar also loses value over time and Bitcoin is superior as a store of value and as a monetary instrument in general. mean, it’s on paper if you look at it, Bitcoin is perfect while the US dollar still has all the flow from the humans that manage it because humans…

flows and so like the money made by managed by by by humans also will have flow and we see this with inflation and and the politics getting into how the amount of printing and this kind of stuff so stablecoin I think are preparing the world for the eventual like Bitcoin adoption I don’t know how long it’s gonna take maybe 10, 30, 50 years I don’t know like the time scale is very hard to predict but the direction

it’s clear. We’ll put it during our lifetime. Alright, thank you so much for the invitation.