Alternative Banking: Bypassing the Traditional System

Transcript

And we actually arrived to the last fireside chat for today. After that, there will be just a thank you coming on from uh from the main organizer, Ilia Vulkov from CVA and I'm very happy to announce that it's a very interesting one. It's alternative banking bypassing the traditional system. Right? so that those of you still here might be part of this disruptive fireside chat and it's also disruptive because we have some great profiles. Speaking of Fernando Aquino Fontes from Smart Pay Brazil, um Gif Zan Gan from Tedar and the fireside chat will be moderated by Sheras Akmed

from Storm and CVA. [Applause] All right, fantastic. Um, really excited uh to host uh this panel of what I've been told is supposed to be the most uh thought-provoking uh panel. And actually I was uh encouraged and uh rallied on by one of the board members, one that I will not name but is in the center uh here uh to make this the most uh thoughtprovoking because there is definitely a crazy dichotomy going on in uh the world uh today between what we consider let's say the the financial institutions, the banks around the world

and how things are going related to some uh smart fellows that we have just on my left here that are really transforming the way in which uh finance payments uh are uh running and operating in the world. So maybe some of you might not know the organizations that these two gentlemen represent. I'll give them uh maybe 30 quick seconds to just present themselves before we uh dive uh straight in. Very exciting. Absolutely. Thank you very much. Uh pleasure to be here and uh close the forum the the event today. So thanks for staying here. Uh my name is Gev and um I work at Tedar. U Tether is um the largest issuer of stable coins in the world. We have issued around 140 billion US dollars worth of stable coins

um and um have around 350 million users worldwide. Most of our users are in the so-called global south uh where access to dollars is uh let's say more appreciated than um than the developed world. And um I myself I'm I'm based in Lugano. I managed the plan B which um has onboarded more than 300 merchants in the city of Lugana to accept Bitcoin and Tether USDT as a mean of payment. So thank you. Fantastic. Thank you Fernando. Yes. Nice to Can you hear me?

Yes. Okay. Thank you. So it's very nice to be here. Thank you Ilia and all the organization from the crypto valley. It's been wonderful to meeting you all. So my name is Fernando. I come from Brazil. I represent Smart Pay and I'm very humbled and honored to be the only South American speaking here today. And well, you said you have uh 320 establishments here that accept USDT. So what we made in Brazil, we made around 36 million establishments accept USDT and Bitcoin. So that's why I'm here and that's why I'm going to show you today. Thank you. Fantastic. Um it's a great difference there between Lugano and Brazil just a little bit.

Fantastic. Well, thank you for sharing. Um so we've heard so much about banks uh today. Maybe we can just get a quick raise of hands. uh in the audience if you believe that banks are moving fast enough when it comes to innovation. I Yeah, there's two right in the end. Okay, we have two bankers in the room. I think they're innovation managers at the bank. Um okay, fantastic. Well, no, thank you so much for for for yeah providing those the show of hands. So there there is definitely a a problem and um I think that was also the purpose of the crypto valley association to kind of put on this conference was also to demonstrate okay there there is a challenge today um and how can we solve that how can we also solve that uh with

banks and not just exclude them what can we do to work together with them and I know both these uh the organizations and and the chaps next to me uh do also collaborate with banks so please don't get me wrong when I tease a little bit the banks in the room it's definitely not to to exclude it's to further collaborate but also to understand what are the means uh in order to to do that. Um so yeah uh first question um here and that I have for you um Fernando because I think you know um the the unbanked are actually becoming the the the unbankers. They have so much control over uh their wealth today. They can decide uh what to do with it and and the likes. And so, um, what what is, uh, Smart Pay in Brazil doing to kind of address some of

the the failures of some of the traditional banks that you're seeing in Brazil and and how um, yeah, smart pay even came to be, right? Because if the banks were doing their job, maybe you your solution wouldn't have even existed in the first place. Yeah, exactly. Uh first of all you have to understand that I come from uh South America so we have a very different point of view between crypto uh we have a very different set of challenges with high inflation and loss of buying power. So for us it's very good to have your savings in dollars but if you use the traditional uh systems with swift you have a lot of bureaucracy it's slow it's expensive. So the the first thing we've done, we have provided means for common users to

dollarize. That's something that traditional banking system in Brazil. They are really ready to uh solve this problem. If you want to have a dollarized account, you need to send your money via dollars via Swift outside. And what we have made is we have hacked into the Pix ecosystem. That's the biggest instant payment system in Brazil. And we have provided the the a means for the users to quickly transfer from reis to self-custodial USDT and bitcoin and back to uh reis. So for you to understand a little bit about pix and how this is a gamechanging uh solution. Uh pix is a central bank developed uh payment system in Brazil and it has gone to huge numbers. When I

say the 30 36 million establishments that accept pix right now. So if you accept pics now you accept USDT and bitcoin but the merchant he doesn't need to adapt he doesn't need to change his infrastructure he can stay in ri if he wants but the user can stay with selfcustodial US and bitcoin and still participate in the financial system seamlessly so that's that's like a twint on steroids yes twint on steroids exactly and uh of course pix is free for the users to make transactions between themselves uh but we charge 2% % for a for the for this transa transaction but the user is paying very happily because he's storing his money in a strong currency and for Europeans it's kind of

hard to understand that but only last year we lost about 20% of our buying power in risif the the big difference we are making right now you can store your money in crypto but still participate in daily life with everything using pics wow fantastic thank you so much and you mentioned USDT which is let's say the number one product of tether USDT which is also considered let's say the currency of the the global south uh to a certain extent um maybe give you can give us some some context as to like yeah how how did it even become that and how does it operate kind of today and how does it serve as an alternative to to banking. Yeah. So as Fernando also said

um our our product which is which is this UST the stable coin backed by dollars um has has gotten a lot of adoption in the global south for reasons that were mentioned. So you have very high um inflation. So um sometimes people one of the interesting critics that we also receive is like our business model is based on we keeping the reserves with the US treasury and that gives us like 5% interest rate which gives us a profit and then some people say why don't you forward the profit to to the users. Um there are two reasons for that. First of all if you if you forward the profit that thing becomes a security and if it's a security you cannot it's not a cash equivalent. So you cannot actually have the adoption that we have. It's a

totally different kind of product. And second of all, our users uh in the global south, they don't really care about the 5% because as Ferando just said, they're losing 20% in in one of the good cases. I mean, uh Turkey is is aware is a very big market for us. Nigeria is a big market of ours. They're having 50 plus 80 plus percent inflation year-over-year. Um so, so that becomes irrelevant. Um and then a lot of people have family who work abroad and the family that who works abroad then needs or wants to support the family back home and USCT is a perfect way to send value back home as well. Um so these are the re and and then on the other side uh so you're basically it's an alternative to having cash. I think everybody who I also actually come from the from the

global south originally I lived there for a very long time. I think everybody who who lived in these places, you know, like uh it is not uncommon to try to get cash in the black market and hide it at home. It is that's actually very common to do that because you want to have the dollars, you don't want to have the local currency. So UST is just a much safer way and faster way and cheaper way to have exposure to the US dollar. So that is that is the main reason why we have grown so grown so big and have have gotten so much adoption. Fantastic. Yeah, USDT provides you with a less fluffier pillow at home, but at least a more stable uh way to to operate. Um, and so maybe um you both alluded to a loss of purchasing power and for me that

that is uh let's say has a synonym of trust, right? When we talk about trust and when when uh someone tells me about a bank, I'm like, okay, I trust them with my money, right? And so maybe here Fernando you can kind of jump in and and give me how uh the smart bank operate without that kind of seal of trust right uh without kind of saying okay you are a bank how are you able to operate without that seal of trust and how do you even create that trust yourselves with maybe without that seal. Yeah that's a great question. Yeah you see uh traditional banks have had uh decades or even uh centuries to build trust with their users. They have uh the big buildings, the marble floors, they have the big marketing campaigns, the regulations and

the government backing and that that's of course that's easy to build trust upon. But the way we are working upon it's a very different way because we don't uh ask for trust because uh we give the the user the full control over their their assets. We give him the private key. So users trust what they control and we give them full control. So we believe in the future, especially with the new generation of users that are more cryptosavvy, they don't see banks as partners, they see banks as necessary evils. So for example, right now in Brazil, I don't have any more money in the bank. My my money is stored in USDT in Bitcoin on chain and I own the private wallet. I I own the private

keys. I don't need the bank. So I do all my payments and everything um without needing the bank. So to answer your question, how are we building trust is because we don't ask for it. This is a great great way to put it and I do see that many more people are putting trust in in code over in institutions. Right. Exactly. Um and so you know Tether has had to go through an enormous resilience over the past 10 years being battered left, right, and center from reserves to this to even a variety of unpegs and the likes. You've had to earn your trust a little bit as uh as Fernando was mentioning. Can you talk to us a little bit about that uh over the over the years and kind of

today? Yeah. How you've built up that trust and what trust means to to you as as a tether representative? Yeah. Uh absolutely it's a it's a great question because as you said we have been attacked um I think for most of our existence um in various ways. Uh it has improved significantly and and there were actually a couple of interesting things that happened that helped with that. But before I get to that example, so actually um in our case we are not a bank which means we don't do fractional fractional reserving reserve we the money that we issue we actually have it we need to have it um so um it's much different than bank if you have a bank run today on banks um I think there was after the financial crisis they were

supposed to have 10% backing and then with covid they went back to 0% so it's like basically just printed out of thin air it's like ridiculous. But um if you would have a bank run now on any bank, they would they're not they're not going to survive. And we see actually anytime a bank run happens either the company the bank collapses or the government has to intervene. Um now what happened in our case that helped us a lot is like um there was the um the the crash in 2022 with Silicon Valley Bank and then FTX and everything and we had um obviously there was a big like um scare happening. So um we had at the time I think 70 or 80 billion dollars issued uh and since a lot of our customers went to redeem because they

were also afraid that we don't have the money there within 48 hours we redeemed $7 billion and within 28 days we redeemed $28 billion of our clients money which means we gave back to the clients $28 billion within a month. It's something that no bank could have ever done. Um and that is was one of the events that that basically just showed that we are solid and and we have the backing the backing that we say and that's actually interesting because he talked about trust. Um in the case of um truther wallet and and smart pay different because they actually as he said they don't need the trust because you own your money. Uh in the case of tether you still need to um in a way trust actually tether because we say we have the dollars and we give to the give you the USDT this the stable coin. Um so

at the end of the day whenever you have um a crypto that is representing something and I I say now in the real world to make it simpler so if you have a crypto that is defined in the crypto space so like bitcoin ethereum all of these things they are internally verifiable so you don't really need to trust anything except the code in the case that is representing something else and that can be used dollars it can be uh you know grain It can be oil. It can be anything. A real world asset that it represents. You're going to have a middleman between the crypto space and the real real world. And at the end of the day, you're always going to have to trust the one who is there and doing the transaction between the real world and

the crypto world. And this case is Tedar. Um, and we could gain the trust just by uh solid work, being uh very diligent as as mentioned, being fully backed, being able to redeem. So, we earned the trust over time like that. Yeah. Thank you. So, it's it really does sound like um kind of uh banking without a bank today is is kind of even a reality. Um and and I want to kind of touch upon maybe like the more the the sympathetic kind of empathetic kind of question towards let's say also the banks as well, right? Where is the banking industry ready for a world without you know the three C's which are clearing, custody and credit?

Um clearing, custody and credit. Yeah, I moved my microphone away so you can actually hear that. Um um and and really to understand that point a little bit further Fernando as well. I mean how how should banks respond to a world where there are you know the smart pays out there where some of their consumer base their users are are moving away from from what they have to offer? Um should they complain to the regulators? Should they put more marketing campaigns out there? Like how how can they change in your opinion? I mean what can they do? Yeah. Well, that's a great question because it's something we are watching in real time happening. You see the five protocols, you see the stable coins, you see the open finance and solutions like

ourselves like what we have in Brazil and it's all happening. I don't think uh the future is about fighting between banks and blockchains. I think it's about collaboration. The only way we do what we do in Brazil is because we have key partners in banks and other kinds of service that provide us even with ways to withdraw cash from a network of over 24,000 uh ATMs machines in Brazil. And that's about collaboration. So I believe the future is uh all about that we can uh I think the banks need to be able to uh work more less like a vault and more like a platform. They need to I I

believe in the future the best banks won't be the best vaults, won't be the best fortresses, they will have the best API. Very well said. Um cool. And so maybe uh give to to yourself and one of the final questions here on on on our lovely fireside chat. Um what um areas in the next five years do you believe that blockchain would either replace or let's say enhance in traditional finance over five years? What what do you think are going to be the key elements?

Um so I I'm actually a blockchain skeptic uh beyond beyond the crypto use case. Um but I think most of the discussions today were about the crypto use case. I don't know if um I wasn't there all day, but uh there were the blockchain use cases about logistics and supply chain. I think they they kind of died. Um I was working actually on them for a while as well. Uh um but I think when it comes to when it comes to crypto, I think it's just um I think more and more the banks are going to just accept this new reality. There has been a long resistance of accepting it for various reasons. I think it was just something very very new, very innovative, very outside outlandish like they couldn't probably trust it. They probably still don't trust it. But um at

the end of the day, you see now it it is like um it is something it's a train that cannot be stopped and I think it's becoming more and more evident to most of the banks. Um and therefore what is going to happen is like there's a very large amount of capital basically 99% of the capital is in the traditional finance world and then we have 1% in the crypto world or whatever the numbers are but the flow clearly is going to the crypto crypto space uh to to crypto solutions. So I think um the banks they just want to be there in the middle right because you have the money here it's going to go there. So the one who is doing the conversion is the one who is going to actually also take a fee. So now we heard actually uh smartph is

taking 2% fee um and unless and this is just one of the use cases there are many different use cases but unless the banks want to um forego that potential market and margin um they would need to actually move and and start offering these kind of services and we see that now also slowly slowly in in Europe there is some banks that start offering um traditional banks to start offering um purchasing and holding Bitcoin uh crypto tedar even um So I think it's going to be much more widely adopted within the traditional uh banking system to own as well crypto in your platform so that it becomes easier for your customers to have also exposure to crypto. Yeah, thank you so much. And you

know I think uh for a final kind of question here in a very kind of rapid fire in in 30 seconds because we we don't often put ourselves in the shoes of bankers, right? We're like ah you're not doing it right. I would do it better. Blockchain is better. But maybe just really in like uh 5 10 seconds each, if you were today, you know, the CEO of a large bank in in your own countries or the likes, if you were in their shoes, what would you do today to be able to yeah, radically make that change uh and the likes.

Yeah. For the first thing I would do is like propose a a different uh custody model. I think it has to be tailored for the user. So let the user choose if he wants full custody and hybrid custody maybe with a Moody SIG wallet or make the bank have the full custody but you need to give the user that ability and also why not use it for crossber payments you have to replace swift uh swift is expensive and takes so long and for with tether it's like uh in seconds for pennies so why not interesting yeah I think that was already a very sophisticated answer my answer would be much simpler which is like just if you're like really the the CEO or or the on the board of a large

bank then just jump on the wagon already. I mean at this point you see Black Rockck they jumped on the wagon. I mean they were against it three years ago. You look at the videos where they're saying Bitcoin is a scam and now they launched the ETFs and it has been the most successful ETF in the history of ETFs. It has grown faster. It is almost as big as the gold ETF. It's like unprecedented uh amount of interest and growth and volumes that have come in. So I think at this point it's just like just open your eyes, jump on the bandwagon, start benefiting of it for your company, for your customers because if you're there, you're going to take part of the cake and if you're not there, somebody else is going to take part of the cake. Wonderful. Thank you.

And maybe to just close off um I was speaking to to a banker uh just before the panel. Uh yes, it is uh 6:00 and they are still all here uh in in the audience. um uh just speaking to a banker and he he very much put it uh into the following right is that it's very difficult to be the first mover because of the risks but none of us want to be the last person and I think maybe the message here today is that uh unfortunately you can't be the first mover today so just don't be the last one thank you thank you very much thank you thank you very much cher and fernando thanks very So with all that um I'm very pleased to

say that you've made it. Um this is and this was the web banking symposium here in Lugano. But stay here I will have Ilia once again coming back to say couple of farewell words to you. Very important. Please stay for the apperal starting right after the closing words of Ilia. I would like to thank you from my side for your attention. It was a pleasure to host you here today and we look forward to see you first of all in June on the 5th and the 6th on the crypto valley conference in growth crit.

So please come and join us there number one. Number two there will be web three banking symposium very soon again I believe learning again how much of interest there is and we look forward from the CVA's perspective as well as from with all our partners to see you again.