Beyond Stablecoins: The Evolution of Digital Money

Transcript

Hi guys, I'm pleased to present our next keynote. Uh we have Benjamin Raa from Google Cloud talking about the evolution of digital money beyond stable coins. Thank you so much. Good morning everyone. Everyone is trickling in. Uh hope you had a good evening after fully packed day yesterday and we can hopefully keep up the momentum and continue talking about stable coins today. While last night I think the timing couldn't have been better. first stable coin IPO with Circle. My name is Benjamin. I work for Google here in Zurich, but oversee our web 3 efforts across all of Europe or EMIA. And I'm here today to tell you about a little

bit our perspective on this kind of evolution revolution that's happening in the payments uh markets. And uh maybe we can take a little look or start by taking a little look what happened last year. So if you crunch the numbers you will see that about 30 trillion transactions were processed using stable coins. While this number is quite large um if you dig a little deeper you will actually realize that only 5 trillion of those still a big number were kind of what is considered an organic transaction. So the majority of stable coin transactions are uh by bots or for um conversions and settlements. But there's still even on the organic side a big um demand and usage for stable coins

last year already. I think the the amount uh skyrocketed quite a lot last year. And just to give a bit of perspective for me these numbers are not something I have to deal with uh in my day-to-day life. I think Visa processed about 13 trillion uh dollars in in in payments last year. So it's almost half of what what Visa has been doing just in stable coins. And another kind of that also means that the way stable coins work right now with these like onetoone backed reserves about 1% of US dollar M2 money sits in stable coin reserves which that's quite a significant amount and if you look at it what stable coins are you can kind of go back to the 18th century uh before I prepared this talk I didn't

even know about that this is the case but money the way we know it kind of started by private institutions banks uh issuing it and that's what it's called like private money and uh before that you would probably like barter with like metals or precious metals. So some institutions started issuing money but of course there is a risk to that because if that is institution fails um also the the money that you held that gives you guarantee to have access to the reserve is useless and um later these banks realized that okay not everyone redeems the reserves all the time. So while we hold on to them, we can maybe make some additional profit and fractional reserves model was born the way we know it today that um banks

don't have to hold on to like a 1:1 ratio uh and can use that to for additional profit gains. But of course that comes with additional risks and requires additional regulation the way we see it today. That's why it's quite difficult to obtain a bank license and we have central banks that are highly regulated to make sure this stays stays safe stays safe and that's why we have this two tier model right now. So we have commercial sorry maybe start at the bottom central bank money that these banks use to settle between each other and then we have the by the way the cash that you the bills you hold in your hand are also central bank money and then you have commercial bank money so anything that you access your bank account or do will pay your rent that would be the

money in a way that is issued by your by your bank and uh this comes with like a few challenges. So um all these like different systems have a lot of uh friction and it is estimated that by 2030 about 2.8 trillion uh dollars will be lost in this friction which represents about 2.6% 6% of the global GDP and uh also these payment systems they will they always need to be updated and need to be maintained and that creates a lot of cost for the banks that use these systems and the ones kind of suffering from this of course are consumers but also businesses like if you look at Walmart um specifically when

they have a lot of um consumer to business transactions like car transactions they have to pay the fees that are occurring because the system behind it is quite cumbersome to maintain and quite quite slow and and friction full of friction. And we've seen now over the last couple of years and here at this conference when everyone kind of knows about like upcoming new technologies distributed ledgers that there is a better way to do it. You can have simpler transactions and workflows that are available all the time at instant speed and multiple assets can be uh traded that way as well. So instead of having to maintain silo databases and keeping them in sync and that's basically where stable coins

came into play and realized okay we can use this new technology to offer a familiar service and for users of course it's absolutely amazing. You have the way faster lower cost transactions um you can do this beyond certain restrictions and for the issuers of these stable coins it's highly profitable. I mean if as I just mentioned initially if you look at what happened last night when circle had the IPO and immediately the stock price skyrocketed I think it shows there is everyone understands that this is a useful business and um this of course leads to even more growth in that uh area. We've seen a few example where stripe can kind of help you accept uh stable coins. uh Visa has some integrations and it's really beneficial

not just for the user but also for the business because these fees can be lower than what traditional payment providers would charge. But these stable coins come with a challenge um or not just one actually several challenges and first and foremost maybe is the regulation. it is uh lagging like behind and certain things are unclear which also means that certain businesses and business areas are excluded from participating in the stable coin use and then I think another really important one is the compliance aspect that um I think 63% of illicit transactions were issu were done in stable coins so these are also popular

among nonapproved business or use cases and uh there's a scalability issue um because when um this really takes off. So I think in 2024 we had 6 billion like amount of transactions and traditional cards like Visa Master they do 100 times this much. So we have to also see if stable coins can keep up if they kind of get more growth the way it has been in the past. And uh another factor of course is there's a risk for banks. If stable coins um hold on to more and more reserves that are then taken out of the banks and they don't have access to this anymore. It undermines the business model of banks. uh and also what I

mentioned initially a lot of money that gets stuck by in these like reserves of the stable coins is each year and there's of course also the risk that these are not so like the same like they're not regulated the same way a bank is like they are certain of some of them don't have audits that prove that these reserves exists in its full extent and lastly of course there's not just one stable coin like we have a quite fragmented market and maybe it's for the better Because competition can be a good thing, but it also makes things more complicated and costly again because you have to sometimes bridge an stable coin from one chain to another and then it adds fees that we are actually trying to get rid of. So it might not be the best solution long term but of course it has

been a disruptor and for customers and clients they have a choice. they can use traditional payment methods um which they might be familiar with which have low risk and are highly regulated or they can kind of benefit from some of these new payment methods um but there are risks with it and for banks it's a similar situation that on the one hand they have a established business model that they have been like really well doing well with for many years and they might want to protect it or they can also look at okay like let's move on and there is a new technology something better we can maybe benefit from this as well in an even even better way but they're a bit stuck and that's where we believe we can maybe help out a little

bit because when it comes to building global scalable infrastructure Google has a lot of experience we have nine bill nine products that have more than 1 billion users and this you don't build overnight and uh so we we think there's a chance for some some partnership where Google can provide infrastructure for this new generation of global fast uh 24/7 multicurrency programmable um payment system and really provide a bit of an upgrade to this ever outdating uh infrastructure that we are currently using for that banks are currently using and we call it uh quite a complicated name Google cloud universal ledger GCU

in short and here this is like the little jar on the top right corner says this is an like in an experimental state like we are it's like a preview you have to you cannot just access it yet but we are like collecting feedback and like that's also what I'm here for like please reach out if you're interested to learn more or maybe have some ideas how we can partner but what this is all about is that we built our own distributed ledger that can is way easier to keep synchronized than databases um it is operating 24/7 uh if you partner with us you don't have to we will take care of the infrastructure and kind of up like updating it. You just interact with an API. It's easy to use.

So, it really targets at banks that banks can still be in charge of the accounts and the payments and have the direct customer connection. It's clear with regulation. It doesn't require new assets or asset classes. And it's uh the intent is really to have a um distributed ledger that allows you to um to do these transactions. The settlement will still have happen offchain. Traditional methods will be used but the transaction can already be processed in real time or almost real time and uh it will be familiar money concepts. Um we we support fiat currencies but also um real world assets or um token you can tokenize assets and it's really not a

competition to existing systems. It's like an addition an additional step that can speed up uh payments and transactions the way they currently run. And uh yeah, as I said, it's in preview. That means that we are still testing, but it also means we're open for feedback. We want to hear where this can go and what is needed and how we can help. And maybe just to highlight from our perspective where we think we can fill a gap that is not so easy to fill otherwise. We want to keep it really simple. So you don't have to um you don't need a whole new engineering unit. You don't need new regulation. Um it's really a service that can be used by an API. people make sure it uh receives upgrades. Um it is permissioned in the beginning just to kind of comply with

the policies that we currently have. But while policies evolve, the idea on also hope is to open it and make it more like a public uh ledger with um less like less permissions to participate. But for now, it's kind of we believe it sets us apart. It's really important piece uh to to make it work. and uh it allows programmable um money. So we do support smart contracts uh also to make it more accessible. These are written in Python which might be a language more developers are familiar with. And if you look at this little table at the bottom right, if you compare a little bit what a public ledger would struggle with. We see this a lot when protocols are being compared to each other that the

transactions per second is a measurement and um high gas fees can occur in terms of performance problems. There's lots of compliance open questions and then also operations can be quite tricky like when the protocol receives an upgrade and you have to manually kind of uh follow along and then with private um ledgers the main like that only solves the problem of compliance with the kind of permission piece. So we believe we can with our experience and the way we position this hopefully address all these three areas in a successful way. And what can this be used for? So um there is kind of this obvious use case that crossber payments can be made easier and this is um would require some

banks to partner with us and we have already um announced uh one partner is also there also here the CME group um as one possible partner that will have access to this ledger but then also businesses can benefit from it because if you're a business and your bank is participating and you want to do a transaction with another business that has also an accounted participating bank, you can already benefit from all the uh kind of advantages of yeah near realtime processing and 24/7 availability. And it's also um open for new types of assets. It's not uh restricted to specific currencies or fiat currencies and uh way easier then to um handle those. And just to kind of

bring it all together, I mean we also have this is not only a conference about stable coins but uh also more broader uh developments in technology and agent has been a big topic um also yesterday and of course agents will need to probably transact with each other in a really fast and lightweight way and this tool will also help with that. So it's kind of designed for another use case that we believe will become very important. So if you want to learn more um I put here a link. This is a form that you can fill out, express your interest. Um, we will then get back to you. But also, feel free to reach out to me directly uh today or um online and happy to I'll try my very best to answer more questions, but also quite honestly, this is really

early stage. I'm glad I can already talk about it, but I don't have all the answers yet. But thank you so much for showing up this early and have a great rest of the day here.