Crypto's Crossroads: Is the U.S. Outpacing The Globe?

Transcript

[Music] Welcome to Dublin. Great to be here. Thank you. You're a frequent visitor. Uh yeah, several times a year. Uh I have a um I think I'm a plastic patty. I got a uh an Irish passport during COVID, so I should come more often. Oh, wow. You really do qualify. Yeah, I think so. So, what brings you here? So I'm here to do this to do this kind of uh interesting discussion of course uh to talk to some policy makers and you know and also to meet the team and we have 150 people here at Coinbase in uh in Dublin uh and so it's important for us to be here to meet the team to talk about strategy uh

it's an exciting time for crypto so glad to be back. Yeah because I remember when Coinbase launched I was like oh god it's really cool to see cool companies come to Dublin and then when you told me how many people are actually employed here it's huge. Yeah, I think this is the second biggest office that we have uh internationally. So kind of for Coinbase, Europe is uh the biggest international kind of region for us. The UK probably has about 250, so slightly more people than than Ireland, but Ireland is right up there with 150 to 200 people here. So it's a really important part of our European business. So how did you end up at Coinbase? Were you always in crypto? What was your background? Yeah. So we were joking before about whether I uh I did banking to crypto. So it's kind of did I go from

the light to the dark or or the other way around. Um but yes I was at uh Credit Swiss. Uh it's a big global investment bank. Uh I joined in 2006. So the first two years were or the first year and a half the most exuberant time you know kind of pre financial crisis doing investment banking doing strategy work uh at Credit Swiss. Um and then obviously the financial crisis hit, everything stopped and my job was then to figure out which team should we downsize, what businesses should we stop. That was much less fun than doing the kind of growth and the and the strategy stuff. Um on the same floor at Credit Swiss, we had the policy team which was very small. I think it was just two people. But I suddenly realized that actually the most strategic thing

in banking for likely the next kind of probably decade was going to be that reeregulation of financial services after the massive crash Lehman Brothers Bear Sterns kind of etc. So I moved across the floor and I joined the policy team and then just had this ringside seat from 2008 all the way through until I left credit Swiss at kind of 2022 basically reeregulating of financial services after the financial crash. Um but I guess towards the end of it as a policy person you always want to be doing the new stuff the cool stuff and after doing a decade of that reeregulation of kind of financial services it was clear to me that the two things that really stood out with digital finance and green finance. So how do we finance you know this massive

transition to a less carbon intensive economy but also how do we harness fintech? Uh and because of you know team members of mine were working on you know mika and various digital kind of service policies within the EU I was just much more drawn into the kind of the crypto side of it the digital asset side of it. Um, and so then I got a call during COVID actually by Coinbase and uh it was one of those times where I was actually um by myself isolating because the rest of the family didn't have COVID and I did and the head hunter was calling and I thought crypto, Coinbase, not sure.

But then I did the important thing which is to spend for three hours that I think everybody does. If everybody does that, I mean I think 90% of people then get it and they have that moment. They understand what digital assets are. Were you a crypto guy before that? Like were you into it? Were you kind of keeping track of it just to your job or were you dabbling yourself? I was I was not dabbling yet, but I was keeping very close kind of track of it. But it wasn't until that moment where I took those three hours to do what people do to dive down into the internet to kind of read all of the blogs and forums and do all of that stuff. And then for me the light that was my kind of light bulb moment and I was like wow. Particularly because

during my time in investment banking, I through the reeregulation of finance, I had to kind of understand really deeply all the different interconnections of the financial ecosystem, all the counterparty risk that you have, all the uh you the reporting requirements, all of that stuff that crypto potentially can solve. And so when I kind of put the two together, I was like, "Wow, all of that stuff we've been wrestling with in traditional finance, actually crypto could be a solve for it." Was that the moment? Because like leaving a very very established brand number one in credit suites and leaving a very established career of having spent that long at one company it's probably was seen as a huge risk. What did people around you make of it? Because you're from a traditional

background. What did they make of it? Yeah, I remember I remember walking through the cafeteria and a few of the kind of the senior people at Cros who I was dealing with at the time and this is by the way a year before it crashed obviously because in hindsight you know a good move but yeah but it certainly was still a leading kind of franchise at that time and lots of people were saying Tom what are you doing you know what are you doing um but there were one or two kind of traders and other types who I think actually was were kind of you know secretly quite impressed and was saying look we you know we've got to stay in touch this is going to be really interesting so um still to this say, you know, we encounter that, you know, in the traditional finance sector. There's

a lot of folks who say to me, Tom, but blockchains are good and kind of understand blockchains, but tokens and crypto, it's kind of volatile. It's speculative. I don't get it. Um, and that's where you need to spend, you know, that half an hour with somebody or the three hours by yourself to connect the dots and realize that this is a transformational technology that could revolutionize payments. I think it's doing that right now. And I think over the next 12 months, it's such an exciting time. I think we could revolutionalize capital markets. And I feel like now you don't have to convince people on stages like this, that value transfer is better done using blockchain than the traditional systems. I think people know that and understand that.

Everyone's doing it. The central banks, the commercial banks, the payment companies, the credit cards. I mean, everybody's doing it because that penny has kind of dropped. The question is just how how do we get from where we are today to that future point and how long is it going to take and who are the winners and losers and that's that kind of inflection point that I think we're at now. What are you most bullish on in the next kind of 12 months? You kind of mentioned a couple of them there. I was going to save this for later but you kind of brought it brought it up there now. What are you most excited about in the crypto space because you're there what three years now so you've kind of gone deep on it now. So what are you most excited about? Yeah coming up to

three years. Um, look, I think the two things which are becoming big right now are tokenization and stable coins. Um, for anyone not familiar with either of those two terms, can you give us like an idiot's guide to both? Yeah. Yeah, happy to. So, so for a lot of people, they think of crypto as this kind of volatile Bitcoin, Ethereum, they're not backed by anything. The price is is very much driven by supply demand. And that's true to some extent, but with stable coins, we're basically taking the euro and we're putting the euro on blockchain rails. So if you gave me a euro, I would just give you a euro token. Okay? And I would effectively take the euro that you've given me and I would invest it in just a bank deposit or effectively you're in debt of the Irish government.

So totally as safe as you possibly could be unlike a bank which takes your deposit and then fractionally reserves it because they give you a deposit of one and they also take that one and go lend it to people mortgages etc. So they're kind of creating money and it's only fractionally reserved. Stable coins is this concept of a fully reserved form of money. Okay. Um and so so you know but look it lives on a blockchain and the great thing is you can send it into anything anywhere. So I can take out my phone now. I can send a link to a mate of mine in CRA and I can send him a hundred euros or $500, whatever with a link. He can click on that link, it will spin him up a Coinbase wallet. He receives it in 3 seconds. It costs one cent. Okay? And there's no middleman and

it's gone straight from me to him. So the thing about blockchain, which is different to banking, is that this is a peer-to-peer and programmable money system. So everybody thinks when you send me money, it goes from you to me. We all, you know, that's not how it works. Your bank, your bank has a bank account with my bank, vice versa, or maybe with a correspondent bank. There's all sorts of kind of complicated things happening in the background. With with blockchain transfers, it goes from person to person. And so with stable coins, if we put money on the internet, we're creating that value layer for the internet. And I think for young people, it's just so intuitive. I can send an email, I can send a file, I can send any cool thing on the internet instantaneously, I can WhatsApp it to anyone around the world. But I kind of

can't do that with money because money's on this go-kart and information is on this F1 car and we're now leaving the go-kart and we're kind of putting money on the same rails basically as information. And that is this extraordinary exciting revolution that we're seeing with stable coins where already they are settling more than PayPal. You know, uh the local kind of champions here Stripe have just bought bridge. They're going to integrate stable coin payments into that. So I think stable coins are huge for crossber transfers for you know uh B2B type payments as well I think for internet commerce for programmable transactions it's going to become a big big thing and will this sit in parallel to money or replace it

I think it's going to well I think we'll have a mixed payments ecosystem right uh over time I mean cash is dwindling the uses of cash but we'll kind of keep cash fiat currencies as we call it now will remain but then we're going to put money onto blockchain rails and we'll do that in three different ways. So there'll be like a central bank digital currency. You've all heard of that that the ECB in Frankfurt is piloting that for like the kind of the digital euro. Then you'll have tokenized bank deposits. So the local Irish banks here no doubt will say well hang on this is this is better technology than we've got. So we'll just tokenize our deposits and then you'll have stable coins. So those are the kind of the three ways that we'll see it and we'll see a coexistence of these

different forms of money. Right now we have different forms of money. We have public money. So the cash in your pocket, you've got private money which is your kind of bank account. There all sorts of different forms of money. So I think will the market will determine what are the use cases for this these different forms of money. But I think for young people who are transacting on the internet with e-commerce, you're not going to have to pay any fees. I think the average I was uh looking at it just before I came on. Average fees for a debit card here can range from point4 to 2.2%. You've got credit card fees here of 1.5 to 3.5%. We're talking about a technology which is instantaneous and peer-to-peer and it's almost free. And so if you're anme, if you're a merchant here, if you're conducting e-commerce,

these types of use cases, I think, are going to be really powerful. Um, and I think it's happening, you know, it's happening now. And I think stable coins will work with tokenization to go to this other topic which I'm really excited about because you can not just use blockchains to create tokens that represent money which is the stable coins but you can use kind of blockchains to have tokens that represent other assets right so it could represent let's say bonds or shares or money market funds um and I think that is beginning to happen at scale and at pace so currently now you can trade money market funs and these these types of things in a tokenized format. So you don't have to go through, you know, brokers and your typical kind of, you

know, financial intermediaries to do that. You can kind of do it from your phone. And then one thing we may get on to around the US is how quickly trading shares may move from the current system into trading a tokenized version of those shares and you will massively disintermediate. So right now, we're actually an anecdote. I'd sat with um the CEO of a stock exchange. I won't tell you which one, but a major global stock exchange. And they said to me that for every trade a buyer or seller of a security that sat on that stock exchange, 14 intermediaries kind of touched that trade at some and I'm not even sure what those 14 would be. I think I could probably kind of, you

know, name about seven or eight of them, but 14 was a huge number from the CEO of this kind of big exchange. If then tokenize, you know, these assets, it's not going to be 14, it's going to be one or two, right? It's kind of pointtooint and all of that clearing and settlement and that system of kind of brokers and custodians and clearing houses and CSDs and notaries and all of that stuff which is expensive and slow and I think if I said to my kids you know who are quite young but quite savvy digitally I said it takes dad two days or three days to settle you know a share if you buy a share on you know Irish stock exchange or whatever I think they'd say what do you two days I mean how's that work Right. And so blockchains allow for atomic settlement

because effectively these are bearer markets. So you have delivery versus payment instantaneously almost. And you know we're going to be able to save you know double digit billions right through this form of kind of streamlining and kind of faster, cheaper, more effective way of transferring. And then forget just shares then why aren't we going to put our title of our house on blockchains right and then all sorts of other things using this new set of rails. So I think that there's well I know there's a huge amount of innovation happening in this space and I think if you all haven't seen or heard of stable coins and tokenization I think this time next year you know these things will be big partly because the US now is finally getting it sacked together and

legislating for some of these topics and you know given Trump's presence on the front pages of European newspapers as well as American ones and you know just how visible that change is um I I think things are going to start to move very quickly. So, two things for people to take away today, stable coins and tokenization if they're going to get a little bit more savvy over the next 12 months. We're sitting back here 12 months time. They're the two topics people should be savvy on. And then you kind of hinted at it there. Like it sounds like a huge amount of disruption is about to happen in a very short space of time. So, how do you put policy around that? Like how are governments figuring this out? Because it sounds a it's going to disrupt a lot of people who don't want it to be disrupted. and

B, it sounds like it'll be a bit of a wild west as people go really, really fast. So, how do governments tackle this? Yeah, it's a great question. I mean, I think there was a moment when I first joined Coinbase in 2022 and we had the two kind of major collapses that are people aware of, you know, the November collapse of FDX, but before that you had Teruna and other things in kind of May and I think global policy makers were saying, I mean, do we need this? Um, this is just another form of speculation. It's just another form of potential financial instability. Can we just turn it off? Can we just prohibit it? Can we just ban it? And I think that was a genuine conversation. Um, but I think growing kind of realization that you can't ban, we can't turn off the internet that actually there is a such a

big use case for this and we haven't even touched on the use case in emerging markets. There's an insatiable demand for the digital dollar in parts of subsahara and Africa and parts of Latin America for a you know given double digit inflation etc. remittances costing six and a half percent all of these things which are you know we just shouldn't tolerate that six and a half% remittance we should we can do it for free I just said I can get out my phone and send it and so you know I think we're not going to ban it because there are these incredibly powerful use cases and so we decided to regulate it and all countries now are on a journey of of regulating uh crypto um the EU to its great kind of credit was early they started in 2018 and they've got this

comprehensive set of regulations called Mika that many of you will have heard of the markets and crypto assets kind of regulations. So they did that but I think in your question buried within it is how do they remain how do policy makers keep up to keep up to date right given this thing is moving so fast and in such a dynamic way and that's just a challenge right and I don't think there's any simple quick answer to that but you know part of my job is engagement with central banks and finance ministries you know not to lobby for hey you know Coinbase wants something but more to say hey have you thought about decentralized ID have you thought about how AI and blockchain can work together have you thought about actually not needing all of those reporting requirements when the blockchain is transparent or have you

thought about how AML as a concept that we designed for the current system but might work differently you know in the blockchain kind of you know uh world etc. So I think that kind of constant dialogue with with industry is going to be important in order to kind of make sure the regulation keeps up to speed with some of the really dynamic concepts. And how does Europe compare with the US right as we sit here now like the US has got a lot of attention in the last six months especially in the crypto space for good or for bad how does the the EU stack up against it? Look I think Europe now as of today has a leadership position particularly when it comes to the regulation and that's that's great and they started early. Uh one of the reasons Europe started was because of the was it Meta or the Libra

project which was the big Facebook stable coin uh you know kind of uh was it in 2016 17 I forget but suddenly that focus minds in Europe saying hey do we want you know the world's largest kind of social media kind of platform you know dominating and kind of disintermediating a little bit the euro etc etc so that forced minds but to their credit then the 27 member states or you know came together and developed ma and I I think that has been a bit of a playbook for the whole world who have looked at it. I know the UK are looking at it for example but you know our concern now is we Europe cannot just rest kind of on its laurels. I think they risk seeding that leadership position to the US. So in the US they

started from a long way behind but now they are accelerating really fast and you know if it looks chaotic for us when we look at US policy foreign policy if that looks like a tariff here take it back a tariff there etc. So if that looks chaotic, one thing I can say on crypto policy in the US is that it is not chaotic at all and that actually they are moving forward in a very deliberate fashion and all the people who need to make decisions on this whether they're in Congress, whether in the White House, whether in the CFTC or the SEC, all of these people are lined up and they're determined for the US not just to catch up but to accelerate and to take what they think is their rightful leadership position on a kind of technology and finance topic.

Europe has this leadership position, but I think there's more that we can do to make sure that we don't seed that position to to the to the US. And partly because the US is working so hard on this tokenization of equities, which is very very exciting. But we should also be doing that here in Europe because when we talk in Europe about the letter report on the drugy report, you know, the lack of competitiveness, all of these things, I would love to see more of a debate in Europe about how can we use not just AI but blockchain AI, all of these new technologies. How can we use them to drive productivity to make Europe more competitive to integrate capital markets to make the banking kind of environment less fragmented, etc. So

I'd love to pivot away from this kind of focus on regulation and more and more more regulation. Now we have that really strong regulatory base here. Let's focus on how we can innovate here in Europe and how we can use that leadership position to really foster kind of like growth in jobs and productivity. So I think in a nutshell Europe's done a terrific job but we can't we can't rest on our laurels now that the US and the UK and other big markets are beginning to come on stream and moving very fast. Is there a bit of a a weak narrative around Europe? Does Europe have a weak narrative globally? You travel all over the world doing this for a job. Like what narrative is seen externally on Europe? The Europe is famous. Europe is famous, no question, no doubt, for being

a superpower when it comes to regulation. Um, but always the criticism that then comes after that, the kind of the, you know, parenthesis, but not so good at the commercialization of the innovation that sits kind of underneath or around that regulation. And so that's where I would love for us to prove those naysayers wrong. Um, and to use kind of ma and some of the associated kind of like parts of the of the kind of regulatory tech ecosystem that have been built in Brussels and then use that to try and develop, you know, European champions here. And look, Coinbase, we're a US firm, but we want to bring a billion people into crypto, into the crypto economy. That's our mission.

That's what we all signed up for. That's what we're here to do. So, you know, yes, we want the US to continue to kind of be a leader in the space and to catch up and do all of that, but we also want to see Europe play a really, really strong role. Um, and so I think Europe is famous for forging that path kind of internationally. Um, but I think now seeing the commercialization of that is really important. So, as we wrap up, we've two minutes left. I want you to kind of give us kind of the next kind of 12 to 18 months on your vision as how you see it playing out in terms of the both the crypto space and the regulatory space.

Yeah. Yes. So, look, I think it's an exciting moment now. It's almost like a turning point. Um, I mentioned the Stripe uh acquisition of Bridge, which I'm sure played big in the in the media here. I think that's this really strong signal that they see the future of kind of money and payments being stable coins. Um, we're seeing other big consolidation plays. Coinbase, we just announced the biggest deal in crypto ever. Uh, we spent 2.9 billion uh US dollars buying Derabit, a big kind of options platform. Um, you're seeing a number of these big kind of announcements. We saw Circle, which is the issuer of the second largest US dollar stable coin, announced plans to IPO. I think all of this is happening now because everybody's beginning to see that the institutional adoption, the sovereign adoption, the regulatory

clarity, all of these things are beginning to get to a tipping point and people really want to be well positioned for, you know, what I think is going to be a really fast kind of adoption curve kind of coming up. So, we talked about stable coins, we talked about tokenization. I think things like decentralized ID will be really interesting. Um, I think the interplay between AI and blockchains. I know that the previous panel were talking about that, but I mean, I love this concept of AI scaling content. I mean, that's what it does. You kind of ask Chat GBT to do whatever and it gives you stuff, but can you kind of trust it? And where does, you know, where is the LLM's data coming from? Blockchains are amazing at scaling trust because you know you could imagine articles and photos and things being

tagged in the metadata and then all of that being tracked on blockchain. So blockchains and AI and then this idea that AI agents are actually going to be executing tasks for us. So your agent won't just be the chat GBT bot talking to you, but they'll be booking the restaurant, the holiday doing things. And I think they're going to be using stable coins and crypto. And you know, for example, Coinbase has now provided a developer kit so developers of AI agents can spin up crypto wallets. And so we're now seeing a proliferation of crypto transactions driven by AI agents. So I think there's all sorts of exciting things and you know, we can talk about the pros and the cons of these things, but it's happening. Uh, and so we're, you know, we're excited for the future.

We think we're well positioned. We think Europe, as I've said, is is kind of well positioned, you know, for this. And, you know, it feels to us like a tipping point. Tom, you've given us a whirlwind adventure in crypto and regulations the last 25 minutes. Thank you so much. Ladies and gentlemen, put your hands together for Tom Duff Dordan from Coinbase. [Music]