How to Build a Non-USD Stablecoin

Transcript

[applause] >> Hi everyone. I'm Kevin, co-founder of Loon, the issuer of a Canadian dollar stablecoin called CADC. We're Canada's largest stablecoin. We currently have about 2/3 of the Canadian market, and I'm here to talk to you about how we're building a stablecoin not pegged to the US dollar. So, we are in New York, so I do assume that a lot of you here are American and you use the US dollar, but there's actually quite a few people around the world that are not using the US dollar as their everyday currency.

So, I'm talking I'm going to be spending about 15-20 minutes talking about how we think about it and what our perspectives are at how the playbook to build a non-US dollar stablecoin is fundamentally very different from building a US dollar stablecoin. A little background. Going into the the blockchain crypto space about 10 years ago, started in about 2015. Built started my first company in 2019 to help Canadians buy and sell stablecoins. And stablecoins are such a niche topic back in 2019. I think Circle had less than a billion dollars of assets under management. And we've always wanted a Canadian dollar version of a US dollar stablecoin.

So, we started in 2021, launched the first Canadian dollar stablecoin CADC. And since then, we've been pushing regulation in Canada and around the world to regulate stablecoins in a way that we can all use them. In the last year, we've done about half a billion dollars worth of transactions with our Canadian dollar stablecoin, and we're the fastest growing Canadian dollar stablecoin in the market right now. Here's a little bit of a a map uh to show where sort of stable coins have been activated around the world.

Uh the major ones you're probably familiar with uh are the Euro, Euro C. Um we see stable coins in Asia like Hong Kong, Japan, Singapore, uh Indonesia, Thailand, and then you have in Africa uh countries like Nigeria, Cameroon, uh there's like like five or six of them in Africa. And then Latin America actually is is booming right now in terms of local stable coins. Uh you have Brazilian Real, you have Argentinian Pesos, um you have um Chile.

I can't remember what the the name is in Chile. It could be Pesos as well. Uh Mexico as well. Um Central America. Uh but all these stable coins are popping up around the world. And we're we're starting to get to a point where we can create a network of stable coins together and create very unique use cases that we've never seen before. So, I'm going to take a step back and really talk about the difference between US dollar stable coins and non-US dollar stable coin. US dollar stable coin the the playbook is to accumulate as much assets as possible, take in AUM, take in TVL, lock it up in treasuries and earn yield on it. It

works really well if you're Tether. You make billions of dollars with a handful of employees. If you're Circle, this is actually not a great business model because Circle has started to distribute yield back to their distribution partners. And over time we believe that assets under management is actually a race to zero. So, stable coin issuers like Circle, like Paxos, like Bridge, they're all competing for the same clients right now and they're all offering more and more yield to do distribution partners.

Over time, as a stablecoin issuer, you end up being more like an asset manager and you're just helping people buy treasuries and money market funds and different yield instruments. And that's what the banks do. They charge basis points for the service, anywhere from like 10 to 20 basis points. There isn't really a model where I can see like long-term where a stablecoin issuer will actually keep most of that yield and be able to maintain billions of dollars worth of profits every year. So, this angle is a very hard sustainable revenue model to actually justify long-term.

As a non-US dollar stablecoin though, there's something that you can do that's different from US dollar stablecoin. So, US dollar stablecoins like Circle and Tether, they make no money when you send the funds from person A to person B. They capture no value in the flow of funds, whereas non-US dollar stablecoins almost always have an FX conversion that is inherent in almost every transaction, be it converting to a a different currency or converting it to Bitcoin or Ether or any other digital asset. There is a built-in FX component that we all just don't see. Usually, it is captured by the centralized exchange that's converting your local fiat currency to whatever digital asset that you're

buying. Instead of coupling essentially the fiat on-off component and the FX together, we are decoupling those two steps from a centralized exchange, where a stablecoin issuer becomes the on-off ramp, and then you have a separate essentially it could be centralized or decentralized provider providing the foreign exchange component, which we think can significantly reduce the cost of onboarding and offboarding um, in and out of digital assets. So, what you see here on the screen are different ways that we sort of think about, um, like stablecoins in general. Like, these are the core principles of building a stablecoin. The technology itself is not hard. It is simply a token that lives on

the blockchain. But, what happens behind the scenes is actually very complicated. We we we think about regulation, we think about politics, we think about infrastructure, liquidity and market making is a huge huge problem right now. Uh, FX and where you actually make money, uh, in the stack in the long term, and really the velocity of money. Okay. Uh, talking about regulation, uh, really quickly, um, my focus is Canada. Canada has actually pretty poor uh, stablecoin regulation.

We have conflicting regulators, uh, in Canada. We have a federal regime and a a provincial regime that's trying to uh, essentially regulate stablecoins. Not a great model. Uh, I hope we figure that out, uh, in the long term. Uh, we're we're pushing regulators to to find the right model there. Europe developed MiCA, and they're actually going through a revision right now in terms of thinking about how stablecoins should be regulated, yield for stablecoins and how that should be thought about. US obviously has, um, the Clarity Act right now in terms of yield and how they are going to think about it, activity-based uh rewards.

Uh, UK is also rethinking how they're developing their stablecoin regulation. Previously, they had limitations. Uh, they previously they had, um, limits and things that you can do, uh, with the stablecoin. They're I think they're they're rethinking the the structure and really opening up the ecosystem in terms of how they want stablecoins to live in their ecosystem. And before I get too deep into it, the reason why every one of these countries want to issue their own stable coin and a stable coin in their currency is because monetary sovereignty. Right now, the way that governments control their monetary supply and their inflation is through their own currency and

right now, the US dollar dominates the blockchain and digital assets in terms of settlement rail. People in Canada, in Europe, in UK, Singapore, and UAE right now are forced to use a US dollar and give the US essentially monetary supremacy by using the the US dollar. All these countries want to bring that back and allow their citizens and their residents to use a local currency to still enact their monetary policy through interest rates that they can control.

They can't control the US interest rate. They can't control the monetary supply and that's very scary for these government agencies. Um politics. So, politics becomes really important. Um if you've been around blockchain and digital assets for a long enough, you know about the Gary Gensler era of blockchain. It was not a great time. We wouldn't have an event like this if Gary Gensler was still the in charge of the SEC.

We wouldn't have all these people building in the US if that was still the case. Politics plays a big part in in terms of regulation and how we sort of think about digital assets and as new administration comes into play, especially in the US, it forces governments around the world to really rethink their digital asset policy, especially their the stablecoin policy. So, very important to stay on top of politics as we build out stable coin regulations around the world.

Um, infrastructure. This is actually one of the most important parts about building a stable coin is having trusted infrastructure that allows you to easily move in and out of the stable coin. What makes a stable coin hold its value and hold its peg is the ability to convert in and out of a stable coin. If we don't have efficient rails to do that, then essentially you lose trust from a consumer perspective and then you start depegging, especially in the secondary market. If your stable coin starts to depeg, no one would actually want to use it.

So, having efficient fiat on-off ramps is actually very key into building a successful stable coin. Um, integration with domestic payment rails, another very, very important one. What stable coins allow you to do is actually connect domestic payment rails around the world. So, you have domestic payment rails, for example, in Brazil and Pix. You have domestic payment rails in, uh, India, uh, UPI. You can connect those two if you have really good, uh, interconnectivity and on-off ramp in these countries and then use a stable coin to move the funds across border.

One of the biggest advantages of stable coins is that ability that 24/7 availability and the ability to, uh, swap in and out, uh, very easily. So, that is a a core component of building a stable coin. Um, when you're building a non-US dollar stable coin, it's really important to think about what's unique about your local geography. Every geography is going to be different. Your users are going to have like different preferences. Building a stable coin, for example, in Canada is very different from building a stable coin in like Asia, like Philippines or Singapore. The the user experience, the the the technology, the the partners are

all very different and you have to cater to your audience. Like you will need to know how your audience will react to different methods of payment. And in some countries you have users that are more comfortable using new form of payment, whereas you have different areas where they are more entrenched with the the existing domestic payment rails right now. Um when I talk about liquidity and market making, this is this I think actually is the hardest part about building a stablecoin because a lot of this actually isn't controlled by the stablecoin issuer.

This is where the market really comes in and determines if this stablecoin is worthy of liquidity and market making, if people want to start using it. Liquidity and is right now the hardest problem to solve for non-US dollar stablecoins because we haven't gotten to a reflection point where market makers are comfortable creating markets for non-US dollar stablecoins. The biggest market makers like the Wintermute's and the Cumberlands and the Jumps of the world have not gone into this space. And we need to convince the largest market makers and liquidity providers around the world to start creating markets for non-US dollar stablecoins because once we do, we can really think about a 24/7 always-on forex market that

allows people to trade currencies um around the world in real-time without traditional banking hours. This is very important in terms of creating that network effect, allowing us to sort of disintermediate companies that essentially move money around the world like Swift, the banks, Wise, Airwallex, and so forth. So if we can work together as an industry to build more non-US dollar stablecoins, we these markets of liquidity and and market making, we can essentially rebuild a lot of that financial infrastructure that Swift currently had a monopoly on

around the world. Velocity of money. This is where I think is the biggest opportunity is for a non-US dollar stable coin. I I mentioned earlier that US dollar stable coins capture no value in the velocity of money that actually happens in the ecosystem. Non-US dollar stable coins have the biggest opportunity to capture here. We want more transactions. We want more forex. We want more ability to interchange between different currencies. So, the velocity of money is actually very important. For example, CADC has about a $2 million market cap, but we're able to do $500 million of volume over the last year because the

money moves really quickly. We're able to recycle the funds in in the the exchange and and market make these positions even with the small assets under management sample size. And being able to do that, like if we were to monetize just assets under management, we're talking about probably maybe just a couple hundred thousand dollars worth of revenue. But we're capturing like millions of dollars of revenue from just the forex component of a small $2 million AUM. So, this is actually the biggest opportunity that I think a lot of people miss.

Forex is the cornerstone of a non-US dollar stable coins. So, this is the last slide and what I want to leave the audience here is the the playbook for a non-US dollar stable coin is very different from US dollar stable coin. US dollar is reserve currency of the world. As we build stable coins in different currencies like the euro, Canadian dollars, GBP, um we think about it differently as these are not uh is essentially reserve currencies.

Uh we think about regulation, we think about politics, think about infrastructure. Um liquidity effects and velocity are are I guess monetization angles that we we all take. Uh one biggest opportunity that I think Circle, for example, missed was the acquisition of Bridge and allowing Bridge to go to a uh a company like Stripe. If Circle actually acquired Bridge, I think there would have been a huge synergy between Circle and Bridge that would allow them to grow exponentially.

Coupling the the fiat on-off ramp with the stable coin issuance is a key part of what we're trying to do as a non-US dollar stablecoin issuer. Um being able to put those two together creates a lot more synergy. Um I personally think that Circle needs to do a better job uh of onboarding and offboarding people in into USDC. They they right now defer that to companies like Coinbase, but Coinbase's economics are a little different than the Circle's economics, and there are conflicts of interest there. So, we think the biggest opportunity for a company like Circle is to create their own uh on-off ramp APIs uh that can sort of compete with Bridge. Um but yeah, um

this is what we're thinking about in Canada. This is what other stablecoin issuers from around the world are thinking about, and this is how we're we're building the the future network of non-US dollar stablecoin that Forex. Thank you.