Seamless yield-bearing money: How to use tokenized T-Bills as a compliant payment method

Transcript

[Music] Good morning everyone. Um, so for those who don't know me, I'm Victor Sharpia. I'm a head of leg girl at Spyo, a French startup that tokenizes regulated investment funds in France and in the EU. So last year I was here as a lawyer. This year I'm here as a as a legal council. Uh but this talk this year will be probably a bit less complex from a legal perspective and a bit more focused on a long-term vision that we have at Spyo uh to build a payment method which

is better than actual money. Of course, it's a very long-term vision. It's a bit of a dream, but I wanted to share that with you and collect feedbacks if you have some and if you work in that industry yourselves offer either uh tokenized financial products or of course stable coins, I would be very happy to to discuss this uh uh all this content with you. So the first question is why is money still non yieldbearing in 2025 with 15 years of blockchain and uh more than probably 30 years of financial

innovation. We have extremely sophisticated financial products. Now uh we will have in a few months hopefully stock tokens in our Robin Hood wallet. we will be able to own these stock tokens in self-custodial wallet and hopefully transfer them between addresses at least uh they have not promised that we will be able to do that but I think that they they would like uh for that to happen so if we could have all these yield bearing assets in our wallets uh why couldn't we use them to make payments to make payments to friends to make payments to corporations or payment between companies to gifts and donations. Um it would be

extremely convenient if we have all these assets in a wallet and they are transferable and we can transfer them to settle uh transactions. Uh so of course listed securities are obvious because they are highly liquid. So you could have like tokenized shares of uh Nvidia in your wallet and use that to make a donation or payment. Um probably so this is ranked from most risky to least risky or least volatile. Uh so of course ETFs are quite obvious too like if you could have a tokenized share of an ETF uh which is less volatile than uh uh actual direct stocks. It could be very

interesting plus of course it's yield bearing. Um and then T bills uh T bills of course is the focus of I think everybody in the space um because they are yield bearing they represent uh first or uh the most secure financial asset in existence um because they are short-term debt issued by governments like the US governments European governments and when I mean short-term of course there are a lot of T bills uh there are a lot of uh types of of sovereign debt, but T bills in general refer to very short-term debt. U in general between 1 months and let's say 6 to 9 months. Uh and the last category,

the the money market funds are actually regulated investment funds. Uh they're regulated in the EU. They're also regulated in a slightly different way in the US and or in other countries. And these funds are allowed to own only exclusively T bills uh with a maturity that is precisely um determined by the prospectors and the legal documentation of the fund. So when you own a money market fund whether it's tokenized or not, you know that the assets of these funds are exclusively comprised of short-term debt. Uh so the volatility is minimal and the risk of loss is almost inexistent. So it would be great. That's

our vision at least if we could use shares of tokenized money market funds to settle payments. Um so why do we want it? First uh first because um the the years of zero interest rates are behind us and in the future we will probably have many years of positive interest rates between two and 4% in the Europe or in the US. Um and then uh the problem we have is that of course you can have yield bearing assets in your portfolio. You could own an MMF and then convert it to fiat and then withdraw the fiat and send the fiat as payment. But in that case um overall

in that transaction the payer and the payee so the one that pays and the one that receives will lose around uh two or three days of yield each time they they do this operation and in in practice probably much more than two or three days because there will be frictions and settlement times with the the banks or financial providers of of both entities. And lastly, because we can do it right now with technology under and regulations. So if we can do it, we should do it.

So now of course we focus on tokenized money market funds. It's the it's our focus at Spyco. Uh so we want to compare them to traditional money. Uh of course when we compare anything to traditional money, we go back to the principles of Aristotle. It's uh always the three functions of money. the medium of exchange, the unit of value and the store of value. The unit of account or measure of value and the store of value. So first for medium of exchange um the reality is that um tokenized MMFs are probably less interesting than traditional money because they are not freely transferable uh outside of whitisted users. So right now for KYC

reasons that I will cover in a few minutes um tokenized MMFs and other tokenized financial instruments can only be transferred between whit listed users. So they are a bit inferior but as a measure of value I think that mmfs can be as efficient and as useful as traditional money and in particular because um there are uh types of mmfs uh which are rather used not that much in Europe but a lot in the US where the net asset value is is constant. So the shares of the tokenized mmf or the mmf are always worth $1 or1 and then uh it's the number of shares that you own which

increases it's a bit like the tokens on a or certain sable coins uh so this is extremely efficient and it could completely replace money uh because the the unit is the same and then as a store of value I think that mmfs are clearly better than traditional money notably because they are yield bearing and they represent extremely secure financial assets. So now we will cover a bit of yeah a bit of um issues. There are four main issues that could make uh tokenized mmf uh a complex tool to be used as a payment method. But for each of them there are

solutions or for some of them they might not be solutions right now but they could be solutions in the future. We'll see that. The first one of course is accounting. Uh accounting is always done in currency in local currency of the company that applies the accounting rules. So euro or dollars depending on where you are. Of course, you cannot have an accounting uh that uh accounts everything all your transaction and all your assets using uh the mmf as the unit of value. Um uh but so in any case um when there is a transaction that uses um tokenized money market fund, what you have to do is first make a conversion.

So calculate how much you need to pay uh to the the seller of the goods in the tokenized mmf in order to settle a transaction. So you need to divide uh the value of the transaction by the net asset value of the shares and then from the perspective of the buyer of the good so the one that makes the payment um it's treated as a sale. So from an accounting from an accounting perspective the payer has sold uh its assets in that case the some shares of the mmf and has converted them to fiat and has used fiat to make the payment.

Uh so there is a sale and that sale causes capital gains of course because mmf basically never decrease in value. So they always increase in value. So each operation that you make with mmf you will in theory um uh account a taxable capital gain. But is that a real problem? I don't think so. Uh because first because we can have automated accounting that reconcile all these transactions and secondly because there is a tax impact but the tax impact is always the same. And if you keep the mmf as an investment tool to manage cash or manage a company's treasury, you will always pay taxes eventually on the sale.

So whether you pay them when you make the transaction or you pay them just once per year when you make the a batch sale, it's uh absolutely the same. You don't pay more taxes because you use tokenized MMF as a payment method. Then of course the legal issues. if there are some uh so the the most uh core issue is that only money is legal tender in every country. So of course in France it's the euro in the US it's the US dollar. Um but legal tender does not mean that you cannot use any other payment method than the legal tender to settle a transaction. It only means that you cannot refuse a payment made in

legal tender. So if somebody wants to pay you in euro in France, you cannot refuse that payment. It's illegal. And then uh you are forced to use euro to pay taxes and to pay uh judicial payments like fines or settlements. Uh but otherwise it's on a bilateral contractual basis, it's absolutely legal to use anything else as a payment method. And in that in that case um uh lawyers talk about payment in kind. So basically you exchange a good for another good and you have some kind of uh method to account for the value of both and then the transaction is settled

and this is a payment method that that actually works. But the problem we have um the legal problem that we have of course is that um u tokenized MMFs of financial instruments financial instruments uh at least in France and in the European Union and all major jurisdictions are all subject to KYC. So the issuer always have to KYC every investor and there is no way for uh an investor to own a tokenized financial asset without being identified by the issuer. This would create uh a situation of what we called in the past bearer assets. Uh and right now stable coins

are known to be extremely efficient bearer assets because you can own stable coins without having to be KYC by the issuer at the time that you own the the stable coin. You have to be KYC when you want to withdraw or subscribe, but you can hold them without being KYC. And that make them extremely efficient. Let's see how long I have. Yeah. Okay. Um so I'm going to bit uh to to speak a bit faster now. Uh so the the third issue is that banks are efficient extremely efficient at least uh in the European Union and probably in most major jurisdictions. Uh most payments are some payments are instant like within the same bank when you have two

clients uh with the same bank they can make instant payment between themselves. Uh, of course in E in the EU we have now SEAR instant uh up to €100,000. So you can make instant payments uh up to that amount uh between uh um European accounts and for other payments in general it takes between one and two days and it's only for some kind of international payments that you could have very long settlement times. And of course the the last issue is not a a very legal one. It's uh the issue of sovereignty because money is sovereign.

Money is a sovereign major sovereign issue and for any uh jurisdiction or government uh mastering the money as a sovereign tool is essential. So we have seen this in the European Union with stable coins which were a threat uh considered as a threat by the European Central Bank for many years uh and they still consider it as an inferior method of payment compared to to fiat. uh and of course they want to push the digital euro and what's interesting here is that uh four years ago before Mica was adopted the European Central Bank created a regulatory framework based on nothing but but one like one very specific uh

legal rule that allows it to create supervisory framework and that framework included all payment methods including stable coins even before stable coins were regulated. Uh so the the the last question is of course does blockchain solve this? Uh clearly not perfectly in that case. The settlement with tokenized MMF is arguably faster or at least as fast as with traditional money and and for the other aspects in most cases I would say that they are equal as payment methods for as a unit of account as a way to uh facilitate accounting. They are somewhat equal. But of course with tokenized MMF

you will always have tax friction which you don't have with traditional money. Of course unless you use foreign currency because foreign currency is subject to tax friction and uh of course I think the most important one is KYC. until we solve uh KYC uh until we have a way to have uh financial assets that are bearer assets like we we used to have that in the past and I'm not sure that we will have that in the future because of the anti-money laundering rules. Um money will always be a bit easier to use as a payment method.

Uh so the alternative in the short term is to what we have been doing with SpyO is um to have a system where when you want to make a payment uh uh with mmf in fact you will not make the payment with mmf you will make the payment with stable coins and we have a setup with a a regulated DAP in France that will convert the stable coins to the mmf so you can uh get in and out of the mmf with stable coins which is quite efficient. And in the near future, we will have a direct way to subscribe and redeem from the investment fund directly with stable coins. So in that case, uh you could have a system where you pay with stable coins and the stable coin that you use

were redeemed from um the fund directly in stable coins and then the one that receives the payment will be able to invest in the investment fund with stable coins without having to convert back to fiat which is quite efficient. So now a few words about Spyico and I will take then a few questions. Um we have been live for about one year and what we have done so far is to uh create a USIT compliant uh regulated MMF both in euro and dollars. So USIT is the legal framework for regulated investment fund in the European Union. Uh it's issued on public blockchains.

uh and you have you can have tokenized shares of this mmf in your wallet including in your self-custodial wallet uh you can transfer them between whitelisted addresses of course as I said before only KYC addresses and only whit listed addresses it cannot be transferred to third parties that we cannot identify um and uh we have a way as I said to deposit and withdraw in stable coins although now it still uh requires is an intermediary and uh in a in a few weeks we will have a a feature to withdraw instantly at any time of the day up to 100,000 which is I think very interesting because it allows you to

optimize the time that you that your money can stay within the fund and earn yield and it stop earning yield at the very last moment and you make the payment. So you optimize the the the yield that you get. Uh so yeah those are a few metrics about our platform around uh 330 million of uh cash not actually managed by us but managed by uh a third party which is a regulated asset manager and we have facilitated uh more than 700 million in deposits and withdrawals which shows that it's extremely efficient as a cash management uh tool.

Uh so thanks a lot for for being here today and uh if you have any questions about either uh tokenized mmf the payment method or spyo in general I will be happy to take them in the three minutes that we still have. Thank you. Thank you very much Victor. We will take two questions. Okay. So, I just want to ask about the tax friction that would go on. Could you not account for that with like some form of onchain accounting where for example you might have configured with the smart contract that holds these tokenized M&Fs

the like hey here's what I should reserve for taxes and I'm using either pho or whatever general accounting standards for when I owe my tax basis. Could that not significantly resolve uh a lot of the tax friction issues associated with tokenized MMFs? It could help. Um the the the maybe a little issue is that first you have to pay taxes in fiat. So eventually you will have to get out of the onchain environment to pay taxes with fiat. And also the other issue is that the exact amount that you have to pay in taxes when you sell an MMF depends on uh your entry price and it's different for each investor and it might

not be a data which is on the blockchain. It might be a data which is exclusively offchain and your account your accountant knows but maybe the blockchain doesn't know. So uh yeah that's a feature but clearly not one that uh we would build in in the short term. Mhm. All right. Thank you. Sure. One last question. Um, thanks for the presentation. It was really nice. Um, so the genius acts for bids like stable coins to pass yield to retail, right? Uh do you think that if that somehow uh is going to go away eventually this will compete with the

solution that you're doing? If there is a way for stable issuers to pass seal to customers I think it would clearly be a superior form of payment compared to what I've described here. But in the European Union, as you may know, it's forbidden for like traditional reasons more than actual very important uh economic reasons. And in the US, it seems that it will be the same. Uh I don't really know why what's the exact rational for forbidding yield for stable coin holdings. I think there is a question of competition with the traditional banks and the fact that paying yield on the deposits bank or like quasi banking deposits is supposed

to be part of the wider banking monopoly. U so it cannot be competed uh by uh non-banks. Uh so we have seen in Europe a lot of solutions alternative solutions mostly around like rooting stable coins to defy protocols to earn yield on the protocols like a or moro and then paying the yield to the end customer through the intermediary. But I think that they are first more risky than just paying yield based on the reserve or the stable coin and then they they're like hacks like legal hacks on product hacks but maybe not something that is sustainable in the long term but we will see. All right. Thanks.

All right. Thank you very much, Victor. [Music] [Applause] [Music] [Applause] [Music]