Stablecoins: Payments, Politics and Power

Transcript

Hey guys, good morning. Great to be here today. We're going to be talking about flying cars today. Actually, just kidding. We're going to be talking about stable coins because everybody talks about stable coins. But I did one of my previous companies was a flying car. We actually built a a fully functional one. So, if you want to talk to us about flying cars, we can speak about it after the after the talk. So, now back to something more mundane, but I think equally exciting, stable coins.

We can go through this very quickly because I'm sure you're all aware of this that uh that this is a market that barely existed 5 years ago and it's been growing very very fast. The deep there in 2023 there was the Terra Luna crash, but basically it's been growing fast. We're now past 300 billion in market cap and it's fairly uncorrelated with the crypto cycle. Now Again, this is something very familiar to all of you.

The interesting thing about stable coins right now is that it's massively dominated by two stable coin, USDT and USDC. And so, the all the other stable coins, main ones are basically like only 13% of the market. But I think what's even more interesting is that a If you look at non-dollar stable coins that's way less than 13%. We're talking a couple of percentage points, right? Effectively, the stable coin market equals dollar stable coin market today.

And it all kinds of interesting implications including on on you know, public financial markets. If Tether were a country today it would rank number seven in the world as the largest buyer of US Treasuries by country. And actually, you know, countries don't buy Treasuries. It's it's financial institutions in those countries that buy Treasuries. So, that probably means Tether is probably one of the top three, maybe top five largest buyers of US Treasuries. So, you know 5 years ago US was very worried about China bringing down US financial system by selling starting to sell Treasuries massively. It's probably

time to start worrying soon about some of these stable coin issuers being able to have the same kind of influence on the US financial market. Now um So, why are all the stable coins US dollar denominated and is this going to last? And actually what I'm trying to convey to you or what I'll be conveying to you today is that no this is really going to change. Um Right now, actually, if you look at quote and quote official numbers, more than roughly 90% of stable coin transfer volume is for crypto trading. Actually, I think this number massively or massively still underestimates the real

number. I think the real number of of basically stable coins related transfers is probably higher related to trading. And if you actually look at circulating supply of US dollar stable coins Sorry of of stable coins I think I would say right now it's probably 98% if not more related to crypto trading. Both spot and all kinds of other use cases including as collateral for derivatives. So the reason why all of the dollar all of the stable coins are effectively dollar denominated is because we live in what I would call the first era of stable coin.

And the first era of stable coins is stable coin effectively used pretty much only or until now they've been used pretty much only for crypto trading purposes. Direct and indirect. And this is another example of just to kind of show that. So, if you look at official numbers basically you look at Binance wallets I think these numbers are yeah, from February from about a month ago. So, there was about almost 50 billion sitting in Binance wallets, right? One exchange. So, this is probably what, like 15% of all the circulating supply of stable coins. Actually, I think this massively underestimates the real volume of stable coins sitting on Binance

because as many of you know, probably most of the traders, particularly large traders, they don't keep their assets directly on crypto exchanges, right? They keep them with custodians and link them to the exchange. So I would not be surprised if you know, the num the real number of stable coins sitting on Binance or or related to just to trading on Binance would be way more than this and like more than a hundred billion US dollars, right? So, this is just an indication of the fact that again effectively stable coins supply today all related to crypto trading.

Um But we are now moving to a next era and I will or the second era I would call of stable coins. And this is stable coins being used for real world financial services. Now, if you look at real world financial services um in in comparison with those crypto trading is just a blip, like it's a rounding error. So, if you just look at one specific traditional financial product which is Euro USD FX trading the volume of that trading daily is roughly an order of magnitude higher than all of the crypto trading of all of the crypto pairs on all of the

centralized crypto exchanges, right? And that's just one product. Arguably, it's a very large traditional financial product but still um This basically shows that the real opportunity for and the real market for stable coin is not in in in in crypto trading. It's in traditional traditional financial markets. And what I mean by that? Well as So, we we basically I believe that all financial services will inevitably end up on blockchain, right? Because it's just a better technology for storing and moving financial value than anything else. And you know, if you compare it to internet many of you were still not even

alive, but in like mid-90s when people were talking about internet, you know, this brand new technology you know, that the real visionaries were saying, you know what? This is going to replace everything. Internet is going to be everywhere. Simply because internet is a better technology for storing and moving information and every economy is based basically on information on information flows. And that's exactly what happens. So it's very clear that financial services are going to move on chain. And if you have a financial service on chain you need to be able to settle it against the currency in which it's denominated, right? And so, there is now this one argument, well dollar

stable coins are everywhere. So, financial services are going to dollarize. Countries are going to dollarize. Europe is going to dollarize. No, like this is just not going to happen. And the reason why it's not going to happen it it's politics. Because money and so the ability to issue money and the what is called monopoly on violence so, think of you know, people being being put in jail or war are the two core privileges and symbols of sovereign power, right? So, countries are not going to give up their currencies just because financial market is pushing one way or another.

So, and actually I mentioned Libra there because remember when like Zuckerberg decided that he wants to have his own currency it was entirely legal. There was no laws against it. Basically, the Congress shut it down instantly. I mean, they told them, guys, you do this, like anybody who touches this, you're in big trouble. So this is basically exactly the same case when it comes to stable coins when they start growing. So, now, what does that mean for other stable coins, for non-dollar stable coins? So for example, let's look at the euro, right? So um If you look at the euro versus dollar, typically the euro market or euro denominated markets are about a third of the size of the

dollar denominated market. Right, around 30% roughly. So Yeah, less than dollar, but still very significant. If you look at a stable coin market today, it's not 30% of dollar stable coin. It's only 0.2% of dollar stable coin, right? So, that actually tells you that if really traditional finance is moving on on chain we have actually a huge huge gap to catch up there. Um Um And um This is not just, you know, me selling something to you as a stable coin issuer. There was a study published in February by Standard & Poor's. They don't have any horse in this race. And basically, they were saying their

estimate just for euro stable coin market in 2030, so that's actually 4 years from now. It's not very far, you know, far away from now. Is 570 billion euros circulating supply, right? So, that's more than twice the current US dollar stable coin supply. And this is all driven by the tokenization of of of real world financial services because you will have to if it's because in Europe specifically Europe is not going to give up the euro.

Uh we will have these financial services still denominated in euros and if you want to trade them and settle them on chain the currency needs to be on chain i.e. It's a stable coin, right? That's their euros euro currency on chain. Um so you know payments are the first real world use case as as you know like everybody's talking about stablecoin based payments. Um massive growth just last year you know almost a thousand percent so sevenfold six sevenfold growth.

Um because it's just so obvious like how this technology is better than all the legacy systems, right? Um I mean just one simple example or two simple examples. One is that if you're trying to move money through banks like it doesn't work on the evenings during the night doesn't work on weekends. Stablecoin work 24/7 every day but I think the real kind of the real power of stablecoins is the fact that if you're actually moving money and those of you who have ever tried to send euros for example to US and that's a super efficient corridor, right? This is not like moving money from Ghana to Peru.

Even that will take you two days. If you're trying to move money from like less large corridors for example Africa to LatAm easily you know four or five days for the money to arrive in your bank account as opposed to the stablecoins. For example now you know Shuman we're fully enabled you know financial company. We have an EMI payments license. We can literally if it's euro to euro we can settle it delivery to the your bank account with under one minute. If it's dollar to euro for example we can deliver it into your bank account in 10 minutes. Doesn't matter where the money is coming from in the world.

Um so but the payments is just that's just the very beginning, right? Because that's kind of the most obvious use case but effectively um anywhere you look now you will see that real world traditional financial service companies are moving on chain. And then just to use again example for example these are US mostly examples in stock exchange it asset manager banks. It was the US ones that started but the rest of the world is catching up. So for example in Europe the two largest exchanges stock exchanges Euronext and Euroclear that's the Frankfurt Stock Exchange and Paris Stock Exchange. All of them are already starting to work on tokenizing.

Um so who will be the winners, right? In this crypto world of tomorrow in this in this second era of of stablecoins. So I think this is going to be players who build not just for dollar but who build for local currency. So because most of the world doesn't run on dollars. I mean dollar is the most important currency but most of the world doesn't run on dollars as you can probably see if you go and buy a coffee try to buy it with dollars see what the merchant tells you here in Khan.

And um it's also very important to be able to get from and into cash instantly, right? The the the there's no point building a financial service that takes advantage of blockchain you know that it's atomic it's instant if at the end of the day when you then want to exit out of this financial instrument and get money into your bank account you're going to have to wait a day or two. That's no longer instant, right? So the whole benefit of of tokenizing that financial product is kind of lost because you're still stuck with the restrictions of the of the old system. So therefore you need to be working with stablecoins that can get you in and out of

the stablecoin into cash basically instantly. Um Again it's one of the things that we have for example fully enabled. I think the other thing is you need to be licensed and and compliant. So licensing and compliance has been seen traditionally in crypto as a big blocker and a problem. Actually that's one way of looking at it but at the same time it's just a massive mode as well. It's something that because once you are properly compliant you're regulated you're licensed. Um you have an advantage over others who are not and your other advantage is that you can suddenly access much much bigger market because again typically regulations restriction who you can sell

to if you're not compliant. And the last point I think you need to be smartly independent, right? So there's now a lot of traditional financial companies were starting to build these you know tokenized financial products including in payments. Look I think they all the large transaction I mean we all can I guess agree that all the large traditional players they're slow, right? Banks are slow most of them are slow so I don't think it's them who are going to win. It's really going to be people like you who are builders building these things as entrepreneurs from scratch. But it still makes sense to build partnership with these large institutions because A they have if you're moving into that kind of a real world financial services and particularly

if you want to start selling into institutions and large corporates you need to have the right credibility and you actually already ideally need to have a relationship with them, right? Because try to sell something to whatever Shell it probably take you two years to get through all of it whereas if you are partnering up with the bank or another financial institution that's already working with them it you know it'll probably take you way way way less time. And this is just an example of I don't try to read this this is too complex. That's exactly the idea but this is an example of like the mode that you get if you're properly licensed. So this is an example of a flow where on the left hand side you know money being sent through an e-money

company from Europe to Africa. So one user in Africa is sending the money to another one. Sorry one user in Europe is sending money to another user in Africa or vice versa go through an e-money company. If you if you're not fully licensed if you're providing this service and you're not fully licensed like for example these stablecoin payment orchestrators you need to rely on all kinds of third parties. This is what the flow looks like. This is what the same flow looks like with us, right? Because we have all the licenses. So we can basically sidestep all of these other players because we have these licenses because we're compliant. And the difference in complexity means that you have fewer people to pay or fewer fewer

intermediaries so you can be cheaper. The money is flowing through fewer intermediaries that also means that yours is probably going to be faster the whole transaction. And last but not least you're going to build a much more resilient and stable system because if you have all these players involved like something can always go wrong at some point in the in this flow. So um yeah with that yeah last slide so um this is goes back to this whole idea of fiat, right? Like the benefits of on chain products are lost when you can't get into fiat instantly or out of it instantly.

And that's why you need to be working with if you're building this tokenized product you need to be working with partners and stablecoin partners who have these full banking integrations who can get you in and out instantly via APIs and who basically have the tech stack that that fully enables this. Thank you so much for listening and if you have any questions I think we still have a few minutes. Okay flying cars maybe.

I don't know. Oh there's one. So yeah so we are French regulated euro stablecoin issuer and an EMI so payments company. So regulated by the French Central Bank. We have a full Mika license for all of Europe. So we issue stablecoins our core product I mean we're very basically focused on euro euro stablecoins. And we have full infrastructure for all of this that we were discussing including payments, right? So as I said if you have an we can give you an account that you can also then we can give accounts to your customers. By account I mean we give you an IBAN so a bank account

pretty much any major European country bank account works fully across Europe. It's in the name of your customer or your name. And basically because we have all these licenses we can do this effectively for free. So think Revolut, right? Like when Revolut came in and said look you want to pay somewhere some other country no effects rates because they were so efficient. This is us like we basically can now process for you international payments effectively instantly and effectively for free. We can basically build this fiat to crypto on and off ramp effectively for free. And all of this is fully licensed fully integrated fully API based.

Thanks for the question. You mentioned partners. Who have you partnered with to provide the banking infrastructure? So we're we're partnered with large European banks and fintechy banks. So our main custodian is Societe Generale which is, you know, one of the biggest banks in France. We are also working with ABN AMRO, which is, you know, another of these like largest banks in Europe. And then, um for the actual uh more operational infrastructure, I would say, we're working with Banking Circle, um which is kind of a very fintechy bank.

They have a very good uh tech stack. And then, audited by KPMG, et cetera. So, you know, very much institutional grade. I think this is how you need to build it. You need to be institutional grade because that's the only way how you can then access all of these uh financial services, you know, of very large institutions, uh traditional financial institutions as they tokenize them. Okay. Well, uh thank you so much. Um and yeah, if you have any more questions, um I'll I'll stick around here, so feel free to uh catch up. Thank you.

Well well well.