Who Are the Winners and Losers of the New Stablecoin Law in the U S

Transcript

It's probably worth just everyone taking a a quick breath and just uh acknowledging how um how important it is that there actually is a bill that is now law that that blesses crypto. I mean, we've waited for that for over a decade and it's a it's a huge deal. So, everybody that was involved um from the lobbyists to the companies to to whoever um really deserves a lot of credit for for making that happen. >> I 100% agree. That's that's a great point. Right? I mean, this is you can't really understate the impact what this means. I think there are two big impacts. On the one hand, crypto and fintech are just merging with the same thing. By the way, a lot of fintech venture firms are completely offsides.

They never really understood crypto or they got the teams focused on crypto, but crypto is custody, lending, payments, and now you're having asset management built on top of that. But the second thing is I think you're going to start to see the decline of Visa and Mastercard and legacy payment rails. I think in 10 years time Visa, Mastercard will simply not be that relevant and it'll be because of the Genius Act. >> I'm not convinced it'll be that easy to supplant them because they're scrambling to offer all the ancillary services around stable coins. And there's a huge difference between credit card payments and stable coins. And credit card payments just process payments. And stable coins don't actually process

anything. They are the transaction themselves. What the credit card companies can do, have a lot of experience doing is handling the clients, the chargebacks, the merchants, etc. And that is something that stable coin issuers don't have a lot of experience doing. Coinbase is trying to solve for that as well. Circle is trying to solve for that. But arguably Visa, Mastercard have a very big head start. And that's even before looking at what could happen should Alip Pay get into the stable coin business for instance. >> And I I'm here referring to market cap. I'm talking about net income. So what I see here is competition eating away interchange like the big payment rails.

You have a you have wires. Credit cards run on a wires as a form of payment. Of course the Visa Mastercard network. But if you are an e-commerce merchant like Amazon and then you can accept stablecoin as a form of payment, you're going to drive spend to adopt that form of payment because it's going to save Mastercard. It's going to save Amazon 3%. So this is going to be the next wave uh of innovation that you see. stable coin and stable coin infrastructure uh investment uh is probably the hottest theme now, but it's going to take a few years to actually spin that up. You know, Palmer Lucky is uh getting after some kind of bank. It's not clear what

he's trying to do. I imagine it's something around this. They've got a $3 billion post money valuation. They've done nothing yet. So I think yeah to your point Noel, Visa Mascer will still have some relevancy, but I don't think that the market cap and the earnings will be anything like it uh like it is in 10 years. >> Yeah, I think the way I see this playing out is like I clearly the stable coin TAM, you know, if we talk about it in terms of total number of stable coins in circulation is going to explode from 260 today to trillion maybe this year and tens of trillions over time. But I do wonder where the profit pools are going to be, right? like show me the money, right, Ron? We we cover equities and like ultimately we care about net income. And I I do have questions about

whether this is a like whether this is truly like creating new businesses that create new profit pools or if it's just a cost-savings mechanism that will be transferred to all the existing financial providers. And here the story is to be written clearly circle trading like it'll be the most profitable thing ever and enable all these global payments. But, you know, on the other end, I could very well see, you know, this ends up being JP Morgan gets to cut out 20% of its cost base and like everyone's really happy. It just shows up in JP Morgan stock price, right? Not not somewhere else. And so, yeah, I think those are the two ends of the spectrum. And we'll see.

>> And that's especially relevant in a scenario with declining yields and declining interest rates, which will happen eventually because circles revenue comes from where? From yields. >> That's actually what I was about to say, Noel. This all sounds great unless Trump gets his wish and cuts interest rates by three I guess 300 basis points and then all sudden profitability drops 75% but uh I guess at that point you can make it up. >> Well that's why circle rallied so hard on like FOMC a couple weeks ago and when the rates started repricing circle rallied hard because it is a lever great play if you're a pot out there.

>> Yeah and then when rates do start to come down we all pivot into the defi plays because the yield there will be much more attractive. >> I think it's all the above Cosmo. I mean, you're going to see JP Morgan and City Bank try to get after this. But look, the big tech companies don't like JP Morgan. They don't like City Bank. They wish they could have banking licenses and compete. They they want to offer payment services to their clientele. They want to enable money movement just like their peers in China do like WeChat and Alip Pay. So, I do think you're going to have like the new gold rush is stable coin infrastructure. Now remember like DM and Libra. This was Meta's initiative which which Janet Yellen killed not Jerome Powell but Jerome Powell signed off on it. Janet Yellen killed it. Uh was great reporting

for the FT on that. It would have changed the course of history by the way if that happened. You're going to see that come back. Uh and you're going to see a number of stable coins that specialize in niche use cases. Some will be crossborder. Some will be peer-to-peer. Some will be online ecom merchants. Uh some will be generated by by Walmart. Some will be used to settle between uh prime brokerage desks and treasury repo markets. But that's what the next three years uh will look like and it's going to be a big win for the consumer. Before we move on, maybe just to kind of make this conversation a little more tangible for our listeners, I'd love each one of you to maybe share one winner or one loser from the bill that isn't entirely obvious, like like

Circle as a winner, for instance. >> Yeah, this is something I'm spending a lot of time chewing on, but ironically enough, the banks are going to be big winners here. Look, first off, Custodia Bank run by Caitlyn Long could be a big winner here. Uh, that's one. Cross River Bank, my alma mater. I was the head of digital assets at Cross River. They power Stripe. They power Coinbase. Those fiat ramps uh to three other other infrastructure banks I think can do really well here. You know, the the banks can move money. So, uh you're going to have some intersection between the Trafy money movement and the onchain activity. There's got to be some bridge

between those two areas and whichever entity or set of entities does that is going to charge a tollgate fee and they're going to create fee income. We're talking like hundreds of billions of dollars in some of these categories and it's only growing in terms of like the payment. I mean some of these categories for payments we're talking like trillions. There's there's a ton of money movement there. So I think actually certain select infrastructure banks are going to be very well positioned. >> Yeah. certain select ones whereas many of the mainstreams won't be able to innovate enough to be able to keep up.

I'll go with tokenized money market funds because stable coins can't earn interest and nobody really wants the money sitting there and that sort of makes sense. I mean stable coins are meant to move. They're a money substitute and not supposed to just sit there. But we are going to see more and more functionalities where while it's sitting there, it's a tokenized money market fund earning yield. And then when you need it, it can automatically be swept into a different account and sent to wherever it then gets swept back into a tokenized money market fund. That kind of thing can be done automatically. It can be done with a simple click. And that's that's the frontier of treasury management at least in the short term.

>> Yeah. I mean, I think the biggest winner is is probably DeFi, right? The reality is all these stable coins are going to live on chain and that's a lot of capital that can then be deployed into various DeFi protocols and I I think you know once the once the genies out of the bottle it's hard it like everyone will want to use all the great innovation that exists on chain like the ability to take out a mortgage on chain rather than going to JP Morgan to take out your mortgage will just become so obvious and so I do think yeah I'm not I guess I'm not saying a specific DeFi protocol but so many like in general DeFi activity many of the D5 protocols will meaningfully benefit from this. I think on the future side, it's like super um it's it's it could be a lot. I it's

like it's really the regional banks, right? I mean, the regional banks are already secular shorts to begin with. This only like accelerates that unfortunately. As much as they will kick and scream and add in provisions like lack of yield on stable coins to like try to save themselves, it's a it's a it's a dirty dirty road ahead. >> What about the middlemen? Like we talked about Visa, Mastercard as losers. There's they're they're a type of middlemen that played an important role decades ago when you needed to connect merchants and customers. But there's another type of middleman which are the investment banks. The investment banks that create securities and then make markets for these assets in a capital market.

I think those guys are at risk as you start to broaden out the scope of things that are tokenized. >> Yeah, I think that might be right. Right. the natural evolution of of capitalism is like lower prices for all and creating consumer surplus. And I don't know, you'll you'll I'll I'll like, you know, remember my former partners and and and all the all the people that I I was friends with who are still in banking and man, they work really hard, but it's probably I don't know, there's there's probably a lot of margin compression that they could bear. Um and so it does seem like that's right, Ron, like the the flattening of capital markets is what crypto enables or onchain rails enables. people were seeing the first step.

>> Yeah. That's the good way to frame. I'm not saying they're going to go away. In fact, I own some of the investment banks in my portfolio to be clear. It's not a threeyear story. >> Yeah. >> Like you said, the flying, it's the broader out. It's the the long tale of improved capital assets. Like I I think back to when Google IPO, they did a direct listing. It was not a traditional IPO process managed by an investment bank. Why don't we see more of these direct listings enabled by tokenization where certain companies, namely brands that have their own community following, go direct to raise money via internet capital markets. I think this is the emerging story that we'll start to see in tokenization. And you're already seeing it with names like Robin Hood and

and Palunteer that they've uh especially in the case of Robin Hood, they've turned their shareholders into customers. they've evangelized their shoulder base to become customers. So I think growth in internet capital markets will start to eat away at what investment banks are focused on and that's great means more capital formation. >> Yeah. I mean we just saw with Pump right last uh just a little over a week ago Pump did their uh ICO or offering fully on chain or not fully on chain but basically fully on chain and uh it went smoothly. They paid no one any fees.

Like it it's great for all parties involved. >> I want to focus on the the regional banks that you mentioned, Cosmo, because you kind of we're starting to see some battle lines drawn between the big banks and maybe not necessarily the big banks, but the regional banks are banding together to um try to come up with like one standardized stable coin. They're doing with Fiserve and I think uh Kaitlyn Longanti is doing one as well trying to get off the ground. But I have an interesting take I think on the regional banks because to me I do see them as an early loser in genius because they're just I don't think they're going to really be able to compete with the big banks with regards to stable coins.

I don't think that's a very outlandish statement to make. But I mean I remember I mean back when I was a consultant in this industry like 2015, 2016, 2017 I would speak at like regional banking conferences and try to talk to them about integrating blockchain into their operations for things like cyber security or digital identity or trying to get them to build something on top of R3 or Hyperledger. Um and those conversations really went nowhere for a few reasons. I mean, one, they have limited budgets or they have higher priorities like trying to like create like multi-user accounts and other stuff that's more relevant to their clients.

But I wonder if even if they're not going to win stable coins, if they're forced to open the door to stable coins because that's just where the industry is going, it could open things up for them to integrate blockchain tokenized assets through much more of their operations. And in that way like longer term they could offer cheaper services to clients, more diverse services to clients. They could offer uh they could offer like a a more complete menu of options to their clients and um to what the big banks can't, but then they also know their clients so they can customize that service and and maintain that local touch. So again, I I kind of agree with you, Cosmo, and I I think Rob Noel, you probably would agree with us too, that stable coins are not going to be a

winner for the regional banks, but at least right away. But I think longer term, it could open up a lot of exciting opportunities because in 2016, 2017, you could get fired by recommending something on blockchain and then uh it doesn't work. I mean, look what happened to ASX. But now that everyone's stable coins, it's kind of table stakes to do something in >> regional banks don't even understand this stuff. They don't know how to build it. They're going to wait for these infrastructure providers like FIS and Jack Hunter, these bank core providers, uh, firms that helped build zel, for example, offer a stable king stable coin. It'll benefit everyone, which actually doesn't help the regional banks because it helps the big banks more. The other winner here would be a company

like Paxos. So Gary Gendzer, former CH almost killed Paxos. Paxos, I believe I read reporting they're creating a stable coin that will be used by Robin Hood and Kraken and others. This is really interesting, right? You've got USDC issued by Circle, which Coinbase helped create via their distribution. Now you've got these other leading platforms. Robin Hood is is a serious player and Kraken teaming up to find another standard powered by Paxos. It goes back to the thesis of those infrastructure players. Uh I think we'll do well. You when you have a gold rush bet on the folks selling the picks and shovels rather than the ones digging for

the gold. >> Are you talking about taxes with B the B USD issue with Binance from years ago? >> Yes. >> No, this is USDG. Well, that USCG is the token is the stable coin, correct? That they're issuing. But yes, uh they did have that uh issuer on B USD. >> Yeah. Had no idea. If you're going to have all of these stable coins floating around and we expect different types of entities to use them, the winners are also going to be the wallet designers because interconnectivity comes through there. At least from the user experience point of view. Yeah, maybe Curve's going to be one of the big winners, too, since they're basically the the decks for stable coins.