Jeremy Allaire: 3 Things That Will Transform Stablecoins

Thank you. It's really awesome to be here.

Oh, okay. Yeah. I met a lot of people there and it was a bunch of nerds, I think, on a Saturday morning in a winter in Cambridge.

Yeah. Very happy to share that. I think a couple things. I think the first is I got very involved in the early internet infrastructure back in like 1990, so before the web, and became very interested in open networks, open software, distributed computing models. The early DNA of the internet got me really excited because it was like a new paradigm for how computing could work. And I spent really a couple decades building internet infrastructure software. Lots of different stuff, programming languages, virtual machines, client software, server software, content, media, communications, a lot of the stuff that was going on those first couple decades. Always interested in how can we apply that kind of DNA of the internet to solve broad kind of problems in society, right? And that kind of led me to my work in crypto. But along the way I had co-founded and taken two companies public prior to Circle. But in 2012 became really enamored with crypto and Bitcoin as a technology at the time. But was also interested in just from prior experience and interests in understanding how the global financial system worked or didn't work after the great financial crisis. And so I had originally had a background in international political economy. That was my academic background. And so I found after the great financial crisis, I just became obsessed with what is the nature of money? How does the international monetary system work? What is central banking? What is fractional reserve banking? Like what is all this? And like what went wrong? And is there a better way?

I didn't know anything about crypto because there was no crypto at the time. I mean, I guess there was Satoshi's white paper and stuff, but I was not aware of it until later. And then, really crystallizing the founding of Circle, there was this long-standing interest in how could the international monetary system evolve with what I saw with Bitcoin, which was sort of the kernel of a new technology infrastructure layer of the internet, like a missing infrastructure layer of the internet. And as someone who'd worked on infrastructure layers, it was very apparent to me this was a computer science breakthrough and at the time people were writing papers about smart contracts or writing papers about extensibility of blockchain networks and other things and I looked at that as a technologist and said wow this is going to allow for a whole new layer on the internet and it's going to be a layer where we're going to be able to build protocols for dollars on the internet. We're going to be able to build basically self-running machines running software that are programming and intermediating economic activity on top of those protocols for dollars on the internet and sort of had this big vision 10 20 year vision of like you could actually rebuild not just the financial system but the broader economic system on the internet natively and that's what motivated the founding of Circle. And so the core idea of what we think of today of USDC was the founding idea, an HTTP for money. How can you build a protocol for dollars on the internet? And in particular, given the kind of grounding in monetary philosophy, the belief was this needs to be full reserve money, not fractional reserve money. It needs to be very very safe. And that's like the right base layer. And so the asset itself, but then the way it's expressed is more like an internet protocol where anyone can connect to it, anyone can build on it. And so that was none of that was possible in 2013. And so we developed ways to express that idea on top of the Bitcoin network which was very problematic. And then obviously when Ethereum came out it was like okay we have the building blocks we can actually execute this and started work on that in 2017 and then obviously got together with Coinbase in 2018 and got this really off the ground as well. So but that was like from a kind of vision of the company a little bit of the background coming in.

Yeah. Well, I got a lot of hate for a very long time. Yeah.

We are seeing so many builders working on what I'll broadly call neobanking type of products, right? And what's interesting is there was a period where everyone was like I'm going to build the consumer wallet with stablecoin native with like a Visa card and that bundle. And by the way that continues to proliferate, there's tons of those in lots of countries, lots of places. But now we're starting to see more and more builders who are saying actually I want to build this for businesses, this is really valuable for businesses and organizations. So it's essentially abstracting away the features that are needed for treasury management and for payment flows more broadly. So we're seeing a lot of that. And that's also from big companies too like Stripe or Ramp or lots of others. There's been a big crop of companies some of whom have matured and been bought and sold that have sort of said hey this is like the ideal settlement infrastructure for cross-border settlements. So that continues unabated, we continue to see so many companies and so many regions and markets building solutions around that. And it's also interesting to see more and more platforms that are involved in capital formation using stablecoins and wiring stablecoins in like Y Combinator, it's a great example. And then recently we started work last year on agentic payments with USDC. We were an early contributor at X42 as well and have always thought machine intermediated would be the future. That's gone into overdrive now. And so really just in the last 3-4 months it's just been like whoosh. And that's incredibly exciting. And so, tons of projects now that are using our infrastructure alongside various types of products and services for agents. And that's to me one of the most exciting things happening in the world obviously. So that's a major new area for builders. So, from a startup perspective, those are some of the themes. And I actually think it'd be interesting to see what comes out of these cohorts here, programmability of money is a new concept for a lot of people and abstracting away higher order protocols or services that take advantage of that. For example, we've seen startups that are basically working on rewards protocols that go alongside stablecoins because you want to be able to have mechanisms for businesses that accept payments with stablecoins to actually also have fungible, redeemable, but also bespoke forms of loyalty systems. That is a replacement for card loyalty systems. So that's something that you can only really do with that programmable surface.

Yes. Absolutely. I view that mostly as a cross-border example. But it's not just cross-border because it works for people, I could be an American business paying out to someone in America, an end user in America as well. Yeah.

I mean I think both are really growing. And that reflects a couple facts. I think one is especially in emerging and developing markets the businesses that want to use this in many cases they do want to hold working capital in these digital dollars and so they don't necessarily want to go to their local currency and so they need the ability to go to their local currency because they may have payment obligations in their local currency but the store value component of it is very real and I think that's the case for individuals as well. But we've seen with CPN, Circle Payments Network, that's almost all business-to-business and it's all international and it's amazing. And we've just seen rapid growth and the number of... we basically created a network model. We have as of last quarter we had like 55 financial institutions on the network. We have a lot more coming on and they're kind of wiring it up and they're able to go from fiat to stablecoin to fiat or stablecoin, right? They can kind of go across these options and it's like remittances around the world. And it's south to south, it's north to south. It's all these different models and businesses are just figuring out that this is a better faster cheaper way to do things. Yeah. That's on the business side. And then on the end-user side very clearly what I sort of say households but people are realizing I can hold dollars, I can hold digital dollars, I can get passive yield on them, I can transact with them and I have interoperability to a local payment method as well.

Yeah absolutely. Look, we've spent years trying to get regulatory classifications so that something like USDC is treated as like cash equivalent money in the US financial system. We're now there, it's happening. So what's important about that is that once you get that federal treatment and once you get the SEC, the CFTC and the bank regulators to sort of say this is from a federal statutory level, this is what this is and therefore from a credit and risk perspective, this is how we'll treat this and how you can use this. That's enabling all these participants in capital markets and in banking to actually say okay we can now start to use this as an infrastructure. And so they'll look at it as an infrastructure that is about speed and efficiency and interoperability and things like that. But it's very powerful. So, we're now seeing, for example, the CFTC, which oversees all of the derivatives markets in the United States, that they're authorizing market participants, the derivatives exchanges, and then the market participants that sit on those to actually use USDC as eligible collateral. Which is pretty powerful. Now what's interesting ironically is that USDC's eligible collateral on Coinbase or Binance or wherever for different things and in the crypto world it's like of course because that's the only thing that's available. But doing that for like oil futures on a classic derivatives exchange is really powerful. And so that's an interesting example. We're seeing global systemically important banks who are using this as a way to actually do internal global treasury management, their own capital movement, doing their own internal capital movement across their international divisions or branches using USDC, which is wild. That's like plumbing of capital movement in a global bank. We're seeing obviously more and more traditional asset managers that are creating digital asset products, tokenization products where essentially USDC is the cash layer for how you create and redeem all these different types of products. So that's a thing that's happening. We're seeing global systemically important banks who are basically realizing that they can do intraday FX across major currencies and major boundaries using stablecoins in a way that they can't with the existing currency system and currency settlement system and so risk moves continuously, right? So the ability to kind of collapse the time between what's happening in a market and ultimate settlement is...

Or even next day, we can do continuous stuff and so like those are like, for some people are like I don't know what that is, right? But if you actually look at it it's like this is really really critical pieces for how capital moves, how risk is managed, how markets are established and these are all beginning to happen but with the regulatory clarity there's the potential for this to deeply penetrate all these things and that's why I think when people think about what's the TAM for stablecoins, right? There's the money supply TAM which is I think trillions of dollars, many trillions of dollars.

Yeah.

So, it's really interesting. I mean, most people don't realize, but about 5 years ago, the G20 through the financial regulatory body, the financial stability board sort of said, hey, we need policies on stablecoins because they're going to happen. And so they came up with a set of recommendations and the G20 adopted it. So all the presidents and whatever signed said, we're going to adopt this. And what that basically said is here's a set of policies that we think G20 members should adopt and then it goes down to the actual parliaments and governments and congresses and how policies are made and so governments started doing it. G20 members started doing it. Japan was the very first. Japan had stablecoin regulations years ago. Then Europe was next. Europe passed the stablecoin regulations. And then you had Singapore, Hong Kong, UK, UAE, all basically drafting, doing development on this. And then finally the US. So the US was actually late to this. But you may remember there was essentially the heads of all the financial apparatus in the US, the presidential working group of financial markets basically said here's our recommendations for stablecoins. That was in 2021. That was 5 years ago and it took almost 5 years to get a federal law passed that did this. But it just takes years to make laws, right? So we got to that point here in the United States. So in some parts of the world they had already put a kind of pole in the ground saying this is what this is and then we now have the US come in but because dollars dominate this it's kind of forcing the rest of the world to basically revisit all of that and so what we're seeing happen now is not just G20 countries but huge numbers of other countries in emerging and developing markets all around the world are now working on rules on stablecoins. So I think one thing to note is that there's like gray area. So in many places it's gray area. It's not defined. It's not clearly regulated. It might be regulated as these are basically other digital assets and you need to have VASPs or intermediaries that kind of deal with this and have money laundering obligations and the like. But in other cases they're saying no we need to actually have laws for what are permitted, like in Brazil what's a permitted stablecoin in Brazil, what's a permitted international stablecoin, are they going to define that on the basis of the GENIUS Act and say things that are defined here, there's a strong incentive because of GENIUS to do that because GENIUS has a reciprocity provision in it and so if a regime basically adopts a framework that is substantially similar to GENIUS then currencies issued under that regime could be recognized in the US as well. Got it. And so really the next two to three years you're going to see a huge number of laws passed around the world on stablecoins in local markets and you're going to see efforts from the top coordinated G20 type stuff as well as key individual markets to kind of create uniformity, might be too strong of a word, but basically create various forms of interoperability, reciprocity etc. so that this can kind of work in a fairly consistent way. So it's big moves happening internationally right now.

Yeah. I mean there are. The places where we've seen kind of concentration have been things like Southeast Asia. Yeah. Including Hong Kong. Okay. Huge amounts of activity there. Latin America huge amounts of activity. Like the number of startups that we see that are in Latin American countries that are building new products around this. I mean, it's got to be in the hundreds.

Yeah, so I'm super excited about it. And I think our view is or my view I should say is a couple things. I think one is, we're in a period of very significant obviously technical and economic disruption and my own view is we're going to see a huge explosion in the number of AI agents that are both conducting work and consuming the work of other AI agents. And so an agentic economic system is needed. We think new economic OS, blockchains, etc. are needed to support that. And the requirements are really different. But from a use case perspective, a lot of people when they hear agentic commerce think like my agent is going to shop for me. Okay, that's like a looking backward view. My view is that basically labor and capital, the relationship of labor and capital are changing radically and we now have work conducted by these intelligent agents and decomposition of work into agents and agents as a service. And so more and more discreet things are going to be consumable as intelligence and work at an agent level. And in that environment, you're effectively going to need to have contracts and economic execution amongst these potentially billions or even tens of billions of agents that are conducting work. That to me is what agentic... I don't like to use the word commerce. I like to say agentic economic activity because it's broader. It also reflects the fact that in such systems part of this is going to be empowering agents to coordinate work to have proof of work to have ways to store and manage capital to make decisions together to provide governance to have human in loop governance. Like all this stuff is what the agentic economic system needs to look like. And so to me that's not just about payments. It's not just about money movement. It's about the substance of how economic activity is organized. That's a huge opportunity. But my high level view in stepping back is even if you just look at this from a payments perspective the velocity of economic activity because of AI agents is going to explode and so that economic activity is going to be a huge increase in the velocity of money and the use of money and the only viable way to manage that is with stablecoins and blockchains. And so we're designing a ton of stuff at an infrastructure level to be ready for that, enable that, etc. And it's yeah that's like big picture.

Yeah, I mean look I think clearly know your agent, identity proofs is really critical. I think yes, mechanisms for disputes and failed transactions, other things like that are very important. And there's some really interesting things that could be done there in terms of dispute resolution conducted by AI agents themselves etc. So that's a really interesting space. What that actually also calls for are what I believe will be needed are insurance markets. So insurance markets are going to be critical. And so you're going to want to have insurance against all kinds of stuff that's happening in the agentic economy. Not just a payment settled or not or there was fraud, right? But insurance against a number of different types of outcomes. And so I think insurance markets are ripe and tie to agentic economic activity as well.

One is one that we've been talking about which is just agentic, right? So I'm very very excited about that and part of it is the unknown, we know this is going to be significant and the unknown of everything that's going to happen because it moves so fast. So that's totally something that I'm really excited about. I'm excited, I think we're going to see product user experiences that really make this beautiful and simple and seamless and so it doesn't feel like a crypto app. Yeah. Like I just think we're going to have the breakthrough UX experiences that happen and we're going to see a ton of those, but we're going to see some that get lift off, right? That really start to get product-market fit and growth and the like. So, that's really exciting. And this is more mundane but I think is really exciting is we're going to see stablecoins become essentially approved and usable in the core guts of the financial system and that is kind of reaching the summit in terms of okay we've made it, this is now considered like money in the most important infrastructure in the world and so I think that's pretty amazing too.

Thank you so much. Thank you. Great.