Circle CEO on the Mainstreaming of Crypto

I mean, look, I think it's tremendous validation. You know, when we got started working on this 12 and a half years ago, the basic idea was that there's going to be a new infrastructure layer of the internet. And this new infrastructure layer of the internet was going to allow for the expression of value, financial contracts, but to do that on the public internet the way we've done that with media, where we've done that with communications, where we've done that with software delivery. And it's taken a long time for that to mature, for the technology to mature, to actually get to the point where the instruments that you might want to use like a dollar is legally a new kind of digital currency money, digital dollars like USDC. So, it's taken a long time. But you know, we're now at this place where the infrastructure maturity is really there. These computing networks, these blockchain computing networks are capable of doing an incredible amount of things. And we have governments all around the world that are basically saying, 'Okay, this new layer of the internet can mediate economic activity. It can mediate financial activity. You can express a dollar, you can express a corporate credit instrument, whatever you want on this just like we made that migration with content and other kinds of information and data.' And so, the fact that institutions all around the world, whether they're capital markets companies like BlackRock or payments companies like Visa or big banks or all the FinTechs, but also just startups and creators are able to build on this just suggests that we're at a place where this is now ready for really broad adoption. And so, I think this Davos has been really different for Circle than in the past.

Well, I mean, when I first started coming here, it was a different company actually, but with Circle, the level of intensity of skepticism around this was extraordinarily high. You could go watch some of those sessions and sort of see the nature and tone of the dialogue. But we've been consistent about what we saw as possible. But now, literally every financial institution in the world has a very explicit mandate to implement digital assets in some fashion. And that can mean a lot of different things, but in some fashion. And you know, this is like the broadband internet and everyone realizing they needed to put media online or the mobile internet and everyone realizing that they needed to have some kind of interaction with these new devices. AI obviously has a similar, and obviously characteristically different, adoption taking place. But I think it's validation and it's tremendously exciting.

Yeah, absolutely. So, in our most recent reported period, we talked about growth in a variety of different ways. So, USDC has grown to around 75 billion USDC in circulation. So, that's a good size number. But there are several hundred billion dollar stablecoins in circulation. But what's really notable is how much activity has grown. In the third quarter, we saw nearly 10 trillion dollars of transactions happening on these blockchains using USDC. And the growth rate multi-year year-on-year was around 80%. And so, you know, there are a lot of different perspectives on this. Secretary Yellen talks about there'll be 3 trillion dollar stablecoins in the next several years and a lot of different perspectives from Wall Street and others. But broadly, these networks can support transactions. USDC can be transmitted really between any person, any device, any piece of software, between AI agents in a fraction of a second for a fraction of a cent. And that's really powerful. And so, it's being integrated into everything from your Shopify shopping carts and Stripe merchant checkouts to the backbone of how even payment companies like Visa settle their own infrastructure. It's used by BlackRock to purchase and sell government money fund products and global banks are using it to move around money between their own franchises around the world. So, it's getting used in just so many different places. It's getting used in AI. And so, yeah, it's finally something that can be really widely used.

Yeah, I mean, there's a couple building blocks to understand before getting to that specific tussle or whatever. So, the first is that actually about 5 years ago, the global regulatory community got together, the Financial Stability Board, which looks over all the regulations of the G20, and said, 'We have to regulate stablecoins because they're going to potentially become big and systemic and we have to do this.' And that was also in the shadow of Libra. We don't have to talk about that. But that then spawned efforts by the biggest governments in the world who have big financial markets and things like that to create laws regulating stablecoins. Japan did it first, Europe did it second, the UAE, Hong Kong, Singapore, and then the US with the Genius Act last year. And they're all very consistent. Stablecoins are being regulated as a cash instrument, as a payment instrument. These are being regulated as a payment system innovation, as a way to have a very safe instrument that is effectively as good as cash, but that operates in a digital currency form and operates as a payment system innovation. And the regulators who are overseeing us, whether it's in Europe or in Singapore or in other markets and now in the US, the national bank regulator, the OCC, will be ultimately supervising us, are all looking at this in that light. And so, what all these laws have in common is that the stablecoin issuer is not offering a deposit-taking product and they're not lending and they're not allowed to lend. And they're not permitted to pay interest. And so, that's just the way it's been defined and I think that's something that the regulators have thought is important as a payment instrument, as this kind of cash instrument. Now, at the same time, and so that's what Genius Act does. But at the same time, companies like Circle, we have a business, we generate revenue, we generate income, and we work with a ton of different companies around the world to help build on top of this technology. We work with exchanges like Coinbase. We work with payments companies like Visa. We work with brokerages like Robinhood. We work with all kinds of companies.

So specifically the Genius Act essentially said, you know, if all you're doing is just saying, 'Hey, give me a deposit and I'm going to pay you interest,' that's not specifically allowed. But all of these companies around the world have different types of incentive programs, loyalty programs, rewards programs. And by the way, if you've ever used a financial product or service in the world, you can probably find a lot of those. Even your Uber cash or whatever it is. Like all of these kinds of products, whether they're in brokerage or in payments or in e-commerce, in credit cards, there's lots of different examples of this. And so, that's really important we think for people who are building products and services that use this technology to be able to do those kinds of things. And so the debate really which comes back to this is it's not about whether stablecoins can pay yield. That's very clear. That's a settled matter in Genius Act. It's really about for companies that are involved in distributing and using these in products and services, what kind of rewards are they allowed to be in and I think that's really where that debate lies.

Well, we have settled law. We have the Genius Act. So we have a law and we have statutes on the books.

We're huge proponents of the market structure bill. We think it's a critical piece of legislation. It is critical because digital tokens and blockchain networks and the use of these new tokenized instruments and the classification of these and how they're offered and how you trade them and how they can be utilized and that's a very critical piece of work which is going to unlock capital market activity. It's going to unlock technical innovation. It's going to unlock capital formation. It's critical. So we're hugely supportive and we think broadly the Clarity Act and the Senate companion bills etc. are very good. And so I think our view is we're talking about kind of some different interests navigating specific language around rewards systems seems like a solvable problem.

We don't. No.

I mean there probably is. I think there's sort of a separate set of issues here which is, you know, digital currency native financial products and services whether those be for trading different types of assets or how capital formation happens or how people do payment systems. You know, when you move to an entirely internet software architecture and you move to some of the unit economics of this and the efficiencies of this, it's going to create competition. It's going to create competition for just like Dow Jones had to compete with internet media companies. You guys are doing pretty good. But in all these spaces where you have pure software based architectures, you're going to end up with competition. You're going to end up with different unit economics. You're going to end up with different product user experiences some of which are better and that competition is really important and I think it's important. I think the Genius Act does this well because it kind of creates a level playing field for banks and non-banks which is really key. I think that this market structure legislation creates a level playing field between a Coinbase and a New York Stock Exchange or pick the kind of verticals that are there and I think digitally native internet native infrastructure has served us really really well in transforming so many other fundamental utilities in society and we want to see that happen in the financial system. It's a good thing.

So I have a view on this. I think we at Circle, I'm an adherent of what I call full reserve banking. And as opposed to fractional reserve banking and there was a time when this was debated after the Great Depression and fractional reserve banking kind of won and a mutualized insurance model around that won. But full reserve banking suggests that you have very safe government obligation money and you have that and that's used as the basis for the payment system and then credit is something that you do with that money but you don't leverage it. And my own view is that the technology of digital currency, the technology of stablecoins and the technology of blockchains and AI, I'm going to throw a little AI spice in as well, allows us to get to a point where we can have very very high velocity money, payment system money and where we can deliver credit in a safer way. And so that's the construct that we think is important and I think if you look at what's happened in the financial system, we have government money funds and there's like 11 trillion dollars in those and that was the argument that happened with government money funds as well that it's going to be the end of lending. That didn't happen. We also have private credit which is talked about a lot and I was listening to one of the most important people in capital markets last night at a dinner who I won't name who basically said a significant majority of the actual GDP growth that we've seen has actually come from private credit bonds and actually junk bonds, that the market taking risk on credit is far more efficient than other risk taking institutions. And so there's a question to me which is can we construct a credit delivery system that is more fair, more inclusive, more global, more observable, more safe, more transparent, better risk managed, more automated and that actually delivers credit to those that need it more quickly and I think there is.

What I'm arguing is that there's a new internet financial system being built and it's being built from the ground up on sound money principles and it's being built on full reserve banking principles and that we will see maturation in credit intermediation that is going to be super super compelling. I have a gleam in my eye. I like to think about the idea of what if you had sort of the AdWords of credit where you could clear credit decisions with the proficiency of the way advertising decisions clear on attention and interest and make that globally available to every participant in the world at super high velocities. I think that's pretty compelling and I think AI, blockchains, things like stablecoins actually allow us to start to realize those things and actually this market structure regulation I think helps advance the ability for us to build on-chain lending markets and on-chain credit products that are going to be really compelling for businesses, for households, for others.

Yeah.

I mean look, there's large banking institutions do a lot of different things. They have trading desks. They issue bonds. They make markets. They securitize mortgage purchases. They do consumer credit. They do treasury management, payment management. There's just a huge amount in these institutions and so it's sort of just to say banks is...

Yeah.

Yeah. You know, that's what I was getting at. I mean look, we've seen around the world over the past 10-15 years that most individuals are actually getting their financial account from technology driven companies. Nubank in Brazil is the fastest growing bank in Latin America. Alipay, Tencent are really the neo banks of China, Grab in Asia, Revolut in Europe, Cash App, things like this. So neo banking and providing software powered experiences has grown and software driven companies that are principally based on technology have had a huge impact and I think the internet financial system and actually getting the core infrastructure of the monetary infrastructure, the underlying payment system infrastructure, the actual financial contracting infrastructure like actually making that native software will just accelerate that further and I think we'll see internet-based software-powered companies provide more and more of the capabilities that are needed in the financial system.

It was a fun weekend.

Yeah, you know, what's interesting is I mean, I was obviously, that cascaded across the whole world and there were so many people who were being impacted by that. Obviously, we were one of those. You know, what's interesting about this is that there's a whole kind of sequence of things that kind of was cascading along and you were sort of seeing this kind of progression of other bank failures. You were seeing actually a government crackdown on the banking industry being involved in this industry and so, there's just huge pressure points all around and we had spent an incredible amount of time with this basic philosophy of how do we get to the safest possible full reserve model possible and we'd been advocating for kind of full reserve digital currency banking and in fact, in 2021, we put forward the proposal to the OCC to charter a full reserve digital currency bank and in fact, we just received conditional approval from the OCC for a new bank, First National Digital Currency Bank, which is a national trust bank that we are chartering. And but those ideas existed in 2021, well ahead of the SVB issue. But back in early 2023, getting the safest underlying holders of assets to provide that infrastructure to companies in our space was really hard. I mean, the most systemically important bank in crypto was like a lazy community bank in San Diego. I mean, that was like only a couple years ago.

And for us actually, we had gone through a huge amount of effort to work with BlackRock to build an infrastructure called the Circle Reserve Fund where basically, approximately 90% of the reserves would be held in this fund where everyone in the world could see every single day every single T-bill, the actual serial number, the maturity and the underlying cash that was in Bank of New York Mellon. And actually, we had been moving into that because we're like, this is transparency, this is audited, it's this independent piece, etc. And we're in the process of basically working with the very first very large, too big to fail custodians to move what we do there. And literally, we're in the process of doing that when the SVB crisis hit. And I'm actually quite grateful because I made a phone call to the CEOs of one of those banks and I said, 'Look, we're going to have to, we're going to move like $10 billion to you.' And they're like, 'Great, come on.' 2 weeks before they probably wouldn't have said yes.

But there was a flight that happened from regional banks to G-SIBs and that was a whole other discussion around how these things kind of tend towards more concentration in the mega banks and so on. But you know, we were in a position to always meet 100% of our redemptions. We publicly communicated that on the weekend and I think that was really important. We had the capability to do that and we've never failed to redeem one for one as a company, but that was certainly an exciting weekend.

Well, it's interesting. It's actually counterintuitive, which is that during a low rate environment, we saw extraordinary growth, like 2 years straight of 1,000% growth. And that was amazing. And as rates increased sharply, actually, our growth rate declined. Because the opportunity cost of money changed and money velocity slowed down, which is exactly what rising rates are designed to do. That's what interest rates are for, to speed or slow the velocity of money in this kind of stimulative or counterstimulative manner. And so actually, it worked as designed. Now, yes, in a sense, as our reserves still remained reasonably strong because the utility of USDC has been really high, that's been really beneficial, but interestingly and my management team and my board can attest to this, I have long been saying we need to cut interest rates. That declining rates are actually supportive of what we do. And the reason is that when rates decline, money velocity picks up. And when money velocity picks up, there's more invested capital. And when there's more invested capital, there's more investment in technology and technology adoption. And actually, that will drive growth. And so, from the peak of the rate cycle, which was 5 and whatever percent, when the forward curve started to come in, which was really around November, December of 2023, from what is the real short-term cost of money, when the forward curve started to come in, actually, our growth rate started to accelerate. And if you look through the cutting cycle and you can decide where are we in the cutting cycle, but it's I think it's around 40% cut from where we were, we've seen multiple hundreds of percent growth. And so, the short answer is we make it up in volume.

Right. But you know, over the long run, we are indexed to the utility of this new form of money and we are indexed to the technology utility of these new blockchain computing networks. And that's what's fundamentally going to drive growth. And the last piece I'd just say to that, which is Circle's a much broader company now. We operate a much broader platform across key infrastructure protocols, development platforms, payment network product that we're building. And so, we're building a fairly exciting business beyond our stablecoin network, which is still the core of the franchise today.

I think clearly, if you're de novo building an infrastructure for storing and moving money or for handling how financial contracts or markets might work, etc., if you're de novo doing that, you should do it natively on a digital infrastructure. And so, just like fixed line and wireless in Africa or pick different examples that have existed around the world, that's a tremendous opportunity. There's a tremendous opportunity for a country like Venezuela to leapfrog, actually, and actually all of a sudden have a programmable, composable, super efficient, software-powered infrastructure for the way that financial system could work.

I'm making the case whenever I can make the case and we do think that's a really good idea.

Yeah, so we actually worked during COVID, actually, and for an extended period of time, we worked with the permission of the US government because, of course, Venezuela was sanctioned, with the permission of the US government, worked on a humanitarian aid program to distribute aid to frontline healthcare workers who were able to actually instantly receive digital dollars that were not subject to the restrictions of the Maduro regime. They could not be intercepted by the Maduro regime and those actually were able to be worked and used directly within merchant systems in Venezuela. And so, it was hugely empowering to all these frontline healthcare workers. And we do a lot of things like that. We actually just announced this week a huge program with the United Nations and the High Commissioner for Refugees and providing ways to provide aid disbursement to people who don't have bank accounts because they don't have countries. And doing that in a corruption-resistant way, doing it in a very efficient way. And so, humanitarian opportunities are significant with this technology.