Why RLUSD and Stablecoins Are Winning Institutional Attention | Jack McDonald of Ripple

All right. Hi Rachel. Yeah, well, thank you so much for joining me here at this amazing podcast space here in Miami Beach. I appreciate you taking the time to do an in-person interview. It's warm.

Tomorrow.

This is my warm-up.

Sure. So, I run the stablecoin business at Ripple. I joined two years ago through an acquisition they made of a company called Standard Custody and Trust, which is a New York Department of Financial Services qualified custodian. I started that company actually ironically with one of the original Ripple co-founders, Arthur Britto, back in 2018 after spending roughly 20 years in TradFi like many of us in the space. And I'd sold that prior company and was looking for my next adventure and a VC friend of mine introduced me to Arthur who wanted to build an institutional grade custodian for digital assets. I will admit now that I knew very little about the space. I could maybe fake my way through it at a cocktail party the difference between Bitcoin and blockchain but did have a firm belief that there would be this transformation happening specifically within traditional finance and thought within 2 years I'd have this major epiphany and the future would be clear. That didn't happen but it's been an exciting adventure and really excited about what we're doing at Ripple.

Yeah, I'm not sure, well I don't even know if stablecoins existed in the vernacular back then but it was really more about the underlying infrastructure. And so it was a belief that blockchain would transform how trades get executed and or more importantly settled. So I recall the trade date settlement process for just traditional equities or stocks was trade date plus three, three days for something to settle. So I buy some Apple computer from you and you sell it to me and we would have to wait for 3 days to have any sort of finality. And when the market moved to T plus two there was a standing ovation like we had done this major innovation and all the legacy incumbent systems had to be modified and reporting metrics and standards need to be modified but it was a big deal. And yet on the other end of the spectrum blockchain represented an ability to really compress all sorts of different things but specifically in that instance how trades and transactions could occur essentially instantly and settle instantly with finality. And so, that really intrigued me. I thought, and still firmly believe today that that will take time. I believe in evolution, not revolution. And you have a lot of incumbents who, to varying degrees are either embracing the future or resisting it. But, we're starting to see, and we have seen over the last couple years, the impact in capital markets, and stablecoins are a core part of that.

Ripple started back in 2012 with the mission which interestingly and powerfully is still our mission today to really transform how value moves on chain and really to help build the internet of value. That was really defined in 2012, 2013 as focusing on cross-border payments and utilizing blockchain technology, specifically the XRP Ledger, which was built for cross-border payments to accelerate the way that cross-border payments get made. Over the years, Ripple was a net user of stablecoins, specifically Tether and Circle's USDC, in their payments flows where some customers wanted to use XRP as a bridge currency for those transactions, others wanted to start using stablecoins. And so, Ripple saw the utility of stablecoins and ultimately decided a couple years ago, 2 and 1/2, 3 years ago, that it would be better for our customers to actually be in the stablecoin business, specifically an issuer of our own stablecoins. So, it was fortuitous that Ripple had been on our cap table given how we'd started Standard Custody, and ultimately it worked out that they acquired that and I came across with it, and we expanded our charter in New York to allow for the issuance of our stablecoin, which is RLUSD. Ripple Labs US dollar, it's a dollar backed stablecoin. Very much down the fairway of what you would expect from a heavily regulated, transparent stablecoin. We're regulated in New York, soon to be at the OCC level with our national trust bank charter, which was conditionally approved. And we use all top shelf partners in terms of bringing that stablecoin to market. We use BNY as our primary reserve custodian. We do monthly attestations with Deloitte. We're at all the major exchanges. Most recently announced an integration with OKX last week for both spot and derivative and perp trading and the use of collateral. We're on Binance and Kraken and all the majors. And the real use cases that we have for the stablecoin lie in two large opportunity sets. The first in payments, it makes sense. It's Ripple's origin story. And it's certainly the origin story behind RLUSD. So, whether it's that cross-border payment, that stablecoin sandwich, which I think history will show Ripple probably invented years ago right through to a recent acquisition Ripple made of a company called GTreasury, now Ripple Treasury, which is 1,100 household name US and other corporates who transfer literally hundreds of trillions of dollars a year in payments and effectively don't use any digital assets or blockchain today. The opportunity is to bring some of those payments on chain and start to use a stablecoin. So, we're really excited about that sort of opportunity set. And then within capital markets, stablecoins have been used for investing into digital assets, but also increasingly being used as good collateral. So, it's essentially a dollar equivalent where if you can post a dollar as collateral, why can't you post a stablecoin if it's run properly. We have an active trading business within Ripple. And then a very big acquisition for us last year was Hidden Road Partners, now Ripple Prime, which is a meaningful prime broker that really bridges both traditional finance as well as the digital asset landscape. And so, we've fully integrated RLUSD into their flows, so customers can borrow RLUSD, can post it as collateral with Ripple Prime and essentially get a greater purchasing power that they can then go and be active in the market. So, there's a lot happening in terms of utility and use cases.

I will sell you as many RLUSD as you'd like for a dollar each. How's that sound? It's a good deal. Yeah. I think the use cases first and foremost, everything we do at Ripple is institutional in terms of our focus. So, all of our direct customers are institutions really across the board, and we also do that in a regulated way. We've got 75 licenses around the world. So, we never serve directly the end retail customer. That said, many of our customers are the B2B to C in a similar sort of way that USDC is available to retail customers. You can go on to Kraken, you can go into OKX, you can buy RLUSD, you can put in your wallet, you can go spend wherever that payment would be accepted. But, in terms of our focus and our go-to-market strategy, it is around the institutional use cases. Payments is a huge aspect and opportunity set within the market, particularly as you start to think about agentic payments and where that will go. And so, we envision our stablecoin being used with merchants at the end of the line, or other recipients who pay it. But again, our focus is on the institutions who really drive the one-to-many sort of distribution channels that we're out there focused on. Now, different stablecoins have different areas of focus. Some focus, Tether, really who we'll call them the OG of the stablecoin space, really brought into fruition much more of a focus around emerging markets, much more of a focus on the retail customer directly who they brought that stablecoin to. We have a bit more focus, as I mentioned, on an institutional and also doing that in jurisdictions where we have licenses to do so.

Absolutely, yes, paying more attention. If you look at my dance card in the last 72 hours or 48 hours and the next 24, it's primarily household name institutions who are here at Consensus looking to learn. But in general, our sales team is in active dialogue with basically every major institution out there. You're almost noticeable in your absence if you're a big bank or a big brokerage firm if you haven't talked about leaning into the digital asset ecosystem and beginning your journey. And folks are at different points in that trajectory. I think stablecoins specifically represent a first real use case that seems to be undeniable because of the way that it's treated, as the name implies. It doesn't have the volatility of a traditional cryptocurrency. It shares obviously the blockchain infrastructure to it, but and all stablecoins are not equal, but I'll say if they're done the way RLUSD is, it's a dollar equivalent. And so, if you have the stability coupled with the sort of partners we have, the structure, the regulatory status, and then further, if you have it strengthened by the recent GENIUS Act that came out, and what appears to be, more likely than not, Clarity Act, you've got some regulatory tailwinds and support behind you, and I think that's been really the tipping point where a lot of these institutions who have said, 'Okay, the water's safe, and we can come in now.' We see the infrastructure, we see the utility around speeding up settlement, for example, and lowering fees for FX conversions cross-border sort of payments. But now, if you can also tell me that the government has codified the use into law, what other obstacles would exist? And so, I think that's why you're seeing a lot more institutional adoption happening now than ever before.

Sure, it's a hot potato item right now, and just to differentiate, GENIUS Act came out a little over a year ago. We're in the rulemaking really the final stages of the rulemaking now, and the plan is for that to come into full-scale deployment early next year. And really exclusively focused on stablecoins. When you get to Clarity Act, you can think about a broader market structure for both investors and service providers around other aspects of the digital asset ecosystem that would handle brokers, DeFi, custodians, etc. And one of the hot buttons on that debate has been around the yield or sharing of incentives with stablecoin issuers who are perceived by frankly the banking industry and lobbying organizations to be a threat to deposit tokens and really the traditional way that banks run their business. I don't know about you, but I'm not getting a whole lot of interest from the bank for my cash deposits that sit there. And there are certain stablecoins where you can go and effectively get interest at exchanges or other places by holding that. And so the fear that the banks have is that you will see this flight of capital out of deposits into stablecoins. And so they've wanted to restrict the language around not only a restriction on stablecoin issuers directly passing on yield to the end holders of it. That's been codified in the GENIUS Act. And the concern there is that if you were to directly share yield as an issuer me to you, that would qualify as a security. It's not registered as a security, so you kind of go down that pathway. But there's an indirect pathway that could exist where an issuer pays a listing fee, for example, to an exchange or a marketing fee. And exchanges might do a rewards program and earn program or whatnot for users to come and use that stablecoin. And so the banks are concerned that that is a mechanism essentially to share yield. And so there's been a lot of language around what sort of activities that would be permissible and what type of activities would not. And if you're simply paying an exchange and if the exchange is paying a holder of the stablecoin just to hold it, that might walk and talk and quack a lot like a yield sharing. Whereas if it's being used for other purposes of investing and lending and borrowing, etc., there's an activity that would warrant some type of reward. And so that's what the debate's really been around.