Crypto’s Killer App? Why Everyone’s Really Into Stablecoins Right Now

Transcript

These are networks and networks have network effects, meaning they get more valuable the more nodes on the network. And we're in a situation here with stable coins where 99% of the nodes that matter are highly regulated. I mean, it's kind of remarkable that we have trillions of dollars in monthly volume where 99% of the participants the network feel like they can't join the network right now. So, the big unlock is one, actual rules that protect you from an FTX. And then number two is now you've suddenly unlocked this 99% of the world to join this network right here. The benefit is just so obvious that I think it's going to be clearly [Music] dominant. Welcome to Web 3 with A16Z.

I'm Robert Hackett. Today, we're taking a deep look at why stable coins have emerged as one of the most promising applications in crypto today and how they could reshape everything from international remittances to point of sale payments. I'm joined by Chris Dixon, founder and managing partner of A6Z Crypto and author of the New York Times bestselling book Read Right Own, and Sam Broner, a deal partner at A6Z Crypto, who focuses on stable coins. Together, we unpack the technical and regulatory foundations of stable coins. We explore the cracks in the current payment system and we look ahead to what becomes possible once digital dollars go mainstream. We also dig into why the future of money might end up looking a lot more like email or the web than a

bank. As a reminder, none of the content should be taken as tax, business, legal, or investment advice. Please see az.com/disclosures for more important information, including a link to a list of our investments. The internet has done a terrific job in some respects removing intermediaries. You could look at the way that the web has challenged legacy media, how the internet and connectivity has kind of supercharged open- source code, getting around proprietary software. What has taken so long for the internet to challenge payments and finance? And why is it stable coins that have emerged as

a potentially compelling solution to this? The first and biggest answer is that you need a global system of account. You need a way for people to track where all this money is. Until we have blockchains where we have credible, trustless, global access to one ledger. You're always going to be giving your trust to someone like Visa. And so that system like did work, but we had to rely on Visa in order to make it happen. And then of course they got extracted. That's what an extractive network is. That's sort of a large part of the rewrite on thesis. What we see now is okay, we have this capability, but we still have a lot of problems because the payments infrastructure was embedded since 1970 and it had a long time to get pretty good. So, we need blockchains to get even better. And until about 18

months ago when L2s could process payment transactions in less than 1 second and less than 1 cent, until that happened, crypto payments just weren't as good as legacy payment rails. But now they are and people are beginning to build the connective tissue that'll actually allow it to compete and be wherever users are today. And so that's sort of the next phase is how do we get to table stakes payments functionality and sort of default on integration with the distribution with where people are today. And so we're seeing that happen. We're seeing people who want to save money in US dollars in the global south. People who want to do international transfers from countries that aren't well connected. They're beginning to say, "Hey, there's some hurdles still here. The technology isn't perfect yet, but already stable coins are are

beginning to meet my needs. And then we're going to expand the market by building integration into apps people already use. So my new bank app, my Venmo, my card processor in a in a restaurant. As we begin to light up those interfaces, an even larger segment of the market is going to come online. But it all had to start with cost and speed competitiveness, which is about 18 months old. And so now we get this exciting Cambridge explosion of opportunities as people take advantage of that new capability. So let me should reframe it. So the promise of stable coins, right? What are stable coins?

They are blockchain based systems where you layer on dollars and other kind of quote unquote fiat money on top of these systems. The simple way I've been explaining like when I talk to non- tech folks for example the policy makers the simple way I explain blockchains is their technologies allow you to build digital services that don't have intermediaries that's a little bit simplified but it directionally I think a very useful way to think of it so that what that means is you can if you do it right build services that function very similarly to how our payment system works but you don't have these companies like Visa and payment processor and so forth in in the middle. Why is that important? Because by putting you in the middle, you're giving them power and

that power lets them take money and also lets them kind of wield control. So sort of two dimensions. There's financial and then kind of governance control. The financial one I think is the easiest to focus on because it's so visible and you can clearly improve that and it's significant. I mean 2 and a half%. You know, we're in the tech world, we're used to these 70% margin businesses. Most of the world is much lower margin. And we did that analysis for grocery stores where it's like a grocery store is making 2% profit. We're talking about doubling profitability of a grocery store. There is this this, you know, triple regressive tax going on here, too, where the biggest retailers in the US are negotiating custom rates that are maybe 10 times cheaper. You know, 10% of the fee that your local grocery store

pay, Kroger's paying much less than that. And the wealthiest users get these rewards back. And so in many ways the average consumer is really getting screwed by these extractive fees. This is truly scandalous and it's something that people don't think enough about. It's really the deck is stacked against the little guy in this situation. This is true in all finance. Like you know if you have a lot of money in savings you go and put them in treasury bills and you get 4% at Chase you get 0%. If you want to cash your paycheck you know if you have money it's effectively free and if you don't you do payday loans. So like all of this stuff is highly regressive. Okay. So there's the removing intermediaries. One thing you do is you lower fees. The other thing you do is you essentially building these

as you know I think of it as instead of being dependent on Visa and their APIs and all of their other kinds of things now you have a thousand companies with different APIs and who knows what the rules are of building on top of them. I think if you go look inside of these payment processor companies like Stripe, they have these massive teams that are going and dealing with all of these special cases. Then that's what makes the businesses valuable is that they've done so much kind of grind work. So if you imagine a world where you have sort of this blockchain based infrastructure in the ideal case, you have this unified global network. payments become like email and the web where it's just sort of this global protocol and you're running you know I'm sending you dollars or euros and you have these compliance

and chargeback services on top kind of bundled then you have this sort of you know universal global API this is what we call composability you can build services on top that a relatively small company without the giant integration teams can build a service that's like a fraud service or a chargeback service or you know like look a big big problem right now is invoice fraud most businesses right they're sending out. A lot of them are sending out millions of dollars a day and they're basically getting a PDF or a piece of paper and it says you owe me $100,000 and they check the address and the you'll see all these notices now like make sure you call them. So like the best practice now is to actually like literally pick up the phone and make sure you hear the person's voice and very efficient very secure. Sure. I mean, in a world

clear where we're all carrying around these, you know, supercomputers that have perfect facial detection cryptography, like it just seems kind of strange, right? And so, you know, these companies like Stripe because they've kind of done what a blockchain would do and built this integration layer with all of these services, they can then start to build essentially reputation services on top that say, "Okay, this sender is valid and this one is, you know, like a whitelist approach the way you do with email." But if you had this global blockchain payment system, you could imagine a world where then all these people are build, you know, lots of startups and big companies are building essentially reputation services and other kinds of things around it, which I think would have all these secondary benefits beyond just the fee reduction, right? It would reduce fraud,

make it more reliable. You could build reputation systems. You could do all the things you'd done on the internet. Like you think about email as a protocol, we now have all these interesting services on top because it was a global open protocol. And we see that in the market like I spent a lot of time talking to fintex to say how are you looking to expand your payment capabilities and a lot of them are saying stable coins because now instead of them having to go to 190 countries and run a complicated regulatory complex but also technically complex like I guess it's great that we're paying Stripe to handle this complexity today but obviously we should be in a world where there's an entrepreneur in Guatemala who's connecting to stable coins and then like they own the relationship with the banks and they help people off-ramp or users

just get the money on their phone and they don't have to deal with the off-ramping in the first place. But you don't want to be in a world where you're beholden to a couple of large players to make the global payment system look coherent even though it fundamentally isn't coherent. And that's what we're now. Let's talk about that. We've got a global financial system. It's not as though you can't move money. What's wrong with what we have right now? I think people really underestimate just how how broken the system is, but also specifically how many people are in the loop on simple payment transactions that we all take for granted. So, we did a big study on people paying from Vietnam to Mexico. There's a bunch of intermediaries in there looking at pieces of paper and then deciding a

payment can go through. And each of those to use a correspondent bank, they might take $20. They can't even estimate that amount of money in advance. It's like that's how broken the system is that when you go to make that transaction, you don't even really know what the person other side will necessarily get. So, you know, FX fees that are getting taken, their correspondent bank things, you send a,000 bucks, you might be paying 100. I mean, the numbers are they differ quite a bit. Like, if you use modern infrastructure could be better, but these are what I would call closed loop systems where if you want to use Wise, Wise is a a great company, portfolio company of ours. They do a great job with this. They've really worked within that system to improve it as much as possible, but you're still paying maybe 20 bucks. Your FX is pretty high. That

should really be a dollar a cent, you know, and it should happen immediately. I remember um we funded a company that was not in the US. And we wired traditional money to them. And it was like a week and a half, some crazy amount of time later, and they were like, "Where's the money?" So then we went and our finance department went and tried to track it down. And the the craziest thing to me also, not only was it it ended up taking like two weeks, but when we asked where it was, no one seemed to know, none of the banks, but they were like, don't worry, there's a number, a Fed reference number, so you're okay. And I'm kind of like, well, isn't shouldn't the money be somewhere?

And like, shouldn't someone know where it is? That's a lot of money. So actually, that was the moment where we were like, we made the finance group like you guys got to switch to stable coins. But that was the craziest part to me. They didn't even seem to I mean I guess they have some system where they can always recall it or refund you or something. So they seem very confident about it but you know just intuitively you're like well shouldn't the money be somewhere and like shouldn't somebody know where the money is? What happened there is someone was looking at a piece of paper with the transfer amount and they just didn't ship it off to the next intermediary like like that is really the kind of thing that's going literally sitting on someone's desk on paper somewhere and that's when they maybe it's in their email maybe it's in a a

review system. Well, and I think and I think it goes to I mean the analogy one analogy that we like and people have used before is text messaging prior to WhatsApp and these so-called over the top networks, right? So, the idea was, you know, back then you really had a patchwork of networks. You had Verizon, AT&T. Now, they would cut deals to interoperate and then they would do international deals. And for those old enough to remember, you'd get these text messages if you travel internationally that said you're now on this different plan. And the fees were much higher. And if you were texting someone across countries, you'd get additional fees because it was not a true network. There was not one network. There were many networks. I mean, that's also like companies like Stripe. If you don't know the payments industry, like why are there so many payment startups? Like

every week you'll see a fintech payment startup and you're like, it's kind of weird that there's this huge industry and by the way, very successful and profitable. Visa and Mastercard are, you know, worth over a trillion dollars in market cap and they're just one of many intermediaries. You know, of course, the market cap is a reflection of Wall Street's expectations of profits. So, sometimes people say, "Oh, these costs are necessary for fraud and this and that, but the reality is these are actually profitable." Many of these companies are very profitable. So, which means they're making excess above the fees. Just to comment on that, like in fintech, in payments, there's a very high regulatory burden. And so, people have used that as an excuse to vertically integrate. I need to manage all this complexity, the technology, the regulatory, the user relationship. And

when you get that kind of market dynamic, you do have the ability to take a lot of profits. You're the only solution in there. What I find really fascinating, exciting about stable coins is it's a horizontal layer that people can build on really readily. So you'll actually end up with a lot stronger competitive dynamics on top of the payment rail where today those are mostly captured by Visa, by Mastercard, by the other payment intermediaries. I mean the naive tech view, you know, if you just build a new payment system without actually understanding how the existing one works, the naive view is, oh, you could just do this for the cost of blockchain fees or something, there are real costs, specifically fraud. Now, of course, with tech, hopefully you can reduce the fraud and we can talk about

that. But then chargebacks, you know, a lot of these systems promise to consumers that they can recall their money if their merchant doesn't deliver. and then KYCL meaning there's legal requirements on payment companies to make sure money doesn't go to North Korea and you know other kinds of things like that and those things do cost money the question is you know if you look at retail credit card payments in the US is whatever averages 2.5% in fees does it cost 2.5% in fees we know the answer is no because these companies have profits significant profits so we know that like the high end of that what it should cost quote unquote you know is half of that let's say or something because of the profits but really because they're also

so inefficient because of this patchwork there's credible reasons I think it could be significantly lower so if right now it's 2.5% which is 250 basis points like in your analysis Sam you think it could get down to 30 or something is that right or even less that's about right I think the the cost of doing these payments could be 30 it actually could be a lot less so you brought up these things what is Visa saying is creating these costs they're saying fraud they're saying sort of table stakes payment payments products KYC AML. Well, like first of all, chargebacks that is something that we know of in the US, but if you're using Pix in Brazil or you're using WeChat in China, you're not expecting the payment processor to manage your chargeback for.

There's outofband systems that do that that you can selectively pay for. So, you don't need to bundle these services in, which seems better because like why is it just so happen that this company that's good at payments is also going to be mediating disputes? like it's especially because you want you want vertical specific mediation. If I'm in a coffee shop and I buy a coffee, there's not a fraud risk there. If I buy something on Amazon, I'd probably be willing to work with like a merchant relations chargeback person. And if I buy something from a sketchy website cuz I want like a new Supreme drop, then maybe I pay for bespoke chargeback insurance there. But these are three very different categories of product and right now they're all being bundled into one 2 and a half to 4% fee that that these and the issuers are taking. Yeah.

Just to just to add to that and this goes to for those interested this is what my book read right on is about like basically the idea that in summary the interesting thing we do with the internet is we build networks on top. You know Twitter, email, the web, like the most powerful digital services are networks. The network is a digital service that gets more valuable the more people use it. They're important because they help solve information distribution and coordination problems. And the basic thesis of the book is that there's three known ways to build networks. There's the sort of the original way that the internet built networks, which I call protocol networks, sometimes just called protocols. That's email and the web.

There's standards. They're almost like a language. Everyone sort of gets together and says we'll speak English. We'll speak HTTP. And then they all built software and services that connect to that conic lingua franca. And what's great about that is you end up with something that looks a lot like a public good like email. Like no one controls email. There's no one who can take money kind of extract money. And protocols solve a political problem too. Kind of a coordination problem. When you build a network, you need all the kind of participants of the network to to want to join that network. And if they know it's a public good that they can safely build on top and one of their competitors won't sort of secretly own it and rug them, they're going to be more likely to join that network. Then there are corporate networks. Corporate

networks are, you know, Facebook, Twitter, Visa. It's a network, but it's very simple actually, you know, architecturally just owned by a company. They just own it. Now, the problem with corporate networks is you're essentially handing all this power over to that company. And so, you know, of course, Vis and Mastercard as an example, both started as nonprofits, flipped to four profits later, jacked up their fees, and a lot of banks weren't happy with that. So, you know, there's a great book on this, a piece of the action by Jonas Sera. Yeah, it's it's a good thing to interesting to read about. So, now the third kind of network are blockchain networks. And my core argument in my book is that it it's sort of the best of both worlds. you get a lot of the advanced functionality of corporate networks that protocol networks couldn't deliver, but also the kind of public

good nature and and low fees and so forth of of protocol networks. The way I would think about this in the payment context, imagine kind of a toy scenario where you have an imaginary country with 10 banks that want to build a payment system together. Okay, they have those three choices. Now, the problem is protocol networks in computer science parliaments are are stateless. State meaning storage in the computer and you don't have storage. There's no kind of ledger or place to keep balances. Just this architecturally this the way it works. So with email like I send an email to somebody and then they receive the email but there's no central place where the emails are kept and the records are kept. Now money is just different than email in that sense in that you do need to keep central records right if you look back 20 25 years ago

there were various attempts there's a originally HTTP itself the web had a spec I think it was was it 402 was the error code there's a payment required there was a placeholder put in there they were going to add payments. Yeah, more people are probably familiar with error 404 when a website URL can't be found. But there is an error 402 like you're saying with payments. So you can't do that. And then if you go ask these guys, the Goldman Sachs or the Chase Banks or City Banks or whatever, hey, let's go do it and I'm going to start a company and it'll be the intermediary and it'll run the network. None of them will trust me. They're like, why would we do that? Because you're just going to do what everyone does when they build a network. They'll start with low fees and then they'll

raise the fees as they gain power, right? And you can try to, you know, you can try the nonprofit thing. But of course, we've seen many cases where nonprofits flip to for-profits. That doesn't really mean much. The other challenge is if you defang the intermediary, corporate intermediary too much, then like how do they go hire people? How do they like they need to themselves become valuable to recruit people and build a company and build great technology, right? If they don't extract, their lunch is going to get eaten by another corporation that does extract. Yes, that's right. The competitive dynamics of tech are such that it's very hard like just that's just is how it works. So blockchains are really powerful in that they kind of are the best of both worlds. You can build stateful protocols, you can keep a ledger, you can do all these powerful

things you want to do with payments, but you can do it in a way that there is no central powerful intermediary architecturally. That's the core innovation of a blockchain is that you have these this so-called consensus mechanism game theoretic mechanism you know pioneered by Bitcoin and expanded on by later blockchains. They think about what Bitcoin is. Bitcoin. What it essentially is, right, is it's a centralized ledger. It keeps track of who has how many bitcoins, but it does it in a way that there's no Bitcoin company. There's no one behind it, right? It's a group of people coming together using this kind of game theoretic mechanism that provides the core service of of a financial network, a payment network without any intermediary. Now, it has pros and cons and it architecture and fees and you can have a whole debate about it. There's been a lot of work since then and

specifically in the what we would call the programmable blockchain world of like Ethereum and Salana to kind of expand on that, reduce the fees, improve the functionality, performance, reliability, and so forth. And that's gotten us to a point now which as of a year and a half ago, as Sam was saying, we've now hit an important milestone of you can now send stable coins under 1 second and under one penny. And the by the way, this is not theoretical. Download Coinbase wallet and then try it. I just tried it yesterday to double confirm Actually, I've got a fun uh fun story for you about this. I was playing basketball the other day. I rent out this gym and so I collect payments from it at the end of the day. And this guy comes up to me. He's like, "Hey, you're Sam. You know, I see you on Twitter. You

loves stable coins." So, he's what if I pay you in USDC. Say, "Yeah, it's 20 bucks. Here's my ETH address." So, I'm sambroner.eth. He sends me 20 bucks. Costs like, you know, a small fraction of a cent. And I then put that into a lending protocol. So, I'm like earning yield on it. And about 24 hours later, I've made enough in interest that I paid back the fee now. Like what a crazy dynamic that is. Like I mean now I'm like I've made more than 20 bucks. If I was in Venmo, if I wanted the money right away, it would have taken me 3 days to get it out of Venmo, let alone like the nonsense interest rate I'm getting in my bank. So I get the money in a second. It's mine. I can send it to someone else or I can sweep as in just

like put that money into something that's earning interest and suddenly I'm out on top. the games on Saturday, by like Monday afternoon, I've made my money back. And you just can't do that on normal Rails at all. That's really interesting when you consider a lot of fintech business models. I mean, you mentioned Venmo. They're just banking on a lot of people leaving money in their accounts and then they get to collect interest on them. Yeah. But you're able to actually earn interest on the stable coins that you were sent. Yeah. So, look, these these institutions make money in a couple of ways. That interest, we call it NIM, this net interest margin. There's other ways they get paid like they'll will also charge you when you try to take the money out.

And so like if you try to withdraw money from Venmo immediately rather than waiting the normal 3 or 4 days, they'll also charge you 3% there. And so no matter how you slice it, you're getting a pretty raw deal. What is so interesting is that because only certain institutions have permission from the government, they have regulatory lock in to hold your money. There's not a very competitive market here. We should all be getting 4% interest on our savings. That's a little bit better than inflation and we should benefit from the sort of growth of the economy. That's how the world should work. Instead, Bank of America or Venmo or PayPal is sitting on your money and giving you nothing while they take that home for look, they've got a nice product, but I think

we could recreate it in a weekend. What we couldn't recreate is the network effects that they have and so they get to be extractive with those network effects and and that's what they've done to date. But there there is a better way like this basketball scenario where I get the money on on day one and then I get interest as well. It reminds me of AOL for the longest time was just collecting fees from zombie accounts. You know, people who hadn't actually severed their relationship. They're just paying subscriptions every year thinking like that's how they get internet access. Just making lots of money off this well beyond the point when you needed to actually pay for that subscription to get internet access. So how long is that interest generating business model going to be sustaining these fintexs? So look, we're we're seeing the first use cases of of stable

coin payments happen in the wild right now. And it's different by geography and by user in the US for wealthy users. They're thinking my credit card rocks. I get 3% off everything. It's accepted everywhere. I don't really need to change. But the PSPs, so Stripe, whoever runs sort of the payment terminal in a coffee shop, these guys are getting like 10 basis points and they're actually giving most of the money to the issuing banks and Visa. And so those payment service providers, they have an incentive to switch over to crypto rails because they can offer users a better product while taking maybe 10x more fees. Like they could charge 0.5% instead of.1% while still offering the merchant a better deal. So that dynamic will

encourage payment service riders in the US to switch. They can raise their fees, get more money, and yet still drop the cost for customers because they're cutting out the intermediary and it's an unbelievable opportunity. We've seen Stripe start to go in this direction. So they're the first to turn it on. So they get this first mover advantage. They're charging 1.5% for stable coin payments. That's pretty high. I I think they're probably making 1% on every transaction, but it's still a great deal for merchants because merchants are used to paying 3%. The merchants love it and Stripe loves it because they take home a lot more money at the end of the day.

So, in the US, I think that's where we'll foresee it where users aren't going to realize that they're using crypto necessarily, but the payment service providers are going to be really pushing this new angle. In lower income or high inflation countries, people actually want to hold stable coins directly. They'll interact with it. They'll they'll pay with it. We do have a a ways to go though until everyone feels really comfortable with stable coins. We need to create what some people call a stable coin mullet. It's stable coins in the back, but it looks like what you're used to in the front and people just get cheaper products that that work better, but they integrate where users already are.

Another example, just to linger on this for a second, is is Skype. People think of it as sort of video conferencing, but when it first got started, one of the key features they enabled is that from your computer, you could call someone's landline. And so that interoperability is part of what created the onboarding. Stable coins probably need to have that moment where from my wallet that holds stable coins, I can hit anyone else's account, no matter what denomination or technology it is. That backwards come out be huge. And then eventually we're going to end up with WhatsApp and FaceTime and things like once people fully get oriented to this new world.

But we need to have Skype like technology to integrate and be backwards compatible. How do you achieve that backwards compatibility? I mean, if we're talking about how stable coins and blockchains disintermediate, how are you going to get existing players on board with that? One of the things that we think about the most on the investing side is who is really going to help us help the world move forward with this new technology. But the banks probably aren't going to do it. They love the current situation. They're, you know, very stagnant. The fintexs are extremely excited. They think, "Wow, I can go to market in 190 countries. I can be universally on everywhere. I can work with service providers, basically entrepreneurs who are building functionality I don't want to deal with.

I want to focus on my core product and let them move the rest um forward. There are things also that we need to build on top of stable coins to reach table stakes payments capabilities. So Chris mentioned chargeback chargebacks earlier, but like we also need escrow, subscriptions, refunds. We need vaulting, which is where you store a payment credential on a website, like when you go to Amazon, the credit card is already there. We need promotions. We need people to be able to easily discount. We need integration into ERPs, enterprise resource planning tools, so that the CFO can look at the state of their business and say, "I've got this many stable coins. I'm going to pay my supplier tomorrow. they're going to get it in exchange for this invoice. Those

are the integrations that need to be built if we want to reach mass market. And there's a huge opportunities in each of those capabilities for people to reach traditional payment rail parody. There's another issue that I love talking about because I was briefly working at the at the Boston Federal Reserve Bank, but the singleness of money, which is that I trust that a dollar in my wallet is the same as a dollar in your bank account and is worth a dollar in Chris's Venmo. That singleness of money took a long time to develop. I wrote a piece on the the history of banking and how that relates to stable coins. And before 1910, you really weren't positive that a dollar bill in your hand was worth a

dollar bill in your hand cuz you had to trust the creditworthiness of the bank that it was associated with. These were bankisssued dollars. And today through a huge amount of of regulation, but also sophisticated risk management, interoperability, clearing houses, we've created a world where we do get dollar par where we have this trust that dollars are always worth the same. Today we don't have that in stable coins. But that's a big part of why regulation is so important. Let's uh let's jump in with the regulation question. Currently there's no kind of clear regulation around stable coins and just more broadly in crypto. There's laws passed in the 1930s and later that can arguably be interpreted to apply here. But

there's a lot of confusion when you say things that could apply from the 1930s. Are we talking securities law how we test like 1930s kind of stuff and like certain tokens or commodities? The regulators in the US have said that Bitcoin and Ethereum are commodities and other tokens might be securities and where do you draw the line? And what we want, what entrepreneurs want are very clear bright line rules so they know they can stay within them that allow for innovation but put guard rails around and prevent another, you know, FTX from happening. I mean, I think these catastrophic failures, Terral Luna, FTX first and foremost were devastating to the customers who lost money and things, but also were devastating to the industry, right? I mean, destruction of trust and just sort of general harm to the broader blockchain technology

movement was huge and that looms over us. When you take stable coins, I think there's a chance that that could happen again right now. And it's just simply the volumes. I mean, the stable coins are 2x last month or roughly or something Visa's volume. I mean, these are trillions of dollars in volumes. The first quarter of this year, stable coins had the most transaction volume that they've ever had. So I have no I'm not saying anything negative about a specific project or anything like that, but you just say like if we had another catastrophe, where would it be? It's the things where the really high volumes are, right? So the point is like first and foremost, let's make sure there isn't a catastrophe. And so what would you do? This is what the pending proposed bills in Congress do is they have requirements. So for example, the

requirement is essentially that you're fully assetbacked by highquality short-term financial products. So treasury bills, things like this. If a user thinks they have a dollar, that means they're literally in a audited US bank. There's something that's a lot like a dollar, like either dollars or treasury bills. And so the bill spells out what those assets are, what the reserve requirements are. Spells out auditing requirements. So you don't just take my word for it that the bank, right, have an actual auditor. And all these things would have prevented things like FTX. I mean, it also has rules around interoperating across countries. It's essentially like reciprocity ideas.

so that if other countries want to interoperate with these systems, they have to have similar rules. So, you know, this would set the template which would hopefully propagate out. It's kind of a no-brainer. I mean, look, we think a much bigger policy issue is the is the broader confusion. And so, that's why that would hopefully be addressed by what people are calling a market structure bill, which is similar to a bill that passed the House Representatives last year called Fit 21. That's really the high level policy fix here. stable coins are a lower priority for us, but it's just such a kind of no-brainer obvious thing to do that we think should be done. Like, why wouldn't you have regulation on these things and have all this ambiguity? And so, that's kind of the lay of the land. I mean, we're hoping that there's uh some

momentum now to get these sort of two potential bills passed this year, which would, I think, really clarify both stable coins and and the rest of the space. that would also have this sort of trickle down effect which is deregulating the stable coin itself which is kind of the app layer of these things but it also would put requirements around like if the bank is going to issue a stable coin they need to make sure the underlying infrastructure meets certain requirements as well so that's sort of the blockchain layer like Ethereum and Salana and those things so it's going to have this kind of trust propagating effect where you're going to have all the infrastructure will kind of have to level up and be more mature because that's another area of risk right now I think one other thing to think with regulation is it not only has like the

literal laws and policies get passed but it's also an important signaling effect which is a lot of these institutions in the financial space are very riskaverse. They're very heavily regulated. You know they're honestly very scared of doing anything that gets even remotely close to something they perceive as risky and to have specifically legislation. So I mean you know legislation is the highest form of regulation. It's the most powerful. It's Congress of the United States of America passing a law which is kind of from a signaling and longevity and just all the other kinds of atmospherics around it by far the strongest statement that a government can make beyond you know sort of let's say an agency putting out guidance as an example and so that that will be very important too I think it will really

legitimate this technology and allow a lot of institutions who right now are on the fence and I and I've heard this and I think Sam you probably have too directly from these institutions like they're waiting for that kind of stamp of approval that legislation would provide. It's probably worth just like quickly summarizing the state of regulation on stable coins. Like we have these two acts, Genius and Stable Act that are currently being talked about in Congress and seem, you know, really exciting. It's like clear rules for the road. It's robust consumer protections and it's AML KYC that makes sense for payments. And then the OC has green lit bank crypto activities. So now banks can custody crypto assets, hold typical reserves. And then the SEC has clarified that stable coins are not securities if

they're used for payments, if they're appropriately backed, things that, you know, work with the proposed stable coin bills, the Genius and Stable Acts. The Fed also recently withdrew its bank guidance where it required banks to seek permission if they were going to do anything crypto-reated. So now that's cleared a way for them to get into this. Yeah, but you don't I just don't think you build like I I don't know. I mean, I've spent my career on the internet and I'm just very influenced by how the internet policy worked. But was so important for the internet was legislation passed in the '90s and specifically the 96 Telecom act was a landmark bill that had a whole bunch of things including section 230 which is really the foundation of how you could build on the internet because you knew that I mean it can be changed but it's

in practice effectively permanent because it's very hard to change and section 230 as an example enabled marketplaces and social networks to exist because it said that without that you know all these things would have gotten sued into oblivion. gave them some reasonable kind of safe harbor that you know tried to balance protections for users and platforms. And that's very important because if you're an entrepreneur and back in the 2000s, for example, who was thinking of devoting your life to building this, you wanted to know that it wouldn't be something that would just get turned off with a new political environment, right? You need a solid foundation to build on. And so that was passed and that was the foundation. I mean, the internet wouldn't have existed. The US wouldn't be the leader in the internet in my view. And so we just want to have a

similar thing here. Now to Sam's point, like there's different details in the bills. Like one controversial aspect in the stable coin bill is whether the stable coins can provide yield directly to consumers. As someone who believes tech should mostly benefit consumers, I think that would be good if consumers could get their 4% and not and not, you know, 0%. For what it's worth, this is that that's not an issue that I particularly care about. Look, I mean there's a political realities which is that stable coins as payments which would mean sort of no giving yield is you know something we can get political alignment around. If you start to give yield, you start to really compete with the banks and then it becomes a much more fraught political discussion because there's a huge industry incumbent industries that are going to oppose things. So yes, and also I think

the other thing I would say is from an incentive point of view, if you want these to be used as payments, if you're getting 4% you're not going to want to give it up as much, right? Like so if there's 0% you're going to have a much higher velocity and so the argument would be like let this bill pass as it is build this payment system and you can build other systems for building yield. That's how I would like it to play out. I mean I want the distributors people who are giving people stable coins to be able to have a small cut at the apple to get a benefit for distributing stable coins. And so we're going to build a more competitive environment where people are going to get more of their yield. And look, there's a difference between spending money and saving money.

I'm happy if when you're saving, you put it into a D5 protocol where you get 5% or you leave it with Coinbase where you get 5%, but when you're spending it, you get zero and then you use the programmability of stable coins to sweep it back into that that yield bearing holding spot. The key thing is we need to get legislation done so that people can actually use these things for payments and and make for a better product overall. Again, going back, these are networks, and networks have network effects, meaning they get more valuable the more nodes on the network. And we're in a situation here with stable coins where 99% of the nodes that matter are highly regulated. I mean, it's kind of remarkable that we have trillions of dollars in monthly volume where 99% of the participants of the network feel like they can't join the

network right now. So, the big unlock is one, actual rules that protect you from an FTX. And then number two is now you've suddenly unlocked this 99% of the world to join this network. Are you expecting those volumes to explode then after regulation gets passed? I think it'll be like anything, right? Like this the stripes of the world, the super smart fintexs have already, you know, done it. They're already that volume scale and they'll just ramp that right here. The benefit is just so obvious that I think it's going to be clearly dominant. The specific timing is harder to predict. Look, the ones that are really innovative are already doing this and they're reaching out to us and saying, you know, who do we work with to make this happen and then some of the banks are reticent because they don't want to give up the current model where

they get a lot of the benefit of how payments work. And so over the next, you know, 6 months, 12 months, 2 years, I expect to see a lot of people helping fintex, helping these banks move forward and adopt stable coins because it's just so obvious that it's a better solution for them, even if they don't want to do it today. Yeah. And at some point the bit flips where like if you're a you know most of the world they're conservative middle managers or whatever and at some point the bit flips where it's now greater risk to your career to not do it than to do it right and we're far from that point but at some point that will flip. Network effects do have a lot of gravity like if 30% of people or a lot of people in one geography have access to stable coins you don't

actually need on and off ramp infrastructure anymore but you need it in order to get there. And so there's going to be a point where stable coins become default on. Everyone has to have it. That's when the network effect is really strong and and that's where we're going to see the the lagards are going to get killed until they till they upgrade their infrastructure to allow stable coins to be integrated natively. So the value to consumers seems pretty clear. Cheaper, faster, global instant payments. But from a business perspective, if you are dealing with stable coins, if you're issuing them, distributing them, is this a good business to be in? as more competition enters, as interest rates decline, as different players start offering yield, if that's allowed, I mean, PayPal is now

offering close to 4% yield on stable coin holdings in their Venmo and PayPal wallets. As you start having these this competition and these different kind of macroeconomic changes happen, does the stable coin business remain a good business to be in? So right now, if you are not a financial institution, you are not in the payments business anyway. You have to pay these guys in order to use payment rails every time you do it. So if you're a business who's thinking, I've got a cool feature. I think if we did like, you know, 10 cents for a like or tipping creators, you've got to go find a service provider that you're paying a lot of money to in order to implement that feature. In the world with stable coins, you can just build it just as easily as you can set up a

database. So is it worthwhile to get into stable coins? Well, maybe for the banks this is not the best thing in the world. But if you are an innovative business that wants to include money, one of the most basic things that we use all day in your product without going and dealing with some extractive entity, you're so excited about the opportunity you now have with stable coins. Now, for the fintex, they're also beholden to the banks in some ways. So, they're going to be the first to adopt. It makes their infrastructure a lot easier to manage and build. And then there's going to be some innovative banks who say, "Look, we've got this amount of deposits today.

We're getting net interest margin on it, but we're that's going to go away. We're in the the tail end of our ability to have deposits be locked up in this account. And so we're going to have to start working with modern rails, offer new tooling, and banks are always resistant to new tooling, but they're going to have to get on board when they realize that that's how payments work going forward. And for the really innovative ones, they're actually going to be able to expand their net interest margin to dollars that are off their platform. And so an innovative bank could say, "Actually, we could expand our deposits by embracing stable coins." But so far, the banks haven't been that that forward-looking. I'm excited to see the first the first banks who do do that because they're going to, you know, get a lot of market share that way and and

expand expand revenue. We just haven't seen it from the banks yet. Yeah, I mean, it's a good question. the um like in our job what we do right is we say okay what are the big trends coming and how do we how do we bet on them and so stable coins are probably the biggest most obvious trend happening in this area and we've had this conversation like how do we make a bet on them and to be candid it's been much harder than in most tech trends and that is because of the things we were saying earlier in the podcast which is it's kind of a public good I mean it's just like building kind of a highway system for the people to send stuff cheaply we're moving to intermediaries so you can't invest in an intermediary here as an example because that's the whole point is you're

removing them. There's a typical effect of these kinds of information internet businesses is you grow the market, you grow GDP, you grow usage so there'll be you know if this works you lower fees and there'll be more payments and more economic activity but the take rates will go down right the amount of sort of extracted will go down. Now that said, with all these new opportunities, there's always like often there are, you know, new software business as an example, like if every bank suddenly wants stable infrastructure, they would presumably want to buy that software and not build it. So, somebody will provide that software and that's sort of a classic enterprise software business.

But that's like, you know, that's the software model, right? You sell them licensed software or subscription software or whatever it is. But to me, honestly, the the most obvious investment opportunity was in the underlying infrastructure, right? these stable coins run on blockchains and specifically the dominant I think by far right now is Ethereum is the dominant one for stable coins and then you have others like Sana Tron also with Tether is and then I think there's you know I think unfortunately with some of the other ones like that like Tron like I don't think that's a you know that's has the right security characteristics and it's expensive. Yeah, it's very it's like I was shocked that the fees I saw recently like $64. not really decentralized. So it's not that means you don't you haven't really removed the intermediary. So I you know if you take the subset of

blockchains where stable coins are popular and I think have the proper kind of security and trust characteristics you end up with things like you know Ethereum Salana L2s you also need kind of layers on top of that. So you need bridges you need other kinds of infrastructure. Yeah. Yeah. And that's sort of a bankshot as an investment, but sort of indirect. But I think that I don't know, at least for my thinking about it, that's kind of what I come back to is like, okay, this is going to popularize all of this infrastructure. And, you know, maybe there'll be some adjacent software stuff, but but it is probably the least investable crypto thing that's happened since the beginning. I would say almost. It is much harder to directly invest in. It's like such a paradox like it is the thing that's popping off. That's the irony.

And usually in crypto, it's easier to invest than to get usage. And here it's the opposite. It's like this is something that's like clear product market fit and usage and it's harder to invest in. There really are opportunities. I mean I spent a lot of time talking to businesses that are building on top of stable coins. I think Sam is more Sam's a little more bullish on this than I am. I feel like it's more of a public good, but yeah. Go ahead, sir. Yeah. Yeah. I mean, look, I think we have to have valuations be appropriately priced. Like these are fintech businesses. These are not crypto businesses with network effects. But if you're offering table stakes payments, subscriptions refunds chargebacks vaulting, promotions, we invested in Loop who does that. like, you know, that's a that's a real business that people really need if they want to use

stable coins in the real world. And then you've got the enterprise integrations. We've got on and off ramping. I think that there's huge improvements that need to be made in with on top of account abstraction to make it easier for people to have a wallet where they custody their own assets. Of course, like we're going to need a little bit better privacy, but compliance privacy in payments. And that's more at the infrastructure level, but people are going to feel that at the app layer. And for for enterprises, like there's features like treasury management and and collateral mobility. These are all large fintech oriented opportunities that I'm extremely eager to see entrepreneurs build and they're going to have to have deep understanding of of stable coins. And and I guess to tie

back into our focus, which is on blockchain networks, there's a lot of ways to use blockchain incentives to build those networks. So the stronger identifiable earlier, you know, break the log jam of extractive networks. And so I'm excited to see businesses that do that in particular who build these sort of more fintech oriented ideas, but with blockchain ideals. And we're starting to see it. We're starting to meet them now. Yeah. I guess I would just say I look at the well my historically and just where my area of focus has always been network effect businesses. That's what I've always done, not enterprise software. So there probably are in fairness like kind of my temper my statement earlier there probably a lot of sort of enterprise software business etc. It's just not what I've personally historically done

or been good at. But that goes to the just one last thing is that that's the whole point of stable coins is that you're removing the ability for investors and entrepreneurs to extract which I think is a good thing for the world. I think it's a good thing for blockchains in generally to have this as a use case, but to me it undermines kind of what I typically have tried to invest in mature kind of networks, you know. Yeah. The the big network that has not been solved yet is liquidity. And liquidity has a surprisingly strong network effect. Today, if you tried to switch liquidity, you mean like interoperability between like switching from one blockchain, switching from one currency to another. So if I want to take 10 million USDC and turn it into 10 million in PIUSD, two stable coins, both I think highly compliant, well backed,

I'm going to get some slippage there. And by slippage, I mean instead of 10 million on the other side, I'm going to get 9,900,000 even on the the deepest liquidity pools. And that's a network effect in that as more people use these currencies will have deeper liquidity and much tighter spreads. Whoever cracks that, whoever figures out how to make sure that we can redeem one stable coin for another stable coin at par is going to have a huge and exciting network effect. Interesting. So your point being that if you want to use this money, if you want to use it across various networks, various apps, whatever, if you're transacting, you might actually lose a little bit of the value there that might go to the system. And in order for this to really take off, consumers are going to want to know that

one USDC, one PI USD always equals $1. Users know that today, but at the largest scales and in the most esoteric scenarios, it breaks down a little bit. And we need to build systems that make sure that it's always true. We get this true singleness of money. And there's a lot of ways to solve it. One is through clearing houses. Another is through shared collateral. A third might be through regulations combined with really welltuned AMMs or intent protocols. I think we've got a lot of people working on the problem, but it's one of the large outstanding problems that probably needs to be solved first. I want to zoom out for a second because I think some of our listeners might ask themselves, why

is a blockchain necessary at all to do some of these things? I mean, you could look at some services that are coming up like you've got the Pix real-time payment system in Brazil that manages to do really, really instant, cheap, fast payments. So, what what is the advantage of using a blockchain? Why is that superior or necessary compared to perhaps more traditional approaches or just alternate approaches that could conceivably be applied? So, Pix is amazing. like we should all congratulate the Brazilian government on on implementing a like a great new payment rail, but there's two problems with it.

One is really clear and one is a little bit harder to think through. So the first is that you can't pay someone internationally via Pix. So it really is a closed loop system where it's not so hard to build on top of Pix, but it's hard to have Pix interoperability with other countries. And so if you want to do international payments, which happen all the time in enormous volumes, then you can't use that system. And the second thing is I don't really want to have the government running my payment rails that directly. It has a couple of negative externalities. One is there's less competition. You know what happens when something better than Pix comes out? Is the government really going to replace it? Probably not. But on blockchain rails, you could incrementally improve the quality of the product. The second is around monetary expansion. Like we want to make sure

that we can have institutions like banks lending, keeping the economy active, making dynamic choices to help people in communities invest, save, earn, spend without it being tied to a central bank digital currency. That would be very constrictive and it would erode privacy, erode trust and wouldn't lead to the competitive environment that we want to see where entrepreneurs can build new monetary systems that allow people to take risks and and do so safely and and spend money freely. So Pix is is impressive, but I don't think it's the way we want to have international payments work and it's probably also not the way that in the US we want to have local payments work because it leads to

this sort of constrained supply of cash. And like this is going back to what I was talking about before the different kinds of networks. I mean, one way to think about blockchains is they solve not just a technical problem, but a political problem. Political in the sense of getting a bunch of parties who don't fully trust each other to agree on something. And so in that case, let's just say, you know, picks they go and maybe they convince some friendly governments, but are they really going to convince whatever it is 190 key governments to agree to something? The answer is none of them are going to agree to something unless they think it's truly neutral. You know, blockchains are the first thing that have come along since the advent of the internet that have the functionality sufficient to do these kinds of use cases like payments, but also are truly

credibly neutral. And they're credibly neutral because they they don't have an owner. They're open source code running on on these decentralized blockchains. And so they have the same kind of trust properties as open source software. I mean, that's why, you know, things like Linux have been so successful, right? is that you can dislike the makers of Linux and dislike the countries they live in. It doesn't matter because you just have the code, right? You can trust the code. And blockchains have that same property. That's a really good articulation. So, you're in the design space, you're trading off how centralized or decentralized you're going to have. And when you go with a centralized approach like Pix, you get platform risk, trust dependencies, and maybe lack of interoperability on a kind of global scale. Whereas when you go in a decentralized direction, you get this

sort of credibly neutral platform that everybody can join comfortable knowing they can't get rugged or biased against. I've got a question about the branding for stable coins. It is sort of like incredibly good marketing on the one hand. I mean there's a question of like we call them stable coins. Are they stable? I think regulation will go toward helping solve that. But then there's also the coin question. We had some of our other teammates on a recent podcast where we talked about the differences in types of tokens that are out there and there's a lot of confusion around people thinking about them as cryptocurrencies or coins and I wonder if calling them stable coins is that

lens through which we look at stable coins as coins as payment as currency does that limit our imagination about what we can do with these types of instruments? Yeah, I don't I mean, I think like a lot of things in tech and specifically crypto, these naming notes, there wasn't like a committee that sat around and did a study and came up with this some some hacker somewhere and then it became popular and it's probably not the greatest name to be honest for a bunch both stable and coin, right? I mean, you know, maybe at some point people just call them ideally just dollars, you know, like you just go to your account and you see dollars and it's a new rail. There will probably be, I think, in the legislation some kind of actual control of the words. you know, you can't put the word dollar if you're

not doing certain things, which is important. So, I think it's a good point. I don't know, like in tech, the products end up being the marketing, not the words as much. So, like the words sort of matter, but then at some point, they don't. Like there's been so many bad brand names in the history of tech. People debated Google and Twitter and all these things, Yahoo, but what happened is the product was so overwhelmingly good, like I'll say in the case of Google, that it almost just changed what the words mean, right? It also might remain a investing term because when we see stable coins go mainstream, I don't think people are going to be thinking about this category name. They're just going to say, "Oh, I've got some money in my wallet and I can send it to you immediately." I mean, what do you call your Venmo bounce?

Like, you don't really say Venmo bucks. So, I'll keep calling it stable coins when I'm looking for companies, but I I'm not sure our end users are going to, you know, use that term in the long term. So from a consumer perspective, you're expecting that this is going to be abstracted away. Yeah. Okay. So based on where we are now with the adoption of stable coins, really there's incredible growth going on. I mean last year the circulating supply of stable coins was like 130 billion. Now it's like not quite double that but almost. Yeah. Okay. So maybe it is double. So there's incredible growth. What changes about crypto about the crypto industry? what becomes possible with this new piece of infrastructure, this new technology and what changes about the world around us

and the tech and the products that we use. Yeah, this is my, you know, sort of favorite thing to talk about is like if stable coins win, everybody succeeds. What happens next? Well, I'm making payments and stable coins. What if I wanted to get a loan on my stable coin holdings? Might I want to track where a package is on blockchain rails? Might I want to use a social network that has my identity that is tied to my payments? There's a lot of services that once I'm paying every day want to move on chain due to that gravity. Identity is the most obvious. Then social networks begin to form on top of that. Then so do customer to merchant relationships and so forth. And so stable coins are just

sort of the first step. But all of the other onchain products that we know of seem much more likely to succeed when people are already using dollars onchain. And this is partly because it's such a big hur like right now the UX of getting money onto a blockchain. It's just there's a hurdle. And so if you can provide this initial use case and get people on there, they have a wallet, they've got the software, they've got some money there, that you've gotten over a major hurdle that was inhibiting growth. And so as you begin to move payments on chain, a lot of additional things begin to quickly follow and those opportunities are potentially even like bigger and more creative than just the the simple payments, just the simple

exchange. And we go category by category and say for this industry, if you were to move payments on chain, what are the other things you would want to have be tied into payments? Identity is the most obvious. You know, fraud protection is another one. Lending is a third, but we see in basically every category, there's services you might want to add to payments that should also be onchain living with that atomic payment product. And once people start using payments, the rest of the onchain ecosystem is going to continue to grow. If you had to make an informed guess, how long would you expect this to play out? I think that in two years we're going to see stable coins turned on as an option in many many many places. Already merchants

are offering online stable coins very readily. I think internationally it's going to be even more popular because internationally credit cards users are less beholden to credit cards and so it'll be easier to add a new rail. But there's there's many ways that adoption is going to happen. So one is this consumer scenario that we're walking through right now. the consumer scenario is a little harder in the US. It has to be driven by by payment service providers. But in countries with inflationary currencies or with lower card penetration or more challenging payment technology, stable coins might be a first class citizen from day one.

Or people are like, "Oh, I could pay for my phone. This is unbelievable. This option didn't exist. I want to hold money in stable coins in in dollar denominated stable coins in particular." Anyway, there's a huge, huge structural demand for dollars in much of the global south. And then internationally, for businesses that work internationally, they're going to be saying, I did not like dealing with the banks when I was doing international money movement. It takes a long time. I have to have a whole team dedicated to managing the process. It's a a major headache, and I'm going to switch. You know, this is small businesses. This is, you know, medium business, large enterprises with with sophisticated treasury management.

all of them are going to move to to stable coins because there strictly better technology. So these three groups, PSPs in the US, regular consumers in the global south, and then enterprise driven demand in the international business community, those are probably the three different drivers of adoption. When will you see it when you go online to buy something or when you go into a restaurant? Well, if you use Blackboard, you can see it right now. And if you use Stripe, you can see it right now online. But when are you going to see it everywhere? And people are really going to notice it. It's going to probably require some go to market energy using the savings in order to incentivize users to to switch to the the new payment rail and then it's going to require the growing network effects and growing acceptance of of stable

coins is just another dollar. 2 to 5 years is the simple answer of of uh to your question, but that's the longer story. Let's zero in on that just for for one second. We talk about stable coins as being global by default, but the world is a big place. What regions or markets do you expect to get uptake first? How is this going to play out on a global scale? I mean, we cannot overstate the structural demand for dollars. A huge number of people, they have a currency that's very inflationary and their version of savings is having money in dollars. It's not putting money in the stock market. It's having physical cash, US dollars. I talked last uh last quarters, last like three months or so to about 30 companies that were doing remittances on stable coin rails

and many of them were growing at 10% a month on top of $1 million to $10 million total payment volume a month. So we're talking just like sort of an industry that's growing at at 10% a month. Unbelievable growth. And that's because if you're in Argentina, you used to have to go to a I mean I did this. I was in Argentina two years ago. I had brought specifically because a friend recommended it. Crisp new $100 bills. They prefer the crisp new ones. I get in my hotel. They call a guy who looks like a drug dealer to come in. He's got a bag full of Argentinian pesos. I give him my my $100. He double checks with the new ones. He gives me the preferred exchange

rate because the new dollars are so valuable. This is not an exchange rate I can get in a bank, by the way. This is like a illegal exchange rate. And to show how practices guys, he's just just churning, counting money to give me pesos. That gives you a sense for how badly people want dollars there. They prefer the crisp new US dollars because I mean, who doesn't? It's it's nice, you know, no bends and wrinkles and folds. No, but it's because people are like treating this as their savings. So, they want it to be really premium. They want to know it's like the most accepted version of the dollar, but this is just so you want your credit card to be to be clean. You want you want to make a sound when you drop it on the table when you're paying. Yeah. You want to have to

flex your biceps to hold your credit card. But there's just a there's just like an absolutely better solution now, which is you could just hold stable coins. Maybe you don't need paper at all. You might not need paper at all. I think that you know one thing that's interesting to think through is what the state of issuers is going to be. So right now 90% of stable coins are dollar denominated fiat reserve so backed by treasuries. I think the market share is like tether has 60% and circle has maybe 40%. Is that right? Or maybe I'm overestimating of the 90% that's right.

The other 10% of stable coins are either what I would call assetbacked, but they're CDPs, collateralized debt deposit stable coins. It's like Maker is the most famous. And I kind of like these CDPs actually. They've proven to be very resilient, very safe, but they're not super capital efficient. They actually kind of mimic what banks do today where they take in assets like mortgages and loans and they turn that into monetary expansion. So, I think that we're actually going to see more CDPs. There's other things like these strategybacked synthetic dollars that I think of more like a dollar hedge fund that I actually don't count those as as stable coins because those seem to me to be an investment product where you should really diligence the underlying strategy being used. Anyway, so we look

at these sort of three categories. Fiat reserve is so large. I wonder if we're going to see more competition in that space. Already we're starting to see fiat reserve stable coins with a more default on way of distributing yield to people who help distribute it. So let's say I make a new payments app, a peer-to-p peer payments app like Venmo that uses stable coins. Maybe I could get a piece of the net interest margin that the issuer has as an incentive for bringing more people onto the platform. I would like to see more variety in in stable coins and I think we're going to end up seeing that. Although the transition is going to take a little bit of time and there's going to be competitive dynamics in it cuz you know circle and tether are great businesses

and they've done a phenomenal job with distribution. The question would be like are they going to end up looking like Diner Club where the Visa is actually a consortium model or are they going to end up looking like maybe like a JP Morgan check when the real solution is the American clearing house of checks, you know? Uh so there's these new systems that we can imagine that allow for a lot more distribution much more quickly than having just one or two issuers run a lot of onchain money right now. So basically the question that you're asking is are the current the the status quo when it comes to stable coins is that what the technology is going to look like moving forward. You mentioned Diner Club. That was sort of like the

proto credit card before credit cards. Yeah. And then the Bank America card came and you could use it not just at like, you know, a few restaurants. You could use it all at a whole bunch of merchants. And then that's sort of the way the industry shifted was toward this much more generalizable, useful product. That's right. That's exactly what I'm what I'm getting at. I mean, the, you know, Dinos Club, they've, you know, made relationships with a bunch of basically New York LA restaurants and said like, "Charge this card. We'll pay back. It'll be good. Bank America card launched in kind of Sacramento area. I think Fresno was the first drop. Fresno was the first drop. Kind of the origin story of the airdrop, by the way, which is a hilarious little detail. We've got a good podcast on that actually all about airdrops people can tune into. But

then it became a consortium where a lot of people were incentivized to grow the network. And I think we probably need that. I think we probably need to share the incentives that grow adoption and grow distribution. And we can't just have Diner Club or, you know, one service provider attempt to go it alone. We want to create a credibly neutral network that's going to require sharing incentives. My question here is, you know, Tether and Circle, they dominate stable coins today. Are they basically going to be Visa, Mastercard, uh, you know, Coke and Pepsi, Uber andyft, or is there going to be a proliferation of other options and alternatives? Okay, so this is actually the timing on that is perfect. I mean, I don't know when this podcast is going to

come out, but Circle announced the payment network, Mastercard announced Deep Stablecoin integration, and Visa has announced a stablecoin payment product also. And so, the three big incumbents just fighting to preserve their position in the market. Part of why I like investing in this category is because the future's not clear yet. It could go any way. The only thing I feel confident in is that in order to get widespread adoption, we're going to have to incentivize distribution. And so specifically what that means is Circle or Tether or Mastercard or Visa is going to have to open up their pocketbook and share some of the money they're making for managing these payments. I think we shouldn't be deceived. Like we can't

allow a centralized institution to, you know, open up their their pocketbook and then close the door later. We don't want to get into a situation where we're in an extractive network again. And so the the best possible outcome in my mind is a competitive marketplace built on top of a credibly neutral decentralized global network on top of a blockchain. And I think we're going to get there, but the history has not yet been written. And we're going to continue to make investments that help us get into that future as much as we can because we think that's sort of the the way that leads to the most prosperity for everyone. Sam, from what you're describing, it sounds like if you want to understand how things are going to unfold, how this industry is going to evolve, it helps to think about crypto

speedrunning the history of finance. And so, if you want to understand how it's going to play out, look to how finance unfolded. I think that's a a reasonable thing to say. But there is a core change here, which is that we spent 50 years on top of a legacy technology payment stack that was actually holding entrepreneurs back. And so when we look at the next generation of sort of payments products, they can get much more creative than the last generation. And so it's not just that we're going to speedrun banking history, but we're going to unlock very large new opportunities. So there's products that you never would have attempted because they would have been too complicated to do before. Streaming payments is one. Let's say I pay my

electricity at the end of the month. Could I be paying them on a day-by-day basis? People have tried it, but the structural costs were pretty high. The programmability of legacy payment rails was pretty low. Well, now you could build a a streaming payment product where you're sending payment as you use something pretty trivially. And the benefit is significant. It might not have been worth the cost before because it was so complicated and so expensive to run existing payment rails, but now you could build that business pretty easily and people are going to do that. I mean, electricity companies want to be paid more quickly and users want lower fees, which they can do because they're not taking out a loan from the electricity company. It's sort of a weird setup that you are getting a 60-day loan for for electrical power at your house. And there's other things.

We've got a portfolio company, Blackbird. They're doing integrated payments and rewards for restaurants. Well, there's kind of a reason why there wasn't a restaurant rewards product that also handled payments. The TAM was always large, but the cost to build it meant that it would be hard to get off the ground. And look, that's now possible. And that's because payments are getting a lot cheaper. You can track loyalty points on chain as well. You could track restaurant information on chain. Restaurants aren't scared that Blackbird is going to aggregate and squeeze them because they're on incredibly neutral decentralized blockchains. We see it also with agentto agent payments. Why would the large AI companies allow just one centralized entity to run all of the agentto agent

transactions? No, they want it to be on credibly neutral rails. And so the there's a very long list of things that only become possible now that we've got stable coin payments and we've got this credibly neutral infrastructure to build additional products on top of and the whole thing is going to work in tandem as we grow the TAM of of the payments industry. That's a really great point that as much as stable coins represent an evolution of progress in the financial system, they also represent a step change. We're actually entering this new regime where things that were once not possible now become possible.

And some of your examples like the confluence of how stable coins and crypto might coincide with AI agent payments. That's one really great example of the kind of thing that you maybe could not have prior to this development. Yeah, we reached par. Stable coins are as good as traditional payment rails. Next up is copy table stakes functionality and then after that we're going to enjoy the benefit of a step change forward in what entrepreneurs can build on on top of stable coins and it's going to touch every industry. Looking forward to seeing what people cook up. You guys, thank you for listeners out there. If you would like to learn more about this, check out a6zcrypto.com.

Sam and Chris have written some really great pieces about stable coins. Sam's written about how stable coins are going to eat the payments industry and also how you can look toward the history of the US banking system to understand how stable coins are going to unfold. And Chris, you've written a great piece on how stable coins are payments without intermediaries. Thank you guys both for coming on the show and talking about stable coins. Great. Thank you both.