Stablecoins past, present and future with Agora's CEO

Transcript

GM good morning welcome to the milroad show The Daily crypto show where we break down crypto smoother than finally realizing why you walked into that room I'm your host Jay Hamilton and today we are joined by Nick vanck CEO and co-founder of Agora stablecoin that's ausd in today's episode we will discuss the past present and future of stable coins starting with tether leading up to today's yield bearing stable coins we're going to talk about what stable coin could win in the end what is that product going to look like and we're going to finish with most stable coins are all private companies so as an investor how do you get exposure to them we're going to talk about the different ways you can do that before we jump in

we are so close to 10,000 Subs on YouTube and if you subscribe before we hit 10,000 you could win thousands of dollars in free prizes so make sure you subscribe today before we get there also we got to give a quick shout out to our friends over at uphold meet uphold a trading platform that's changing the way you think about money imagine this earning up to 4.9% apy on your us no catches no lockup periods and no fees and yes it's FDIC insured up to $2.5 million but it doesn't stop there uphold is a global platform with over 10 million users in more than 150 countries

they offer access to over 300 digital assets which you can trade store and exchange with confidence knowing uphold operates with a 100% reserve and a transparent model so how does it work create your account fund it with a few Taps and you're ready to go want to learn more click the link in the description and join uphold today Nick welcome to the milk Road Show thanks for having me very excited to have you nick uh I want to start off you've given uh you've been on a bit of a tour recently uh given a bunch of talks at uh a Mission lless and token 2049 uh so respect the hustle my man uh and one thing I've heard you describe

well is just sort of like the eras of stable coins going back to like the beginning of stable coins up until today can you sort of give us a a breakdown of uh the way stable coins were first created what that product looked like then versus what we are seeing coming from stable coin product creators today yeah uh happy to do so we actually just I think passed tether's 10year anniversary uh a few weeks ago and so you tether was really one of the the original Stables uh and they were instrumental and in bringing digital dollars on on chain and in many ways were you you know and continue to be Visionaries in in the space right and back then it was primarily used as a

tool uh for Traders to move money you know from exchanges um but also um you to replace uh BTC as the quote token or collateral asset on on exchanges so tether got going 10 years ago then you had really this big crop of exchange back Stables get launched in in 2018 2019 uh with projects like usdc which was done in partnership with coinbase uh BD which was done in partnership with binance gusd with Gemini uh and the list goes goes on and these were primarily single partner model stable coins right so all of the rent uh accured to The Exchange change um that was backing it

right and you our view is that the market structure has changed dramatically since then right even in 2018 2019 the primary use case uh was to replace BTC and other assets as collateral and as the quote token on on exchanges uh you know I'm not sure when you got in uh got into crypto but I remember in the 2016 days like everything was denominated against uh BTC right but um the landscape has changed dramatically uh since then right in 2018 2019 you hadn't had defi summer right you didn't H had this explosion of multiple different chains multiple different VMS um and our view is that these single partner models don't make sense um

because liquidity and utility uh for stable coins is driven primarily by other businesses and their users right and and in today's world everyone else is really cut out from this economic equation other than tether Circle in base uh and so uh and I would say even in in the usdc case um more perniciously is you know coinbase is now competing with pretty much everyone right and for every dollar that usdc generates whether it's on salana uh in fireblocks on buit um you know half half those dollars and that revenu is going to coinbase who has a chain they have a wallet they have a custodian they have an exchange broker Etc and our view

you know and specifically like I was like looking at this I was like this is like wrong right like this is like almost worse than banking right and uh so I was sitting at my desk a little over a year ago and said okay like we need we need to change this we need an Institutional grade incredibly neutral um stable coin that can partner with with all these businesses and so that's that's what we do um we use one of the largest GID Banks is our cash custodian fund administrator and then we go to Applications exchanges fex and say Hey you know you're actually the ones that are driving a lot of this value to these monetary networks and you should capture the majority of that and so we share you know 50 60 70 80% of the net income um with the

end uh the end business right and that could be an application like a it could be an exchange it could be a custodian it could be a payment company and that's the beauty of it it's super flexible like regardless of the business you know we're oneto one stable we KYB that entity you know sign sign the and then boom um you know we track everything on the back end pay cash flow to these businesses and then give that business owner the agency to you know decide what to do with it right um it could be improving you know the security of the product reducing you know on and off ramp fees around around uh a USD or you know other assets um using it as as marketing spend to drive more usage to a USD vaults or what whatever it is and and so that's sort of you know where

we've come from and and where we are today and we really are you know uh Believers in this sort of stable coin 3.0 thesis that agor is leading which is like you know 1.0 is tether 2.0 is these exchange back Stables you know this is the Ultimate model which is an open an open model uh where we can work with with any provider right and then they join this Network that has really broad utility and and liquidity uh they don't have to run their own stable but they're making the economics as if it was their own stable right um and so yeah that's that's that's a little bit of the the backstory there yeah I love I love that and there's obviously uh so much potential and I think we all I mean we all see this with if you haven't seen uh a a chart about uh the revenue or the

profits that tether is making then you're probably living under the rock for the past you know few years because they've just been absolutely crushing it and so we're all aware now of like oh my gosh look at this incredible business it has really it's the killer app of of crypto so far stable coins is clearly here to stay and clearly has so much potential but then you look at all the profits being made you're like okay well why don't we share that and so the one thing I just want to understand quickly is what's the difference between I think a lot of our of our listeners will understand more like a like a blast stable coin which is aiming to share yield native with the user that's different than what you guys are doing it a Gora can you explain that

difference for everybody yeah that's exactly right so we are uh one to one um and one of the challenges with yield bearing Stables is they're pretty clearly security products in like 70% of global Capital markets right um so they'll never be issued on exchanges payment companies can never really use them and so that really lowers the ceiling of utility and the users that you can address and if you're a stable coin you should be trying at least trying to become Global money like we are you should be maximizing utility and liquidity and so it's very clear that you need to be one toone stable so what we're doing L is going to all these uh different businesses and providers um and saying hey you know KYB with us and

then what we'll do is we'll share the majority of the income with you as as the business owner and then you can choose to do with uh it what you want right so let's like use a uh as an example right the a DA uh would would KYB with us um we track the smart contract address where the a USD balance is sitting we know exactly on a block by- block basis uh how much a usd's been in that address and then at the end of the month pay them right and then they can choose to do with that cash flow what they want the same is true for exchanges custodians um whomever and we have a pretty broad Network now of over four 55 actually today businesses and applications that are already on boarded with us um we have another you know 100 plus in in the queue um and

ultimately you know we we we want to have like very broad coverage right um and it's sort of like the Paro principle where it's like you know sort of 20% of these participants Drive 80% of the activity um and so you get uh great coverage and then ultimately a USD is going to be the best stable coin product for you regardless of the environment that you're in whether it's a centralized exchange an app whomever and it's super flexible um because it's it's compliant with with these regulations and so that's that's the main uh the main difference between us and like a yield bearing asset uh the one other point uh I'll I'll make is that you know these yield bearing assets really don't have much margin when you're a stable coin issuer you need to be funding

liquidity programs driving BD Tech development compliance like and that's expensive and that's sort of why we think this is the right sort of threshold where you know we keep a a small spread and then pass it through you know the majority to these businesses because then we can go build that Network for them right and then instead of having you know hundreds of different teeny stable coins where people are trying to like you know build out their own network or liquidity program which is really hard you know everyone can just sort of opt into our money network capture capture the majority of the value and and really have to do nothing all they do is just implement the erc20 token and then boom you're ready to go uh and so it's super easy um and and this is what we think the world should look like

right as opposed to you know tens of billions of dollars getting sucked out every year to Circle and and tether it's us pushing it back down to every single business that's operating across crypto um and you know ultimately they they'll build the best products for their users around a USD right right and so uh just to make sure we understand the regulatory difference here uh because you are offering the incentive or the payout or the revenue share whatever you want to call it uh to the businesses that you're working with you're you operate you exist around regulatory issues whereas if you are offering yield to the end user now that regulatory issues am i

that's correct yeah that's right exactly right because we're KYB anyone that we're paying right uh the issue with these sort of non kyc yield bearing assets is you know one there's Security in a lot of different jurisdictions which has you know leads to a lot of transfer restrictions but two if you're interacting with the banking system uh you can't uh pay people that aren't aren't kyc right and so even if you're offshore outside the United States not just the United States but a lot of different jurisdictions whether it's Singapore Europe Etc will have uh have issues with that right and so you know if you're a centralized uh you know provider it probably doesn't make sense to to be doing something like that right right okay let's talk for a moment about um we've talked mostly so far

about more centralized stable coins there's also decentralized stable coins um are decentralized and centralized stable coins competing against each other or is there a long term where both will exist yeah I think there's a longterm where will both should exist right so I just you talked about how you know centralized providers probably shouldn't be paying uh out uh interest um or or paying anyone that is in kyc well decentralized Stables can do that right and so if you're looking for a yield bearing stable coin the best one is probably a decentralized product right um You what I'd also say is there people sort of lump all these stable going together as like sort of one morphous thing right all very different

the way that I like to think about it is like the fixed income market right like if someone wants to buy like a you know very low risk low you yield safe asset you know they buy a a one month treasury if someone wants to earn more and like go further out on the risk curve they like buy like a junk bond or a corporate bond whatever and that's sort of how I view this it's it's a spectrum right where like the centralized issuers are at the the lowest risk and in the Spectrum and then um you know you can sort of you pick your pick your poison or pick your asset so to speak and and go further out on the risk curve if you want to be having you know more interesting assets you know like in an ethena right um where you know you can

be getting you know 20 30 40 50% um depending on on what the the market environment looks like um and you know you're taking uh you know some some risk uh a little bit of risk there right you know there's like a s-day lockup if you want to stake it and and earn it Etc but I think there's definitely a world uh where these continue to exist and in many ways decentralized stable coins are partners of ours so my co-founder one of my co-founders Drake was the lead Dev at fra we're very close with the the fra team um a lot of decentralized stables are consumers of centralized stable coin products right because they need a product that has really good and seamless Fiat on an off ramping but is also you know really safe and and a

stable unit of of value um and so we work with many of these uh you know providers A lot of them are using usdc or usdt today um we'll expect them uh to start you know moving over to to a USD because uh you know with them the rent is going to circle and tether why wouldn't they right like it's like yeah why wouldn't they move right it's no-brainer especially if you're like if you have yeah LP positions and curve or other things uh and so um they're really good good partners of ours and I you I think we're we're going to be great partners to them too right uh there was a once you know once upon a time when fra had 300 million of usdc right well imagine if that was a USD or another another asset um that wasn't really rent

seeking on that on that so uh yeah think think there's a world where they both continue to exist and decentralized Stables will Thrive yeah yeah I completely agree uh you brought up earlier um that in the in the early days Bitcoin was money on chain uh and now eth eth has become more money on chain at least within the ethereum ecosystem and all of its l2s and and there's an ongoing debate of whether or not eth is money and I don't mean um eth is money as in like you're ever going to buy coffee with it that's not the purpose of eth but uh within the ethereum ecosystem eth does play a significant role as being collateral as

operating trading pairs it's money to buy nfts within ethereum right now um not that nfts are booming or anything like that or many people are buying them but I think my question to you is what do you think will be money long term on chain will the ethereum continue to be money within the ethereum ecosystem or will eventually it just everything will be Stables yeah I think um one point to call out first I think this Market is going to all grow as a whole what I do think that it happen is Stables will start to capture some of that market share in terms of moneyness from governance tokens on chain today um and I there's a number of re reasons for that I think you know basic reasons is

it's a lot simpler for users to understand okay you know I have $10 here in my account that I can use for gas fees uh it's not a price volatile asset um and like that's just like a better user experience and it's it's something that people are used to in their everyday lives like today right so I ult I do think that stable coins will start to be used for gas much more frequently and take over uh some of the use cases that that governance tokens serve on l1s and and l2s today for sure um but I do think that many of these governance tokens will continue to sort of be money for that chain um but I think this isn't like a you I don't think this is you

know a zero some game I think um this Market is going to continue to grow activity on blockchains will continue to grow and so even if stable start to you know take more and more share um they're not going to consume 100% of it um let's just zoom out for a second so stable coins reached about 180 billion I believe uh in the last cycle now we're getting up close to 180 billion again I don't think we're quite there but we we're close to that all-time high level when you look at the adoption of stable coins where do you think we're at right now uh how do you think we're doing within this cycle throughout the past few years and then

like where do you think we're going yeah so Fiat stable coins are actually at an all-time high right because that 180 number includes like a lot of these algorithmic Stables that completely blew up right and so we're actually at alltime highs when it comes to Fiat back staes so I think you know where are we today um I think stable coins are the stepstone to broader tokenization uh over the next 10 to 10 to 20 years and they're not just like a 10x better product they're a 100x better product than the status quo today of moving money cross border and and accessing dollars right so um Beyond usage in Defi and and trading and and all that stuff There's real utility that uh Stables can bring to to society and

are bringing and we're seeing a lot of crossb payment companies B2B payment companies approaching us um about using and integrating a USD um for their platform I think this is just the beginning I think the euro dollar market which is over 15 trillion will get completely eaten by stable coins over the next 20 years so the $180 billion doll number today I see you know I see it 100 Xing certainly 10 Xing um within the next five to 10 years but I think it'll it'll 100x over the next 20 to 25 um and you know we ultimately W to you know win win market share because we

believe that this is the best model um and you know be number one uh given that we're actually you re uh you know thinking about like value captur entirely different way and actually pushing it back to all these businesses um that are you know opt into our Network um but it'll be uh I think a market where you'll have five to 10 very large providers similar to you know uh financial services and asset management uh today but I just view this as as really the beginning and because it's the beginning I think the interesting thing to understand is it's very easy right now to think tether has won right they're dominant they're so big so much bigger than than anybody

else that nobody else is even close I mean I guess usdc is maybe a quarter of the market cap that tether has uh but the first doesn't always win because often the first is built on the tech that they have at that time and the ethos of that time and the decisions of that time not without knowing what has what can happen and that's what's interesting about stable coins to me now is I think we're seeing a lot of products be built now that weren't built 10 years ago when tether was first built because they just didn't know or have that have that for exist exactly yeah e Ethan defi literally did not exist when tether started like was just crazy that is crazy so why has tether done so well uh I think there are advantages to

being first mover I think they understand uh their core user Persona well I I think the usdc and usdt user personas are not uh 100% overlapped um I do think there's a large portion of tether uh users that would use like an Institutional grade stable like us or usdc um because you saw when Circle dpeg you know 20 billion went from usdc to usdt right so those were clearly users using usdc that then went to usdt um and so I think there's a little bit of a a mix there but um you know I think they've they've also managed to I think instill more trust in their product over

time right um they you know met like a very large amount of redemptions last cycle they haven't had a dpeg um you know like I just mentioned right like like that dpeg for Circle was um pretty traumatic to their business uh because billion from usdc to tether in the span of like a month right I think people forget this too right uh and you sort of like almost like bury the lead but like usdc was getting close to surpassing tether like it looked very clear for a long time that Circle was gonna pass tether and then you know obviously that that happened and um you know they haven't really recovered since then uh

so we'll see but you know for from my perspective um the like the next 100x for these ass doesn't come from BTC and eth trading which is where usdt is particularly strong and so I think there's an opportunity for us or others to lean into what we believe the 100x markets will be for blockchain uh and so that's why you know from day one we knew it was important to be institutional grade like um and so we have one of the largest gips in the world that manages our our assets um then we have an asset manager that um you know makes the the security selection which is primarily overnight reverse repo and uh one to four T bills so nothing uh too crazy

very vanilla and um that enables us to scale to a trillion dollars like if we need to um because our bank uh you know our bank has you know a balance sheet in the trillions of dollars right so where with these Regional or small banks that you're kind of getting with these low tier providers like they can't even scale to like 50 or 100 million of assets um and so it's important to be institutional grade from day one and I think that's also why we're seeing a lot of interest from not just crypto businesses but traditional businesses so early on in our our journey I've got to ask just since you you brought up a a followup question there is what where do you think the next 100x is when you step back and you

look at crypto and blockchain space and you're obviously deep in it and attending all these conferences and seeing you know a lot of things being built but we're all still waiting for you know what is going to bring on the next the next wave of users where do you think yeah I I don't want to get too into the details and like uh and give away some uh some of the stuff that we're doing but uh what I'll say is I'm a big believer that blockchain is eating Financial Serv will eat financial services and payments all of it Banks uh traditional exchanges custodians FX and if that's your thesis um there's a few areas where uh it's obvious C in right because you think uh

that blockchainbased rails will take over some of those those markets and and Market structure and so that's what we're we're planning to do uh you know we'll have some I think fun announcements uh early early next year or maybe even later this year around some of the markets that we think uh will HX that said we're still leaning into where crypto is today um you know most of our uh customers and you pretty much all of our usage is coming from native businesses and and applications um and so we want to grow grow with them and uh you know we have very good relationships with all these different ecosystems where we've deployed because that's also something that we're Believers in is you know Fiat

Stables are the most important asset to any ecosystem and you kind of this doopy where one player doesn't really interact with anyone and then the other is uh you know has this sort of single partner model with coinbase like we can be a close partner to everyone everyone wants to be a you know like have have a relationship with their stable coin provider and so like that's what we are trying to do and I think we've done it pretty well uh to date um and just need to continue to to execute but I think also part of the reason we do well that is because we just believe we believe it like and like Drake you know came from fra and and defi Joe my other co-founder was head of global operations Galaxy for the last six years and so uh you know I got into crypto in 2016 you know got

Vanek into it back then um so uh like we've been in this space for a long time and care very deeply about it and its participants okay before we wrap I mentioned at the beginning of the show that one of the challenges for our audience is we're all investors and most stable coin companies are private right now there's talk about usdc going public and at that point we could invest in it not in a token onchain way but in regular stock market way what are the ways that you think that investors can get exposure to if they if they believe in the thesis they buy in hey stable coins to the killer app I think it's going to 10x 100x how how could they get

exposure to that there's not that many Avenues today to be to be honest a large amount of the value will be driven towards issuers infrastructure and applications I think though in ways that investors like can be can get exposure to like stable coins is because like by using Stables you're actually receiving a lot of value back right like I saw a tweet from Victor buan today coinbase is like transaction fees are going to zero right what what he means by that is like if you use like your Visa or Mastercard today you don't see this but the merchant pays 3% right and what they do is then they just raise the price of everything to to pass that cost on our consumers but by using stable coins more

and more in your daily life you're actually going to capture a lot more value in the long term and I know that this is like a little bit you know theoretical but because you're getting rid of all these middlemen in the system right and this is also why it's like it is 100x better because if your business moving money across border today uh and you send it from your account in Mexico to an account in Singapore could take days where the bank is then earning income on it or and also you don't get it right away like it's like it's ridiculous like where today it's like oh I'm gonna send 10 million bucks I see it in the men pool one second Don it's there right and like that is like 100x better so um from an investment perspective yeah I think there is

to be honest not that many Avenues available yet but I think by using Stables you're actually driving a lot of value back to yourself your business or just your daily life right which is I think part of part of the beauty of it but we'll see there may be you know more ways to to play the stable coin game in the future seems like m&a in the space is is heating up and you know there's going to be a lot of a lot of eyeballs on this on the space so yeah yeah it's so funny you bring that up I had to uh uh take $20,000 in cash out of my bank recently to pay for a new roof and it took my bank one week to be able to give me $20,000 one week like I had the money's there and I had to email them

and wait a week like you don't own your own money I was like what we withdraw I remember uh this like a decade ago now but like I he was taxis in you know I was lazy like getting down the wire and I was like okay like I'll just sell you know equities to pay you know this this tax expense and then you know remembered when I did it oh I have to wait three days for the cash to settle before they wire it to my bank account and I'm like looking at the clock I'm like oh well I just just snuck in before the deadline but it's like it takes days and it's just not a good process it's not composable and like that's why I'm a I'm a believer that blockchain is the financial Innovation that uh fintech

never really had and financial services never really had the fir last 15 years of fintech has all been demand aggregation UI Improvement customer segmentation like even stripe which is like the largest private fintech today like they're still using all the same rails that everyone else uses right whereas There's an opportunity to build uh brand new businesses based on blockchain based rails which are 100x better than Swift or a or any of this stuff and so like that's like the like the I think the the outcome here right is you get this like 100x from just changing how everything in the world moves right like all the money all the assets like that's that's G to remove a

lot of middlemen and make the experience much better for individuals and businesses 100% 100 percent the other thing I think you could do is you know you could invest in the underlying chains that you believe will win stable coins now will will one chain will win stable coins or more likely there will be a whole bunch of chains that win stable coins especially as fragmentation and liquidity and I know you guys have a great partnership with Wormhole we don't necessarily have time but if you want to add it quickly we could actually well I was actually just going to say that's actually a good point right is like if you uh if you want to get exposure to stable coins you could look at chains that are act very active in the future of finance and and payments right um and there's a lot of things uh that are

important to like those organizations that will lead them to choose a chain um so a few of those things you know High throughput low latency low transaction costs ability to have like permission environments um you know teams at the chain level that really understand institutional capital and and financial services who can speak the same language of these people that probably don't know much about blockchain and are coming to uh those foundations and saying hey like what could you guys do to support you my financial services business if that team gets Financial Services they're probably more likely to land them so yeah maybe actually you know we sort of found found a way right to get exposure if you if

you believe in the stable coin pie well and and the interesting thing about you guys is you know you you launched on ethereum first you launched an avalanche as well and then recently you launched on soie and that really stood out to me and really your thesis that you've just mentioned you know high throughput low latency I'm assuming that's why you you did that and for everybody listening in if you guys haven't listened to our stable coin episode make sure you go check that out uh we did a um sorry not our stable coin episode our sui so we did episode on SOI recently so go check that out uh if you want to listen about ethereum we talk about that every day so that's nothing new uh but was that the reason that you guys launched on suie that was def that was definitely a large

part and also like the team just executed right they came um uh from obviously from meta and you know Facebook and this Tech was built to service Fortune 100 company that was going to move money around the world and so you know we felt confident that it was going to you know be one of the environments where people look to in the future you know we also have few additional chains coming soon uh you know so M will be this week uh and then injective uh will be the following week but that one's a little bit underw wrapped so maybe cut cut that one out but mantle will be live we'll bleep out that one and your guys are gonna have to come back I like it yeah bleep it bleep it that's good that's a good one yeah

yeah but we you know both of those organizations are really focused on on Financial Service and attracting you know payment uh payment companies um and and like the next 100x of crypto right I think you know defi is in a very good place and will continue to organically grow but I think there's uh an opportunity to capture you know what'll be the next 100 100x Nick it's been an absolute pleasure to have you on the show thanks so much for sharing everything with us and shout out to you and your whole team for building in this space for being entrepreneurs uh and taking this task on it's a big uh big Endeavor and uh we all believe in stable coins and the more we can spread it the better off we are so much appreciated yeah thank you for having me awesome thanks so much for listening in

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