Stablecoin: a new form of e-money ?

Transcript

but maybe not outside so tina could do explain us what is a in very simple world what is a fiat packed stable coin and after pablo you will explain us what is a decentralized or an algorithm stable kind please sure well a stable coin as the name implies and i have to be clear that there is stable and name only coins as well but the concept is that the price does not go up or down so you know i've been teased a lot this week about when my token is going to pump and the answer is never if it does it's broken so um essentially a centralized fiat-backed stablecoin takes in dollars or euros they're held in a bank account and then a token is issued that

is a representation of that unit of account and then that token can move around being a representation of fiat and then can be redeemed one for one so essentially it is a you know digital dollar digital euro that can be used within you know the web3 ecosystem and people ask me all the time how it differs from a cbdc and i think one we don't we only have kind of one cbdc out there in the world today but for me the major difference is that most cbdc's that are being discussed aren't potentially going to be built on distributed ledger technology or blockchain and a stablecoin is inherently digitally native um and integrated into

blockchains cbdc the euro or e-dollar issued by the central bank and as you said it it will it when when it will be issued if it will be true it will not not necessarily will be in blockchain it could be on on other infrastructure i i would say it's probably likely not to be issued on a lot of time okay um so yeah maybe uh to give a bit more perspective on stable coins so you mentioned fiat stable coins but the way i said it's crypto assets which value is which which are designed to track a specific value it doesn't have to be necessarily a fiat currency we could have like a stable temperature we could have a stable gold we could have a stable u.s treasury bill and so it's really centralized finance tradify assets that

are wrapped under a crypto format and so there is a way to do it in a centralized way like companies owning the trad fire set in their custody and issuing a tokenized version of it or there there are like decentralized table coins which job is to take crypto assets strip away the volatility of these crypto assets to make something uh stable and that's what we are doing with engel with agro we are backed by a wide range of different crypto assets including usdc uh and the protocol we have built and the protocol other decentralized table can rely on uh all consist in removing the volatility absorbing the relative descriptor assets to make something stable so famous example are die from a maker

the upcoming go from ave if it is voted positively by governance um and there are other like non-usd stable coins so for instance jarvis it's a another french d5 protocol and they make a fiat pack stable coins but in a decentralized way back to many different currencies in the world but well there are many many different protocols but yeah thank you very much uh a last question for for from a fake beginner as i am it's what is the what is the use of this stable coin what's the stable coin i became so popular so so why why there is so billion of dollar of stable coin in circulation there is a very clear reason and i think

it goes back way before we started thinking about regulation on imani first crypto traders a few years ago needed a way to go between fiat and crypto to make trades um without coming back to our legal currencies because in most cases there is a tax consequence when you trade crypto against fiat so basically that's why uh usdt at the time was created uh so traders have a way on centralized exchange at the time to trade uh like btc against uh the us dollar without having to have this issue for legal currency and bank accounts so it's absolutely the reason it's still the

reason now in d5 that central that stable coins are used so much it's because it's a way to trade basically you want to add something sure i think in addition to the tax implications one of the things that has changed pretty dramatically over the last three years maybe so usdc is about four years old so maybe it's four years uh you know tether was born i think not just um because of the tax implications but also centralized exchanges couldn't get fiat on and off ramps so it's really hard to even deposit and fund a centralized

trading account and if you have multiple accounts across multiple trading platforms and you're doing any kind of arbitrage trading across them it was really difficult to request a bank transfer wait three days have your account funded then you need to withdraw and move it to another exchange there's just a mess so i think that that adds to you know some of the kind of withdrawal and deposit challenges but equally um i think that when you look at defy and kind of more decentralized finance emerging use cases people are now using them really for payments um and as a settlement tool in addition to the trading activity

so outside of the crypto ecosystem like they can use or the foreign i mean any form of stablecoin as a mean of payment with the advantages of the blockchain technology okay very interesting samuel will give you the the the mic have you identified some risk attached to stablecoin uh is it something you have uh you you want to talk about um it's hard to think of risks in crypto but um i i think we all witnessed the the the recent glorious crash of luna the terra luna which was there quite a predictable um several months ago when even before that

people started talking about the expected crash of luna and there were some previous uh examples bases going and this is uh mostly associated with uh algorithmic stable coins which are essentially uh i don't know if the word flawed is the right one but it's i don't think there was still found a good mechanism for uh backing a reserve backing your coin with a stabilized stabilized reserve if you're not just sticking to one to one use dollar reserve like circle does it's very difficult to maintain what you are trying uh it can be profitable if crypto if your reserve goes up but

very problematic if it goes the other way so uh i think um the ust uh stablecoin everyone knew it would fail i mean serious people and you knew it would fail for the list like it was not a collateral on away for this reason but it's not because you are crypto backed that you cannot be stable and if the value of what is backing the stable coin decreases as long as you have good liquidation mechanisms that ensure that the value of the reserves remain superior to what has been issued then there is not an issue and um like maker has proven the resilience uh of die under like severe market conditions uh heavily adversarial um so i still think that there is a way for

decentralized stable coins to exist um and to um to keep their peg even in uh in downturns it's true that the the the effect of this is that the supply of the stable coin tend to decrease of decentralized stable content to decrease during market downturns but it doesn't mean that these stable coins are losing their peg and on the other hand since we are talking we were talking on the risk of decentralized stable coins there are also some big risk with centralized stable coins which are one one backed the main big risk is um like censorship risk a regulatory risk like um i may own a like well i won't speak for a circle but either for instance they may own a usd at the bank maybe not

in a in a developed country but they own usd at the bank and the governments may have the power to censor their usd at the bank or governance may also have the power to say look your stable coin is illegal i'm going to seize all your assets so this is one big risk when you are dealing with centralized stable coins the other rest has got the centralized entity issues more than what it has in reserves um so in the end i don't think it's a big risk because banks typically issue money in an under characterized form and i don't think that the crypto markets are ready for like a multiplier effects in which you have 20 in reserves and you are issuing a 100 on top of that it will come one day mostly under the form of cbdc's um but this is another risk and the last

risk as i said is the censorship risk like let's say there is um an entity which decides to blacklist me because i don't know i've participated in a forex level trading at engel um well there could decide oh look we're going to sensor all the assets the usdt from this address and this address will no longer be able to spend this asset and with decentralizable coins it's a risk you don't have because you it's permissionless money like anyone can spend it an agreement for any other people so it's typically like a free system uh it comes with its risk like in the economical models but you don't have to worry about trustlessness censorship

resistance and regulatory risks okay we understand from from your from your from your speech uh pablo that decentralized stable coin and and and fiat back stable coin have in both ways there is some risks that exist but they are not the same the same kind of risk and you can not do the same things regarding regulation i mean it will be maybe more on the bridge between the stable coin and the retail for instance and with with a centralized stable coin you have maybe the ability to implement the regulation uh directly as an issuer i'll let you uh i'll let you answer which one want to talk about yeah so i think the the issue there too

is that regulators aren't quite sure how to approach um the oversight of decentralized stable coins so it's a bit of a gray area at the moment and we are seeing a swath of legislation around how centralized and fiat-backed stable coins should be regulated and principles around how the reserve should be held where they should be held how they can be hypothecated not at all you know can they be lent no not at all so you know micah has some very clear rules for how fiat backstable coins will be um overseen um and that's at the prudential level so going back to your question about e-money i think that's one of the major

changes that we're seeing is that stable coins are being seen now as financial market infrastructure which is significantly different than e-money and the governance mechanisms for financial market infrastructure are much greater at a prudential level the same way that a bank would be regulated so yes to be able to offer that level of a lot of people would argue that provides trust and confidence to people if you believe in the banking system that they're not going to go under um but equally that also provides for a significant amount of regulatory obligation right and so somebody like circle does need to be able to

demonstrate that we've done our kyc that we understand you know the aml risks that we employ risk management strategies that protect a run against our stablecoin for example did that answer your question yes maybe victor or samuel you want to you want to bounce back on what uh told about mika is he is i understand from your point of view that mike if i understand well doesn't use the right level of regulation for stable conditioner or i mean it's a choice that is uh very constraining well i think that what mika provides is clarity and consistency across 27 member

states and that's a good thing specific to stable coins there's a couple of things that i think are going to be problematic to implement and to enforce so for example there is a daily transaction cap of 200 million euros and one i just don't see how they're gonna manage that um two in my opinion it was a reaction to um nervousness around a corporate coin like libra um basically disintermediating sovereign money the euro um and you know micah is very specific that a number of the parameters that they put in place are to protect monetary sovereignty so

they're they're not even being coy about it right i think the other element that at the time seemed onerous but now we're starting to see consistently across other jurisdictions the dual regulation so the issuing and the payment facilitation of payment transactions is still considered e-money so will be regulated at a local level by the amf for example and the financial market infrastructure element will be overseen by the eba the prudential regulator so you have two regulators the uk is also considering this model a dual model with the fca and the bank of

england and we're seeing legislation proposed in the u.s probably next week that will take that same approach so you'll be regulated at a state level potentially and then you'll have this federal wrapper in addition and systemic stable coins will have to have an account at the fed so um i think that going back to my get kind of set a bit of a trend and i think there is a balance between ensuring that we have the money in the bank that we say that we do um that it isn't lent out you know that that people can redeem those funds in a balance with understanding that financial market infrastructure for

crypto assets is considerably different than traditional banking so we use open source public blockchains for our rails unlike visa or mastercard who are also financial market infrastructure who own their rails so that's a major difference about mica it seems now very probable very likely that there will be a split in the market between unregulated stable coins that will be used by traders and people mostly in defy either to make payments or to trade or generate yield under regulated stable coins it's i don't really see any way right now

that are the stable coins that are massively used in the market the ones like usdt and uh probably usdc2 will get that exact regulatory status that they would need under mica and will be able to be fully usable on chain with the full transfer ability under no white list and no like uh constraints of that kind so yeah i think that the future is probably like a split of the of the staff local market samuel from from israel what is your view on on stable can regulation you are in line with uh there is something happening in israel

or you are in line with your following what happened in europe and the u.s maybe uh so not much happening uh regarding stable coins in israel it's a small market and there are some discussions about the israeli the digital shackle with the central bank but the commercial issues are not going to be soon likely um i think in general it seems that uh i was pretty fine with the old-fashioned e-money uh framework for stablecoins which was just working well for issuers and the ins in this case the lack of regulations was uh uh useful uh for the industry to allow the

uh the distribution over transaction over this decentralized protocol so it kind of made sense but it seems like there um there were some flaws so it will take some years to develop the right framework but interesting to watch i would say okay great you want to the one thing i'll say too is that if you have the global regulatory community looking at this this asset construction um and then something like ust happens i mean it it is just like a red rag to a bull right so i hate to sound like you know an old

woman but we also need to stop giving regulators the fuel to substantiate their skepticism right like the market just crashed out and as a number of people have said anyone could have predicted that that was going to happen so um it's not a good look and you can see why they're taking additional steps yeah it was part of my introduction introduction to this panel it's the recent event like market event but also the massification is fueling the regulator activity um pablo last question for you it's uh what is your view on the upcoming regulation as an algorithm stable kind so we

understand that you are very different architecture that centralized one you are more close to a software provider implying some economical risk of course so how what is your plan regarding mika for instance the plan is not defined yet we like i don't think mika at the moment there are still some blurry areas which need to be defined there is a defy exemption but they also said that the regulation for stable coins is going to be applied to a great mixtable coins but they're great mixed stable coins are part of defy so we don't know where we will fit in that in that scope now like our plan is to to bring a value that centralized stable coins cannot

bring like centralized stable coins they're more efficient and more efficient form of e-money because it's easy to uh on on-ramp and off-ramp one-on-one super super efficient but what do we bring with decentralized table coins we bring transparency we bring like as i said before you don't need to trust the protocol you can just look at the code and we also bring some form of regulatory edge so our take at angle is to be on the line in terms of yield opportunities we're going to provide like for instance uh i guess uh either but maybe also circle may own treasury bills in their reserves but they cannot give the yield of these treasury bills to their stable coin holders uh since the mika prevents is going to prevent stable issuers from

like giving yield a native yield to on the stable coins but on our side you know we could back uh angle by tokenized treasury bills and take advantage of the yield of this tokenized treasury builds to give a yield to uh ag or holders or to the other stable coins we should do in the future and so it's the regulatory arbitrage uh we we want to play take take advantage of the edge we have a decentralized stable coins and provide value still keep providing value um to define users who want uh who are here for the core promise of defy you know like building a new financial city ecosystem uh in which you can remove intermediaries and so on so yeah that's our position we're kind of pragmatic but know that we have a play at stake a potentially good play to

do with mika thank you very much we have to we have to close this uh this passionate panel uh thank you very much for your participation general victor simeone and pablo and if you have a if you have maybe one question uh okay now are you okay just to follow up uh from what collett said uh so for instance circle is an american company are they gonna comply with the since their uh issuing euro are they gonna comply with the local regulations are they gonna follow they make a framework get the right

licenses in europe or the plan is to stay in the most convenient jurisdiction yes we will comply with the microregulations and set up operations in europe circle is a very regulatory compliant company there's no question that we will approach it when it's available yeah this is really interesting because again coming back on a tax aspect if at any at any point in the future um stable coins like the ones of circle qualify as electronic money trading with them would create tax events so

this could mean like the usability of this kind of stabilo coins would be very different it would be very useful to make payments for like uh real world expenses but for trading crypto it will be very different so i'll uh wait and see thank you very much if you have any further questions i think you could ask to uh samuel victor antina and pablo just after this panel and we will switch to the next one about nft if you want to stay with us in this nice little room [Applause]