Good interview with Cardano cryptocurrency founder, with a great example of Argentina's progressing dollarization.
(...) Well, I was just at a round table with the Federal Reserve and it was a really nice inner industry. Two of the reserve governors were there. And I was actually with Anatoli from Solana and Sergey from Chain Link and Ilia from Near and Brad from XRP. So it was a very nice round table and we had a chance to directly interact with the Federal Reserve and the Fed is trying to figure out you know what is their role, place and purpose with the Genius Act because traditionally the Fed is the payment regulator and they've been doing that for 120 years give or take.
The the thing about the Fed is that they were kind of left out of the party. There's three primary regulatory bodies that deal with this. There's the OC, the FDIC, and the Federal Reserve. The reason this is relevant is that stable coins live in two worlds at the same time. One, they live in the web 3 world. So they they're tokenized. And we think a lot about, well, how do I get more liquidity and volume? There's over $250 billion worth of tokens that have been issued, 180 plus million transactions every month. It's a very dense, beautiful, high velocity space. But those only have value because somebody's holding an asset on the other side in the legacy world. And the legacy world, it's either at a bank or it's somewhere else and it's represented some way like as a treasury for example.
So Genius, what it did is it created some baseline rules of the road. But now rulemaking has to occur and they have to start talking about things like can you get a master account with the Fed or how do you ensure these or what are the custodial standards or what is the audit oversight and how do you audit these accounts and also the grading and scoring of these things. So are all stable coins created equally or is there some delta between the asset allocations between tether and circle for example where tether has admitted to have commercial paper cuz while they may appear to be a dollar they may be very different the other thing is also you'd like to augment these things a little bit for example can you offer yield with the stable coin so genius was very clear about this there was a big fight and the non-yield people won and they said you can't offer yield with the genius act.
That said, there's a lot of people that are starting to take a step back and say, "Well, hang on a second. Well, maybe there's some clever mechanisms where we kind of create a dual token and it's for non- US customers, they can share in the yield, the stable coin or something, and US customers just get the stable coin." And now we're starting to see blended versions like Tether is going to move into the United States with some of their stable coin and some not. But what's the point? Well, the point is soft dollarization. And there's no greater example of this than Argentina. There's $700 billion economy and a hundred billion dollars of that economy is in cryptocurrencies with the majority being in stable coins. So basically this is a place where technically the currency is the peso but what's happening is the they're dollarizing and they're trading the Argentine Central Bank for the Federal Reserve and without the consent of the US government it's just through the hand of the free market and people are basically transacting in dollars now through stable coins and you're going to see a lot of that happen in Colombia and Venezuela and all throughout Africa and Southeast Asia and so that soft dollarization is at war with the off yuanization of the world because a belt road the Chinese government is trying to push a concept of a digital yuan and these things are fighting in developing nations and and you know places that are a little bit off the beaten path and that's really exciting because it means you can now have a direct financial relationship with those consumers in those markets.
So if you're Microsoft and you're dealing with Sri Lanka, you don't have to go through 14 hops and three forex conversions and other things to get to the local money and deal with the local person in the local bank. They can just simply pay you in a dollar back stable coin. You have peer-to-p peer relationship and it's feeless or near free for fees. The velocity of global commerce then is going to increase. So what this means is you're going to see a huge expansion of the category overall. So you're going to grow from hundreds of billions to trillions of dollars of stable coins issued and you're going to see a localization of stable coins. We're going to have flavors that are regionalized either a subbrands that are a big brand like Tether is doing with USD or there just regionalization stuff and great markets that provide liquidity here and there.
Now, this only works if there's great regulation, there's great auditability cuz the minute that a stable coin fails, it creates catastrophic consequences to the faith and credibility of the system as a whole. So, the hope of genius was to begin the regulatory conversation. But by no means is it done. And to be frank, the Fed does need to be brought in a little bit, if anything, just because of their traditional role in payments. And they've been left out because of CBDC concerns. So, they kind of have to work it out. And it's a very difficult situation. We in industry, we're already talking about it. And one of the things we talked about in the round table is this idea of algorithmic regulation. So you can actually have smart contracts and they are public private partnerships and they handle things like freeze and sees and KYC and AML and other compliance concerns and they allow for liquidity across nations and cross networks but some modicum of control in the secondary market. So... it's a challenging very deep situation but it's one of the fastest areas of growth and it's also going to get complicated by the fact that large companies like Google and Microsoft and Apple have very strong incentives to come in because they lose tens of billions of dollars every year to transaction fees and banking costs and forex fees and they have customers in pretty much every country and three billion people.
So they would much rather cut out middlemen and they already have the payment rails in many cases the licenses to do this. And then it's also complicated complicated by the legacy banks now wanting to come in like JP Morgan's going to come in and others are going to come in and they have a lot of blockchain infrastructure waiting to do this. They just have been waiting for a regulation to give them the ability to do so. And now that Genius is there, there's rules of the road for them to begin the process. But it's going to take several years of rulemaking for all of this to get completely sorted out. And there's still a lot of open questions and everybody's just trying to figure out how to put the pieces together.
