RAOUL PAL: Jeremy, great to get you onto "Real
Vision." JEREMY ALLAIRE: Thank you. Awesome to be here. RAOUL PAL: Listen, before we kind of get
into the meat of this, I'd love to hit a bit of your journey into crypto. How the hell did you get
here? JEREMY ALLAIRE: Yeah, it's a great question. My background is in building kind of internet
software platform companies. And I sort of started in the early-90s and the mid-90s in the sort of
first generation of the commercialization of the internet, and was very focused on how to build
essentially the tools and the infrastructure for building the web. And I did that, built a public
company, merged into another public company, was CTO there. And then kind of the
next generation was really working on basically creating the platforms that were
necessary to do television on the internet, sort of like we're doing right now,
and built out another company called Brightcove. RAOUL PAL: Which we use by BrightCove
for "Real Vision," actually.
JEREMY ALLAIRE: Well, there you go. So you're a customer of mine. And
built that out, grew that, took that company public. And in 2012, which was actually not long
after I took BrightCove, I kind of went down the rabbit hole on crypto. And now the interesting
thing for me is that all of the things that I've worked on in my career, there's a thread that
runs through it all. And the thread is basically what brought me into the internet in the first
place back in 1990-91 was the realization that this was a open network that any computer could
connect to, and that basically the protocol layer of the internet was also a set of, essentially,
open protocols, open standards, and that that distributed or decentralized infrastructure was
And back then, I was like, OK, this is going to disintermediate media.
This is going to disintermediate communications. The way that software is distributed, it's all
just going to move to the web– all these kinds of things. And the same kind of thing with
television is like, why are people dependent on birds in the sky or a physical plant into a
home to distribute television? Open protocols, decentralized distributed infrastructure on
the internet is going to mean everyone can be a television producer, distributor, et cetera.
And so that's always animated everything that I've been interested in.
I also happen to have
studied of international political economy, global macro, other things a long time ago.
And so I've always had a kind of interest in the global financial system, comparative economic
systems. And after the financial crisis in 2008, I kind of went down the rabbit hole of, I want to
more deeply understand central banking. I want to understand the way the underlying kind of currency
system works. And that was just at a personal level, I wanted to get into that. So 2012, when
I kind of got interested in Bitcoin specifically, it connected all the dots for me. It was like,
OK, this is the next logical infrastructure layer of the internet. It's like a missing layer
the internet, . And my interest in sort of the impact this all of this stuff can have on global,
political, and economic systems, very profound. And so I just I couldn't help myself, basically.
just went deeper, and deeper, and deeper, and then in 2013, decided to actually step out of running
a public company and co-founded Circle. And so that was kind of a journey there. And I think
a lot of the ideas that we've been pursuing since founding the company are starting
to really materialize. RAOUL PAL: So what was the vision when you started it? I actually
got into the crypto journey at the same point, because I was in Europe at the time.
We almost lost the banking system. That was soon after the financial crisis,
we saw Cyprus– NICHOLAS CORREA: Sorry for interrupting your video, but I have
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afford to be without. RAOUL PAL: So what was the vision when you started it?
I actually got into the crypto journey at the same point, because I was in Europe at
the time. We almost lost the banking system. That was soon after the financial crisis, we saw
Cyprus, and I started looking into, can I create the world's safest bank? And then a friend of
mine came to me and said, actually, you can set up a Bitcoin.
And that stuff really mattered to
me. So when you started Circle, what were you trying to do? JEREMY ALLAIRE: So interestingly,
what we were trying to do when we started Circle is more or less what we're doing now. And it's
been an interesting journey to get here. And so if you go back to the earliest blog post when we
debuted the company– and it's funny, I look back at the first investor materials we created back in
the spring of 2013– our belief was that it would become possible to essentially take what we think
of as traditional money– i.e. the liabilities of a central bank– and represent that as digital
currency and transact it on public blockchains as we call them now, but transact it as almost a
new protocol layer for how fiat could be stored, and exchanged, and transacted. And we envisioned
a kind of hybrid fiat crypto model that could make that possible.
And the belief was that that would
become possible, and that issuing other types of assets on top of this infrastructure would become
possible– that you'd have programmability of those assets– so essentially the idea that a
dollar or a euro would be like a native data type on the internet– just like an MP3, or a
text file, or a JPEG– and that it would become programmable. And so back in early 2013, a lot
of people in the Bitcoin community were really excited about the idea of smart contracts. It
brought a lot of people in. It was like, whoa, if this is a new global compute engine that's
trustworthy, and tamperproof, and you can deploy code to it, and then you have these underlying
financial assets that you can interact with, that's super profound. And you can imagine
actually recreating a lot of what we think of as the financial system on top of that.
what kind of drew us in. And the first product we created, actually, it was a consumerfacing
product that essentially took dollars, euros, pounds and allowed them to seamlessly transact
over the Bitcoin network. And so we used Bitcoin as, essentially, an open sediment layer. But the
user never knew it. It was like, I have a dollar, and I'm going to beam it to what is essentially
a Bitcoin wallet. We managed all the underlying treasury liquidity and stuff to make that work.
But it turned out doing that on top of Bitcoin, I don't want to say it was
the wrong idea, but basically, Bitcoin preserved its position as a digital
gold. And there was not an impetus in the Bitcoin community to focus on transaction throughput
scaling being a payment system basically. And there was very little interest in expanding it
in terms of its programmability with things like smart contracts.
And so a lot of the things that
we had wanted to do just weren't possible. And Bitcoin in late 2016 was quite expensive and
still relatively expensive to transact with. And so we basically in 2017 sort of said, OK,
Ethereum's here. It's kind of production beta. It's kind of in a good place that you could
actually build like what we now call stablecoins, but you could build, essentially, a fiat protocol
layer on top of it. And so we envisioned that, and that led to the creation of USDC, which we
then launched in 2018. And that's grown a lot. So now today, there's essentially these new
standards for fiat digital currency that are kind of private sector-led– i.e. these sort
of regulated stablecoin models.
USDC is by far the biggest in terms of playing in that regulated
space. And now it's becoming possible to basically transact instantly globally extremely
inexpensively. And the ideas of programmable money have arrived as well. DeFi is programmable
money. It's people basically saying, how do I write financial markets in code to play it on the
internet? And then stablecoins become a really critical part of that as well. So we're sort of
seeing a lot of the early things that we envision becoming possible starting to happen. RAOUL PAL:
So who are the main users currently of USDC? JEREMY ALLAIRE: USDC, when we launched it with
Coinbase– so Coinbase joined a consortium with us– Center Consortium, which governs
sort of USDC. And that's actually going to be expanding a lot in the coming year or two. But
the bootstrap use case, as I like to call it, was crypto capital markets basically. So in mid to
late-2018, people wanted a transparent, audited, compliant, liquid, redeemable dollar stablecoin.
RAOUL PAL: I.e.
Not Tether. JEREMY ALLAIRE: Yeah, people wanted that. So the bootstrap use case
was, OK, this is going to be a better way to do this. And it's not the Roach Motel. You can get
in and out of it. And Circle offered a really, really straightforward institutional service
for utilizing it. And Coinbase, obviously, offered a really compelling retail way to get
in and out of it. It just worked. It was free to create it, free to redeem it, and so it sort
of grew in that use case. And if you look at late-2018 into late-2019, obviously, like the
crypto markets weren't as robust as they are right now. But adoption of stablecoins was growing.
And so it just got listed on tons of exchanges, every wallet decided to support it, custodians
started supporting it. So the whole ecosystem really adopted it, and we did, I think, a really
good job of it. Hundreds of companies started just saying, OK, we're adding support for this. And
that sort of ties into the next piece, which is we very early on focused on working with
developer teams that were building what is now DeFi.
And the DeFi movement in late 2018 was
really nascent. But by summer of 2019, stuff was getting deployed. Compound was out there, a
number of other things were out there. And so first was just as essentially a dollar market
infrastructure for crypto capital markets– just being a great dollar market infrastructure.
And then secondly was, OK, now this is actually what people want to borrow, and lend, and
utilize in DeFi markets. And obviously in 2020, DeFi has exploded. USDC has been a huge component
of that. And obviously, crypto capital markets have exploded, and it's grown a lot in there. But
what was fascinating was we were seeing interest in, hey, once people started utilizing it, people
realized, wow, I have a digital dollar that I can transact on the internet, I can transact with
anyone with no counterparty risk, basically with a final settlement in seconds for a fraction
of the cost of what we think of as traditional international money movement. And people are
waking up. This is actually a really good payment and selling medium. And so that's been one of the
big stories for us in 2020 is tons of different types of businesses that are now saying, this
is a better way to store value, transmit value, et cetera.
And one of the big themes, for example,
is we've seen these incredible interest in demand from Latin America, from Africa, from Southeast
Asia where dollarisation might be the theme if you want to think of it that way, but these sort
of digital currency dollars are really attractive as well– both as a store of value relative
to, say, what their currencies are doing. We think of Bitcoin as the main store of value
kind of scenario for crypto. And it obviously is the biggest. But dollars are also a pretty
interesting store of value in a lot of cases too. RAOUL PAL: Yeah, and nobody can get enough
dollars. We've got problems alone– I talked about this. I don't know how familiar you are with the
euro dollar market. JEREMY ALLAIRE: Of course, yeah, very. RAOUL PAL: This is a new euro dollar
essentially, because it can be created outside the dollar banking system and distributed globally.
And right now, most of the European banks don't really lend out their dollars, and– JEREMY
ALLAIRE: Yeah. RAOUL PAL: Japanese banks, so the world is starved of dollars. JEREMY ALLAIRE:
And euro dollar's obviously played a really critical role, and have historically played a
really critical role, in capital markets activity and hedging. But I think stablecoins are going to
be– eurodollars never moved into transactional currencies, right? They didn't really move into
the hands of users that are transacting with them. But stablecoins are, right? You've got a
smartphone, you've got an app, peer-to-peer, boom, you're up and running.
RAOUL PAL: Well, you can
get rid of the banking sector out of the middle, right, which is where the velocity of money dies.
JEREMY ALLAIRE: Right. Right. Right. Right. Yeah, so that's been part of the story. And I
think for us going into this year, I mean, USDC grew enormously last year. It grew 800%
year-on-year. We started the year with 450 million in circulation. We ended the year, literally right
around midnight on the 31st, at 4 billion USDC in circulation. We've already seen almost 900
million issued in the first two weeks of January. And so it's really interesting. And the
technology is getting to a place where with what I call kind of third generation blockin
infrastructure, where you're able to transact USDC on blockchains at half a second–
500 milliseconds or less– with settlement finality at a fraction of a
cent to transact those. And some of these third generation blockchains have capacity to support
tens of thousands of transactions per second, you start to say wow, OK, you could actually move
like Folsom capital markets over to this, and Folsom retail scale payment activity as well.
And so I think that's one of the things that we're really looking for as we go forward is this
getting integrated into more sectors of financial activity.
RAOUL PAL: And what's happening is
DeFi's giving it a yield curve. So much like the euro dollar market– OK, euro dollar market
goes further out, but you're starting to get still very nascent– JEREMY ALLAIRE: Totally. RAOUL
PAL: –get the price of money, internet money, essentially. JEREMY ALLAIRE: Totally. Absolutely,
yeah. So we're paying a lot of attention to that. We actually have a high yield digital
account product that's launching this quarter, actually. It's institutional. It's for businesses.
So if you're a business and you've got cash, you can convert your cash to USDC and put it into
And we're giving basically 8.5% for an open term product and upwards of around 11% for
tenorbased products. And that's basically putting dollars into stablecoin into these interest rate
markets. And that's, from a corporate treasury perspective, really attractive, right? If I'm a
corporation and I'm sitting on working capital, how much of that am I willing to allocate to,
essentially, these new risk markets? RAOUL PAL: And what is the counterparty risk? Because
the euro dollar market is obviously a bunch of participants. So it's a relatively spread. How
does it work in this? JEREMY ALLAIRE: The way this product is being rolled out is it's through
a strategic partnership that we put together with Genesis. And Genesis within the digital
currency group, Genesis is obviously one of the biggest crypto primes out there. And
Genesis Capital is the largest institutional lending provider in the world right now in the
crypto lending space. And so what you're really doing is you're basically saying, there is a high
quality, underwritten, institutional borrowing base that's out there that are active market
participants in digital asset markets. And you're effectively lending to them.
firms– their counterparties are many, many of the top institutional players in the market. The cost
of capital may seem high when you say, oh wow, OK, it's a 10% cost of capital. But the market
participants are making significantly more than that. And so what you're really doing, it's almost
a passive way to participate in the digital asset markets. It's an interest-bearing passive way to
participate in these markets without buying the underlying Bitcoin. So it's an interesting space
that's emerged around that. That's effectively what DeFi yield is too. But you're dealing with
more retail participants in that case. RAOUL PAL: And can institutions actually put this on their
books yet? Or are they starting to use firms like Lukka to try and get it kind of shoehorned in?
Because it's not easy– even though to you and I, stablecoin's pretty straightforward, but to
[AUDIO OUT] it's not.
JEREMY ALLAIRE: So the good news here is that there are more and more
public companies with stablecoins on their books. And so the big accounting firms are now dealing
with that. There's more and more clarity around how to treat these as a financial asset.
Obviously, even the guidance that came out just last week from the OCC basically defining these
USDC-like or dollar stablecoins as electronic stored value, and that's very, very important
as a classification. And so all these things are part of progress towards the acceptance, not just
from a recordkeeping perspective, but acceptance as a settlement medium as well. RAOUL PAL:
So let's talk a bit about that OCCC guidance. What's your take on it? JEREMY ALLAIRE:
I think it's a major watershed event. And I think there are a few pieces to it. I
think the first is it follows on the heels of the presidential working group policy
recommendations on dollar stablecoins in the United States, which came out just before the
And that really had to do with saying arrangements that are created for the issuance
and operation of stablecoins need to meet a set of expectations. That presidential working
group, those recommendations that came out very closely match to how Center Consortium
operates. So that was good just in terms of what I think about is the governance, the risk
management, the compliance, other things that go beyond this. The OCC guidance is getting very
specific. It's saying, OK, if you are a bank in the United States financial system, you can
utilize stablecoins as a payment infrastructure. You can issue them yourself as well. So you can
participate in issuance, but you can utilize it as a payment infrastructure on par with ACH,
on par with Swift, on par with Debit Network Rails.
And it defines how to classify and think
about it as an electronic stored value medium. And it specifically provides a whole set of
guidance on using this on public blockchains. And so it is elevating public blockchains like the
Bitcoin network, the Ethereum network, and other public blockchain networks to being market
infrastructure for the mainstream financial system in the United States, which is a huge deal.
And I think this is significant, and it ladders on the SEC guidance that came out in late December
as well, which basically after three years, the SEC finally clarified that broker dealers
can selfcustody, clear, and settle digital assets around custody rules, and transfer rules, and
so on. But it clarified how broker dealers can do that. And that also includes settling,
essentially, these digital assets as securities transactions on public blockchains. And so we
now essentially have the SEC and the OCC saying, public blockchains are effectively a settlement
infrastructure for securities and cash like instruments in the United States. That's a big
That's a really big deal. And obviously, the markets responded a lot to that, because
I think banks can now lean into this, right? So banks can lean into, whether it be crypto
brokerage, or I want to custardy Bitcoin, or prime broking– RAOUL PAL: All of that's coming.
JEREMY ALLAIRE: Absolutely. And I think it also means things like USDC can be utilized now
as a payment and settlement infrastructure for just straight-up payments, and also as
a payments and settlement infrastructure tied to other securities as well, which is I
think really where stuff starts to get a lot more interesting. RAOUL PAL: I'm getting confused
where the regular money center banks are going to fit into any of this equation.
I can understand
the investment bank, because they'll always find ways of making money. They'll be priming this
stuff, they'll be making markets– they'll be involved. JEREMY ALLAIRE: Yeah. RAOUL PAL: But the
average bank– it looks like the writing's on the wall super fast for them now. I mean, DeFi being
part of it. JEREMY ALLAIRE: Yeah, DeFi is part of it. I do a podcast as well– I did one earlier
today with Robert Leshner, the co-founder and CEO of Compound Finance. And it was interesting–
I titled it "DeFi and Self-driving Banks." And the idea is actually from Brian Brooks,
who just left the OCC. And he wrote this editorial for the Financial Times earlier this
week. RAOUL PAL: I saw that. JEREMY ALLAIRE: "The Advent of Self-driving Banks." And it's sort
of like a machine governs an interest rate market. It's totally transparent, it's totally on the
internet, market participants can see the risk management, the collateral management, all the
rules– how it works.
But it just runs itself. It runs itself. And that's profound. That's
really, really profound. And that's one building block which is sort of collateralized
kind of lending and borrowing, right? But I think there's this inevitable march
forward where more and more functions of what we think of as banking can become autonomous,
machine-mediated kind of things on the internet. And I think likewise, things like stablecoins–
our view, and you asked a question earlier about what was the kind of concept when we started
the company– the belief was that once you had a fiat digital currency model that could work
on the public internet on these open networks, that, effectively, it would drive the
cost of moving value to zero.
Just like the cost of sharing a piece of text is zero
or the cost of having a peer to peer video communication is zero– the internet and these
distributed architectures and open protocol drives the cost to zero. So that was the belief– is that
when you got to an internet-like model for money, it would drive the cost to zero. And so when you
think about money center banks or you think about the entire stack of firms that are making money
from extracting tolls in payments, there's a vast amount– it's actually trillions of dollars of
And you've got to pick your time frame, right, because it's very easy to believe your
hype and all this kind of stuff. But it was like when I started Brightcove in 2004, I was like,
television's going to move to the internet, you're not going to have cable. There's going
to be an infinite number of video channels. Every company in the world is going to be doing
this. And you're going to do it to any device, right? And back in 2004, broadband was barely
out the gate. The technology was really nascent, and people could say, yeah, yeah, yeah,
whatever. I went and met with the CEOs of Comcast and other big firms and was saying,
this is what I think is going to happen. And it was kind of like, ha ha, you know? But
here we are, right? These things take like 10 years. But 10 years isn't that long. We were just
talking about 2013, and it seems like yesterday– and the pace of this is really fast.
I think that's the interesting thing is, we'll see this kind of intense commoditization
happen over like a five-year, 10-year period where the margin that exists in what we think
of as kind of payment and settlement will come in dramatically. RAOUL PAL: What happens to
your margin, then? Where do you make money in that process if margins are all going to zero? JEREMY
ALLAIRE: Yeah. So there's a few things. I think first is we believe a few things. So one is what
we think of as treasury infrastructure, which is the core infrastructure– whether a company or a
financial institution– treasury infrastructure is going to become entirely natively
digital currency and blockchain based. And that's what we build.
We build, essentially,
treasury infrastructure for the internet. And we offer that as a subscription. A company
can come on, they can pay a subscription, and they can get access to this new kind
of banking and treasury infrastructure. And we think every company in the world is going
to want to do that. RAOUL PAL: And you can automate treasury then easily. JEREMY ALLAIRE:
Absolutely. Yes. Yes. And so that then leads into other things, which is, how can we help
businesses utilize their working capital better, participate in these different types of new
markets that are going to exist that are built up on this infrastructure– and make that
a really seamless process for companies.
And so that alone is sort of what we think of as platform
banking. The platform banking business model is sort of what we're going after, but where digital
currency fluctuations are at the center of it as opposed to the legacy financial system.
And I think that leads to the other piece, which is over the long run, we believe that
more and more things that we think of as what corporations do– their treasury, their
governance, the equity itself as an instrument, debt contracts– so many of the things
that go on will move to be digital assets on blockchains in this infrastructure. And we want
to be helping play a role in that transformation. And we think that there will be lots of
interesting ways to monetize that. RAOUL PAL: I'm even interested in thinking through, will
corporations exist as we understand them? Because corporations create one legal entity that really
something like Exxon– you should get to buy a token in their upstream revenue, the downstream–
JEREMY ALLAIRE: Absolutely.
RAOUL PAL: Bringing– JEREMY ALLAIRE: Absolutely. RAOUL PAL: So I
don't know if corporations are going to exist, per se. JEREMY ALLAIRE: This is something I've
been thinking a lot about. What is a corporate form? What are these new corporate forms? Robert
from Compound, comp token is a community-owned protocol that generates cash flows that has voting
and governance for its development and evolution. What is that? That's not a corporation, but it's
this on-chain thing. And there's ultimately has to the interaction with the corporate legal system in
different ways, and so I think one of the things that will be interesting is jurisdictions kind
of figuring out some of that. But I totally agree– I think that the nature of corporations
changes. This technology shift is, in my opinion, it's sort of like the Gutenberg press or the
invention of the joint stock corporation, the birth of capital markets– all these kinds of
It's that big. And these things play out over decades, right? But I think you're going to
see just more and more experimentation in these what I call new corporate forms– whatever we end
up calling them– which do involve these layers of tokenization, transparency, governance, access to
revenue streams in different ways. RAOUL PAL: At a macro level, I love it, because it
gives us more opportunities to seek value and to invest in different things.
ALLAIRE: Yes. RAOUL PAL: You're going to create tokens– sort of like IP, music streaming rights,
celebrities, on influencers, on different parts of what we understand now as corporations. There's
millions of tokens. JEREMY ALLAIRE: Totally. Absolutely. I believe it so much. The
internet is good at a lot of different things. One of the things it's really good at is
supporting the development of longtail markets. And when you think about eBay when it first came
out, no one could have ever conceptualized that individuals with things they want to
sell, that there'd be a marketplace that could actually support Beanie Babies
or whatever it is– the longtail of things. No one ever thought that you could monetize
people's intention and attention with longtail advertising.
I'm a tennis instructor
in Tallahassee, and I can find my customers in an efficient way with a
marketplace– an auction marketplace that exists. And the same thing as you go down the
list in terms of content. And, obviously, the mega scale marketplaces are Amazon and Alibaba.
And I think people haven't yet realized that we're going to have longtail capital markets.
And the Russell 2000, or NASDAQ, or whatever– these are going to look tiny in comparison to the
capital markets that are being created right now. And this tokenization theme, right, will fit
It will be viable to efficiently have capital markets at that very, very long
tail. RAOUL PAL: And what's interesting is once you tokenize everything, we move away from
bonds, credit, stocks, commodities– you go into something which is all called a token, let's say.
JEREMY ALLAIRE: Yeah. RAOUL PAL: But they all have different attributes. So what you've got is a
hyper-complex world, which means the other side is you can generate alpha again. There's no alpha
JEREMY ALLAIRE: Yeah. RAOUL PAL: Once you do this, this is a really complicated world.
And you're seeing already some asset managers in this space kind of value-picking tokens that
everyone's abandoned. JEREMY ALLAIRE: Absolutely, yeah. RAOUL PAL: And they're making enormous
returns. There's no alpha– JEREMY ALLAIRE: Absolutely. It's amazing. I think the DeFi kind
of liquidity pools on all of these different tokens with AMMs are a really interesting
world where you have people saying, hey, there's a market for this niche token against Eth
or against whatever it is.
And there are people who are willing to stand in that, be liquidity
providers, and realize significant returns. And so it's sort of this kind of creation of available
markets. And a lot of people used to say, well, a private company's stock is illiquid, there's
a reason why these companies don't go public, and so on. But in a world where you have
longtail markets with this kind of incentivized infrastructure, you can imagine markets existing
for things that would, at face value, appear to be extremely thinly-traded. You can also composite
them into sets and composite them into, essentially, bundles. And that's the layering
of these things. But that can also lead to very efficient outcomes as well. RAOUL PAL:
Yeah. It's just a really interesting world to see where that's all going. The other thing that
I want to pick your brains about is the central bank digital currencies, because that's the next
big elephant that's coming.
The ECB have probably been the clearest of all about what they're trying
to do. And Benoit Coeure, now he's at the BIS, has made it clear that some people are going to choose
programmable forms of money, others are going to choose a state central bank stablecoin, for want
of a better word. How do you think this plays out? Because it's going to change everything. I
keep explaining to people this is going to change everything from fiscal policy, to monetary policy,
to behavioral economics, and everything. What do you think about this? JEREMY ALLAIRE: Yeah.
a lot of thoughts on this. I think the first is, I would never bet against the open internet.
And what I mean by that is that the velocity of technical innovation on public internet
infrastructure– and blockchains are an example of that– on public internet infrastructure, and
the kind of innovation curve that's happening with digital currency in that environment– when you
think about where it could be two years from now, five years from now, it is going to rapidly,
rapidly bypass what any government could ever do. It already is. And to me, the notion that large
or small national governments are going to stand up an infrastructure, maintain an infrastructure,
and evolve an infrastructure for digital currency that can keep up with what's happening with
the public internet and with private sector activity and the public internet, I just don't
buy it. It would be like saying, the government should have built all of the communications
infrastructure of the internet that we use today– that the government should have built email.
It should be a government-administered email system.
It's just not viable. And so I think
the internet– famously, Mark Andriessen said software eats the world. I think software and the
public internet eats the world. And that is what blockchains, and stablecoins, and other things
are really layering on. And so in that world, I just don't believe that you're going to
see the Federal Reserve and the US Treasury– I'm just talking about the United States right
now– it just does not seem tenable to me that they're going to stand up and operate
this infrastructure. RAOUL PAL: But would they just have a stablecoin and use your
infrastructure, for example? JEREMY ALLAIRE: So this gets into, ultimately, you've
got a few things.
You've got kind of sort of standards and public infrastructure.
You've got financial intermediaries– private sector financial intermediaries– and then
you've got risk management supervisory mandates, and monetary policy down there as well. And so you
kind of go across those things and you say, OK, what is likely to be what achieves scale? And so
my view is just look at the history of electronic money. The history of electronic money is not a
bunch of government's building shit. The history of electronic money is a consortium of private
financial institution actors getting together to develop standards for interoperability amongst
their ledgers, if you will. That's what Swift is. When we think about in general what we think of as
the most widely-adopted sort of electronic money, it's cards– it's credit cards, debit cards, et
What are card networks? Card networks are consortiums of members that define a set
of technical standards, and interoperability, and governance around this. And it's not like when
card infrastructure emerged that the Fed said, wait a minute– no, no, no, no, no, no, no.
Because we do cash or whatnot, we need to go build that. We need to go build all that
infrastructure– not at all. I think what happens is regulators say, OK, if the private market
establishes sound standards, we want to maybe oversee some of those as sort of systemically
important market utilities, or systemically important payment systems, or other things.
And what they'll care about is, underneath, OK, what is the underlying– is this M1? What is this?
And what are the supervisory standards that need to be around it and risk management that need to
be around it? And so it may be that in the future, as Center Consortium grows, as USDC grows, as more
banks and others get involved, and more people are issuing this, that the Fed says, OK, this is
fine as a dollar digital currency standard, but this has to be kept at the Fed, or it has
to sit inside of these sort of supervisory frameworks.
I think that's what happens.
And then the pace of technical innovation is growing at the speed of the internet, it's not
growing at the speed of software engineers, or IBM people that the government hired, or whatever you
want to think of it. RAOUL PAL: In other words, there is no Fed coin. JEREMY ALLAIRE:
Yeah. RAOUL PAL: It's the private sector, because it does the same thing. It's like
the euro dollar market– it's all driven by the Fed. JEREMY ALLAIRE: Yep, that's right.
RAOUL PAL: Supply liquidity to it and regulate it where it can. JEREMY ALLAIRE: Yeah. And just
to give you a little bit of insight in this– so we started Center Consortium with Circle and
Coinbase. It's now going to grow into a much broader consortium. David Puth just came in to run
David spent his career running capital markets for State Street, and then 19
years of JPM running currencies, capital markets, huge amounts of infrastructure, and then he went
to be the CEO of CLS International Bank. It's the largest bank in the world that no one knows.
And CLS is a consortium. It's a consortium of 70 of the most critical financial institutions in
the world that represent the biggest currencies in the world. And it provides the clearing and
settlement infrastructure for those institutions for major fiat currencies. And it clears
$2 trillion a day. And so when we think of dollars, and euros, and all these things– this is
a private sector consortium infrastructure that is supervised by 23 of the most significant central
banks. So he ran that for six years. He's now running Center Consortium. This is going to grow.
And I think public blockchain infrastructure, combined with arrangements like what Center is
doing, can become deemed as systemically important infrastructure. And we'll work with regulators on
this over time. So I'm speaking somewhat selfishly in that I have a view to this that we're involved
in as a principle, but I also really genuinely believe it.
And I think the most exciting thing
about all of this, it gets back to the comment you made, which is programmable assets, right? If we
just are looking at this as, what is digital cash, or what is the payment system? That misses the
whole point of all of this. The whole point of all of this is that you've got tokenization, and
you have smart contracts, and you have the ability to intermediate an enormous amount of interesting
commerce and economic activity through this public compute infrastructure. And that's
change the world stuff, and change the nature of corporations, and change the nature of
economic activity. And we want to see that stuff emerge. And the real question is, how quickly
does this become something that's 10x better, is sort of the kind of benchmark that people
talk about– a technology needs to be 10x better. And then society just says, this is what I want.
RAOUL PAL: But how do you solve the central banks problem? Because from what I understand, listening
to many central banks– the IMF, the BIS as well– they want programmable money to say, you need a
different interest rate to me.
I want to stimulate you. That kind of behavioral incentives
that could be tied once you've got this, if it's all a private sector– JEREMY ALLAIRE:
Yeah. RAOUL PAL: How does the Fed or any central bank do that? How do they get what they need out
of the system. They can merge monetary and fiscal, which is really what– JEREMY ALLAIRE: I mean,
this gets into deeper– for example, if digital currency units can be M1, and commercial banks can
custody this and can operate with it, and the Fed decides they're going to go buy Treasury bonds
or they're going to go effectively inject money, and the commercial bank participants in the
scheme can issue new USDC or whatever it is on that– it can work with the existing fiscal
monetary policy. RAOUL PAL: But that doesn't work already, right, because we've seen velocity of
money collapses. The banks, they're all impaired in certain ways– whether it's regulatory
impairment or– JEREMY ALLAIRE: Sure. Look, we're going to go deep on bigger ideas here. But
I think one of the compelling things about crypto, one of the things that drew me into it– this gets
to my armchair political economy stuff, which is the concept of full reserve banking and the
concept of governments from a fiscal perspective that are bound by full reserve banking systems
is also a very interesting idea.
And if you go back to the Great Depression and the Chicago
plan– the Chicago plan, which was very much informed by economists who are in the Von Mises
tradition, and who look at sound money principles, and what are the fundamental risks that exist with
the way that money works in commercial banking would argue that if you have the discipline of
full reserve money, that in a sense, it enforces safer fiscal policy. RAOUL PAL: Although my fear
is, humans being humans, they'll just recreate the derivative market all over again. Humans will
take leverage wherever they can get it in any way, shape, or form. And if it doesn't exist at the
bank level, it'll exist next layer. I mean, the derivative markets are a quadrillion dollars.
JEREMY ALLAIRE: Yeah, I hear you. I hear you. Yeah, look, I think that's right. RAOUL PAL:
Humans are pretty flawed.
JEREMY ALLAIRE: Yeah. I guess stepping back from all that just
and coming back to the basics of if you have what we think of as fiat digital currency
units– I think that what is effectively the underlying capabilities of a sovereign with
respect to that, we're going to see different approaches to that for sure. And at the kind of
protocol level, the technical standards level, the way all this stuff works– that piece,
which is the innervation of the transactability, the efficiency, and the programmability–
in some ways, those are decoupled. I realize there's some interplay there, but to some degree,
some of those can be decoupled. RAOUL PAL: And what do you think Europe's going to do with
this? Are they just going to issue a digital currency and then let everyone use the existing
rails? So how are they thinking about it? I know they prefer to have more control over
What do you think? JEREMY ALLAIRE: I– RAOUL PAL: They want a fintech layer.
They've said they want fintech– JEREMY ALLAIRE: I think this is one where the market is just going
to move way faster than the European Central Bank. RAOUL PAL: That's not unusual. JEREMY ALLAIRE:
Yeah. This is sort of a general belief that I have, which is that the velocity on this is
really, really fast. The benefits are going to start to compound really, really fast. And
market participants, whether they be businesses, or individual consumers, or financial
market participants will start seeing those. And again, it's a little bit like what I said
about, say, what might happen in the US– I think that will emerge. And then the European Central
Bank will kind of have to respond to that and say, OK, this is a reality. We're going to make sure
it's safe and sound and we can supervise it, versus what they're saying right now,
which is no, we're going to build this, we're going to launch this.
Just the interview
earlier this week with Madam Lagarde was, in five years. OK, so five years– what's going
to happen in five years in this space? I mean, come on, right? So what, is that a bunch of
engineers working for the European Central Bank that are going to build this in five years?
What is that? So I think– RAOUL PAL: Very good point. JEREMY ALLAIRE: I think that the market
moves way faster, and then they'll have to really react to that. And that's OK. I mean, that's OK.
RAOUL PAL: So how do you think– Christine Lagarde talks a lot about Bitcoin. I see regulation as an
acceptance. If they're building a digital layer, they're regulating people like yourselves, it kind
of is acceptance that, OK, there's this collateral reserve layer, and that's fine.
ALLAIRE: Right. Right. Yeah, look, let's talk about Bitcoin, because my own long term view
is really a couple of things. I think one is that the adoption of digital commodity money– that
includes Bitcoin, I include Ether in that, and there will be other commodity digital monies–
z-cash, whatever you want to put there– but that is super attractive, non-sovereign with its
inherent digital properties– that there will continue to be enormous demand. And that's going
to grow, and grow, and grow. I think governments and central banks are going to put it on the
balance sheet. I think governments are going to subsidize its creation– i.e. infrastructure for
validation, mining. That is where we're headed. And that's going to get bigger, and bigger, and
bigger. And I am now very much a believer in ultimate reserve currency status in some of this.
So I think that's very real.
At the same time, it's not like governments are going to give
up on their sovereign currencies, although I think many governments around the world will.
What is happening is itself is part of this– and you sort of look at like trade settlement
currencies and sort of how that accounts for how much economic activity and all this sort
of stuff. Digitization, and the internet, and what we think of now as public blockchains–
that is going to accelerate that very, very fast. And it's going to lead to some complex decisions
amongst government actors as to, OK, what are we using here? And I think there will be– look,
maybe I'm too much of a globalist and an optimist, but I actually believe that there will be attempts
to create synthetic global digital currencies that are based on a basket of constantly rebalanced
reserve currencies. And I ultimately believe Bitcoin is part of that basket. RAOUL PAL: I have
exactly the same view. I also think within it to be a member of that, they'll restrict
your money supply. JEREMY ALLAIRE: Yeah. RAOUL PAL: So you're in it with 2% money
supply growth, but it kind of looks like a pseudo– JEREMY ALLAIRE: Totally.
RAOUL PAL: Hard
currency. JEREMY ALLAIRE: Totally. Totally. And then the ratio of the fiat basket to Bitcoin will
evolve, just like we had a gold dollar peg, right? So– RAOUL PAL: Because my view on this is simply,
if you're a Brazilian company making commodities, selling them to China, but your economy and your
whole business goes up and down according to the dollar is nonsense. JEREMY ALLAIRE: Totally. RAOUL
PAL: The US is 25% of world GDP and 80% of all world trade. That's untenable. So we can create
commodity basket currencies, which are much more stable in nature. JEREMY ALLAIRE: Yes, exactly. So
we're totally on the same page. RAOUL PAL: Yeah, I think that's exactly coming. I want to pick
your brains about two contentious things now. One is, how does this Tether
thing play out? JEREMY ALLAIRE: Yeah.
I think like– RAOUL PAL: Because people
are very nervous about it. JEREMY ALLAIRE: Yeah. There's a lot of different pieces here, right? So
as everyone knows, what a lot of people consider to be the bugs, as it were, are actually
its features. So the fact that it's opaque, offshore, unregulated, sort of outside the reach
of US banking regulators at face value, at least, and is this dollar shadow banking system– a lot
of Asian money likes that. RAOUL PAL: Which is needed for the world. There are people who want
to get money– JEREMY ALLAIRE: I mean, that in and of itself, there is a market need, right? And
so it's filling that market need.
It's also a very explicit market need. It just happens to have the
order book liquidity depth in Bitcoin markets in Asia. It is in that place because it was in that
place. And USDC has eaten a lot of share. So USDC as a share has really grown and will continue
to grow, because a mainstream financial system, for everything from payments and settlement to
use in financial contracts and other things– no one's ever going to build that on top of
Tether, in my opinion.
And so I think stablecoins like USDC will grow, and grow, and grow. And if
you look at the percentage of economic activity and market activity that's going to be denominated
in stablecoins like USDC versus in something that has those other attributes, I think the things
like a dollar stablecoin like USDC will actually represent a much, much, much larger part of the
ultimate activity. The open question is like, is there an attempt at intense legal and
regulatory enforcement on something like Tether? That is an unknown, right? We certainly
know that there are inquiries and stuff. But who knows. I don't want to speculate on that. RAOUL
PAL: No. And if it is being used for, let's say, Chinese capital flight– JEREMY ALLAIRE: Right.
RAOUL PAL: We don't know who's incentivized it. It may be the governments who are incentivized
to keep it. You don't really the players. So there is a theory that goes around of some
sort of catastrophic failure risk within this. You concerned by that? You just think it just
loses its kind of share over time, and it's not big enough in the end to matter? JEREMY ALLAIRE:
I think it continues to grow in absolute numbers. But I think over the mid to long term in terms
of its ultimate market share, I think it will be smaller.
And I don't like to speculate on the
books and records issue. I don't know. I really don't know. And I know there are many significant
market actors that really depend on it and do find it trustworthy. And I expect that– and I
don't know this– but I would expect that Tether is probably transparent about their books and
records with some of their big counterparties as well. They may not be with everyone. So I
don't know. RAOUL PAL: I'm actually personally not overly concerned by it, but I want to raise
it, because it's a big question that goes around. I think– JEREMY ALLAIRE: Sure.
RAOUL PAL: As
open as they can be. And it's relatively OK. The other one that's contentious but is
interesting is XRP. How do you think that plays out? Because that's sort of in your space
as well, but in a different part of your space. JEREMY ALLAIRE: I mean, I guess there's sort
of two things there. I've always believed that the kind of payment settlement layer is
going to be things like stablecoins and on more generic public chains and the like. And
so I think that that will play out. In terms of XRP as a security, I am not a lawyer here. So I
don't really know. That's going to be a long– RAOUL PAL: But forget the legal stuff, because
none of us know that. It's exactly as you said– do remittances move to stablecoins? JEREMY
ALLAIRE: Yeah, yeah, yeah, absolutely. No doubt, absolutely.
My very strong view here is
that these fiat-backed digital currencies, especially ones that are kind of built
around standards in governance and can be widely adopted and the like– that's absolutely
going to be the dominant mode of transaction. RAOUL PAL: Another question for you– it's about
the new developments in the lightning network– things like Strike, and I'm not sure you've seen
Bottle Pay yet that's coming out of the UK– super interesting. What are you thinking
about lightning layer and how that might work for you– JEREMY ALLAIRE: Yeah.
I think we've
always been tracking this, obviously, really, really closely. And I think Bitcoin's getting
really close, both with lightning and other extensibility where you can issue a USDC that
ran over the Bitcoin infrastructure, right? So at the moment that that becomes really viable,
we will be there, obviously. RAOUL PAL: You're chain agnostic, essentially. JEREMY
ALLAIRE: We are totally chain agnostic.
And in fact, earlier in 2020, we rolled out essentially
a multi-chain governance framework for USDC. And USDC is now issued on Algorand. It's issued on
Solana. And very, very soon it'll be issued on Stellar. And there are going to be many more
blockchains. So if there is a public blocking that has the capabilities to support USDC as a
protocol and it can meet security and some of the features that USDC has in terms of how it
is administered and operates, then USDC should be there. The way I like to think of it is your
digital dollars should be cross-platform, just like your digital music. RAOUL PAL: Everything
should be interoperable. JEREMY ALLAIRE: Everything should be interoperable, everything
should be cross-platform. To pretend that we know which public infrastructures are going to be
the ones that are adopted, there's a lot of competition there. It's like operating system
competition, and there's going to more of that. And so our commitment is that USDC should be able
to be available and interoperable on many, many chains.
And we're continuing to roll those out.
RAOUL PAL: And you've seen interoperability in the beginning– your whole career has been that,
right? JEREMY ALLAIRE: Exactly. RAOUL PAL: It's been exactly looking at that and figuring out,
how does all this fit together? JEREMY ALLAIRE: Precisely. Yeah, precisely. RAOUL PAL: A lot of
people don't believe in it. There's the whole maximalist view and stuff like that. It's kind of
weird– it seems obvious that there's going to be a number of players. We don't know who they
are or how it's going to evolve, but there's going to be a lot of fun in that process. JEREMY
ALLAIRE: Totally. Yeah. RAOUL PAL: Jeremy, look, that was fantastic– really, really interesting.
I think people will have learnt a lot and got us up to date on all of this. Any other things up
on the horizon that we should be thinking about? What about the new SEC chairman? JEREMY ALLAIRE:
Oh, yeah. Gary Gensler. I like Gary Gensler a lot. I know Gary, and I actually co-taught at MIT
course on blockchain stuff– I was one of the guest lecturers in his course.
I know about Gary is he's super smart. He's spent a lot of time looking
at this technology, and this space, and the issues in it. I think he cares about
them a lot. I think he's also a strong regulator. He's not at the whim of anyone. And so I think
he's a strong independent chairman. So I think that's really good. But he's also, I think,
probably thinking about the competitiveness of the US financial sector, the advancements in these
technologies, and he's thoughtful about risks. And so I think he's an excellent choice for the
SEC chair. I think there'll be dramatically better engagement, I think, with the SEC with the crypto
industry than under Chairman Clayton.
RAOUL PAL: OK, final question– it's the thing that
I've been observing is the wall of money. What are you seeing on the other side of the
fence? Because I've started to ask everybody this, and everybody is kind of wide-eyed with, oh my
god, we're having a lot of conversations with a lot of interesting people. What's your part
of the equation? JEREMY ALLAIRE: I completely see it, and I see it in two ways. So one of the
offerings we have is what we call an institutional trading program. Which is basically if you're in
an institutional trading firm of some sort– and that could be everything from a family office
to the biggest electronic markets firms in the world– we want to offer you great dollar market
infrastructure for a digital asset world. We have a whole program. We enroll people and launch
them on our platform.
We give them access to APIs and stuff. That's really growing. So
we're seeing just a lot of new firms that are kind of coming in. And so that to me is
a strong indicator. And I think the second is we have this waitlist that we put out for
this high yield digital account product, and we had over 3,000 companies sign up.
What's fascinating about it– we haven't launched this thing, and what's fascinating
about it is insurance companies, REITs, banks, brokerage firms, asset managers, registered
investment advisors, just down the list people who are interested in how to get yield, obviously, but
also I think it's an interesting measure, because the way I like to put it is, there's bag holders
And there's a lot of people who are really committed to and personally even invested
in crypto. And they work in companies all around the world. And they work in financial institutions
all around the world. And they're all saying, hey, boss, we've got to get involved in this. Hey,
we ought to be allocating part of our balance sheet to this. We should be putting Bitcoin
on our balance sheet. We should be putting these yield products on our balance sheet. And
that's another kind of institutionalization. And we're seeing that. We're seeing
it. It'll be very interesting to see over 2021. The big news of this insurance company,
or that pension fund, or this asset manager– it will be irrelevant. It'll just be like– RAOUL
PAL: Ubiquitous. JEREMY ALLAIRE: Ubiquitous, yeah. We're on the way there. RAOUL PAL: So the
final final question then– because that got me thinking about, OK, so let's say we bring all of
the insurance companies' balance sheets into this, and the pension funds who need yields.
going to converge to the interest rate markets, right? We're going to lose the yield pick-up
over time. JEREMY ALLAIRE: I mean, look, that's like the efficient market theory, right? And so
it's sort of like, pick your time frame, and how dynamic and fast growth are these markets? And how
much, essentially, ARB exists and how is that ARB priced, and then how does that flow through,
right? So that's sort of the question. And so when people ask, are these yields sustainable? Well, my
view is, over the long run, no. Clearly, they'll converge. But how fast and in what form– and then
the other thing that becomes interesting in my view is if the borrowing markets for stablecoins,
as an example, start to– really, as they become utilities for every day settlement and
transactions, then the kind of borrower profile shifts to more like commercial borrowers. And
so, yes, that would also bring the yield curves in line, right? So it'll be interesting to watch.
RAOUL PAL: It's just so fascinating.
Brilliant, Jeremy– really, really appreciate it. Good to
spend some time with you. JEREMY ALLAIRE: My pleasure. Thank you so much. RAOUL PAL: All right.
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