Circle: Driving Transaction Costs Down to Zero (w/ Raoul Pal and Jeremy Allaire)

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 
incredibly powerful.

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.

So that's 
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. 

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 
yield markets.

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.

And these 
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– 

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 
into that.

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 
right now.

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.

I got 
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 
Center Consortium.

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 
the system.

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.

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.

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.

So what 
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.

Yields are 
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. 
Take care. NICK CORREA: Thank you for watching   this interview. This is just a taste of what we 
do at Real Vision. To learn more about the complex   world of finance, business, and the global 
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