Supply and Demand: Paxos on What Moves Stablecoins Into Corporate Treasury

0:18Paul Bances: Welcome to another episode of Fintech Corner, a stablecoin series. So we've got another great guest excited to dig in. But again, just to tee this up a bit, this whole series is really about learning together on really what's the tokenization of money. Our audience, a lot of you listening come from the context of like corporate finance, corporate treasury. When is this going to land in my domain? But we're also just exploring across a broader surface area. How does this affect banks, deposit tokens? You got stable coins. You got the whole crypto infrastructure, crypto market. We've got a rock star in that market today that we get to talk to a little bit.

0:54Paul Bances: So all this is really exploring, digging in. We're all learning together. This momentum is picking up. There's so much that's happening right now that we're all excited about. We're ready to dig in. My name is Brett Turner, founder and CEO of Travada. We've got Paul Bancis, who is really a key consultant for Travada. He leads our stablecoin efforts. And our esteemed guest today is Walter Hesser, head of strategy for Paxos. You ready to dig in? Let's do it. All right, Paul, any opening comments?

1:23Brett Turner: Just want Walter to give a little bit of his background, a little bit of how he ended up at Paxos and what he's been doing for the last several years there.

1:30Walter Hessert: Awesome. Well, thanks for having me on. I love this podcast. I love people that are exploring and thinking about stablecoin, especially when they come from like a unique area of expertise. Because people always ask, what are the use cases of stablecoin? The reality is, what are the use cases of money? They're really limitless. And it's what's the marginal user? What's the next use case? That particular area and expertise that you bring in Treasury is just super exciting. So excited for the conversation and really excited that you guys are doing this work, creating this conversation around stablecoin utility and use and adoption.

2:01Walter Hessert: I am the head of strategy at a company called Paxos, and Paxos is a company that's been in the stablecoin space for a long time. We were founded in 2012, and we have been providing regulated infrastructure for tokenization and the movement of payment assets, other assets, cryptocurrencies. We power a lot of the largest enterprises that are active in the space today, some of the major pioneers in the space. We operate our business out of highly regulated entities, and we've done so out of the most regulated entities in the space for about the last decade, having been the first company to get a New York trust company back in 2015, and then converting that New York trust company to an OCC national trust company where we've been operating out of since December of last year.

2:54Walter Hessert: And we have similar regulatory setups around the world so we can serve customers on a global basis. And the reason we've gone about setting the business up that way is because we really believe in the mass adoption of this technology. And the place where we're seeing the most mass adoption today is in stablecoins. You know, you always hear like this is the area with the most product market fit and the most growth. And it's an area where we're investing as much in the Paxos business as we are in anywhere else. It's our largest area investment. It has been so for the last four or five years. And you can think about our product at a high level in maybe two different ways.

3:29Walter Hessert: There's the wallet infrastructure. We power over 20 million active wallets for companies like PayPal, Venmo. I first met Paul to chat about that story and large FIs like Charles Schwab and everything in between. And then the other side is the tokenization side where we take assets and we tokenize them onto the blockchain. And we do that across similarly a bunch of different asset classes, commodities, securities, but most of the work and most of the business activity today is around tokenized fiat as stable coins. I came to Paxos about nine years ago, and I came from building technology and businesses in highly regulated, highly transactional spaces.

4:09Walter Hessert: Having spent about the decade before getting into Paxos, building in the regulated online gaming space. We were building software for the global pari-mutual horse betting industry. At Paxos, I've worn a whole bunch of different hats. My title is the head of strategy, but it's a catch-all. And today I oversee the go-to-market teams. So revenue, solutions, marketing, and comms, and also the global policy function.

4:34Brett Turner: That's fantastic to have you in your show, Walter. Yeah, as you said, we'll go back to that origin story. So Walter and I first met back in 2019 in October at Money 2020 in Vegas. The big thing we like to call out about that it was less than a year after that initial meeting, we went live on PayPal with Paxos as the infrastructure provider for the trading use case of being able to buy Bitcoin, Ethereum and a couple of other cryptos on the PayPal platform where Paxos provided the training engine for that. But also, again, the wallet infrastructure. And we were able to sneak it in, I think, two weeks prior to the date that Walter and I met.

5:08Brett Turner: So that was a pretty big deal back in 2019 to be able to do that. And then obviously Paxos is the issuer of PYUSD, our stablecoin in 2023. Walter, you said a couple of interesting things there, and I want to go back to that 2019 time. One of the reasons why I was such an advocate for Paxos within PayPal, I wanted you to be the infrastructure provider, was because I recognized very early that you and Chad, your founder, had a big focus on that regulatory licensing aspect of this. You were a little bit ahead of the curve on that, as you said, having a trust license back in 2015. A couple of things I want to hear about that.

5:44Brett Turner: Number one is in those early days, tell me a little bit about the challenge where perhaps others in the space were now following that approach. And then they were able to go maybe a little bit quicker with product releases. They were asking for forgiveness instead of permission a lot of the times. But tell me how you think that put you in the position to win the hearts and minds of some of those large financial institutions that you were able to service. And then now where we're seeing a rush for people to get licensed, how do you preserve some of that competitive advantage that you have at Paxos that you've had for over a decade?

6:15Walter Hessert: Wow, there's a lot of great questions in there. And we can probably spend an hour on that question alone. We won't do that. But I do want to just say, man, thinking back to 2019, when we first met at Money 2020, I just feel it's like so fortunate that we were connected and got to meet you. Most people probably don't know this, but you were part of like a SWAT team. in PayPal that did one of the greatest transformations and launches ever, bringing blockchain across PayPal and Venmo. This has become a popular idea now, and every consumer bank and every fintech app has done so, or is rumored to be doing so.

6:51Walter Hessert: We're working on it now, but you were really a pioneer. Block had done it, and Robinhood had done it, and outside of them, there really was no one else. And of course, at that time, PayPal was an order of magnitude larger than those firms. and it was a massive undertaking and it really moved the whole industry forward. I remember talking to VCs back in 2018 and they were like, oh, that's great. You're in the stablecoin space, but stablecoins are really just for the crypto industry now. And we were powering stablecoin infrastructure for a couple of large exchanges, Huobi and Binance, two of the top five largest exchanges in the world.

7:25Walter Hessert: And they were like, that's great, but this is just for the crypto industry. You could get outside of the crypto industry, then this would be very exciting. And we agreed. And so we sat down and we're like, who would be the best partner in the world to be able to provide stablecoin infrastructure for today? And at the top of the list was PayPal. And it was really that fortuitous meeting in Money 2020 in 2019, I think that certainly created the opportunity for Paxos, but probably in some ways was part of the PYUSD stablecoin ever happening. And I think that has won its own success, but also moved the whole industry forward in incredible ways.

8:01Walter Hessert: to your question i think that dovetailing with that so like what was different about paxos then you had basically everyone in the world um that was building in the blockchain ecosystem if you go pre-2018 they were native crypto companies they were actually built for crypto industry you didn't have outside players coming in and saying we need to leverage blockchain it was just too new there was some of that idea um and people were talking about that as a possibility but one it was like a pretty uncommon idea. It certainly wasn't consensus. And two, it really wasn't happening anywhere. It was just an idea.

8:35Walter Hessert: At that point, there really was no need for infrastructure because you didn't have players coming again outside to the inside of the space. What we were building then probably was like ahead of its time, going and getting as regulated as we set out to do from the outset and how we were regulated then was ahead of its time. And in some ways that's really helped our business. And of course, there are other businesses that have benefited from taking a different path. Look at the two largest stablecoins today. The largest issuers are basically Tether, and then Circle, and then Paxos. And if you look at those from, how's that correlated to regulatory oversight?

9:08Walter Hessert: Well, Tether is the least regulated and say they don't want to be regulated and do everything they can very openly now to avoid regulatory oversight, and they're the largest. And then you have Circle, which took a very different path, which was they were going to get a lot of regulatory affiliation with very trusted entities, And they did a great job building trust through a partnership with Visa and BlackRock and BNY. But the reality is they didn't have regulatory oversight. They had licenses to be able to conduct money transmission type activities market to market. But there was no one overseeing the issuance of USDC, their stablecoin.

9:42Walter Hessert: And then you go to Paxos and all the way back to the first stablecoin that we issued in 2018, we were doing so out of prudentially regulated entities with a regulator that oversaw not just how we were offering the stable coin to consumers and businesses in their markets, such as the state of New York, but really as a prudential regulator, how every activity behind the issuance of the stable coin was being conducted. And so it's very different. We were regulated like a bank. And people often say, oh, there's no regulation back then. Well, there was just most people weren't subjecting themselves to it.

10:15Walter Hessert: And so that really did play a big difference in the adoption and the success to today. Now, there are a bunch of stable coins that were really huge, that were really not regulated, and they've also blown up. So there's a little bit of an observation bias looking back to say, oh, being unregulated was the best thing to do. There's also, why are you being unregulated and what are you doing as a result of being unregulated? And that didn't work for a whole number of firms, which would be a different podcast, which would be a really fun one, by the way, stable coin bloopers or something. But I think that we are at a moment in getting to the second part of your question where regulatory oversight isn't nice to have.

10:51Walter Hessert: It's not a different strategy. It's the only strategy. You need to be regulated now. And now there's a regulatory framework. And I suspect in a few years, you won't even be able to call your asset a stable coin like you can today, unless it is subject to that regulatory framework, just like you can't go around and say I'm a bank. There's a lot of groups that police who can say they're a bank. The FDIC, the OCC, all the state regulators are probably the most common police that say you can't go tell people you're a bank unless you're a bank. That never happened anywhere in stablecoin. The first question you ask on any stablecoin panels, define a stablecoin.

11:24Walter Hessert: And the answer is I can't. There's a thousand different definitions. Everyone calls themselves a stablecoin. But that's going to change. And so regulatory oversight today is critical. I think that for Paxos, having been regulated now, prudentially like a bank for 10 years, now we have OCC oversight today. So we are a federally regulated trust bank is really valuable. The thing that differentiates us today is the time period which we have been operating that way. And I think that adds a lot of trust and credibility for the large firms using us. The licenses and the regulated entities, we always say in a healthy society, government, whatever, regulatory shouldn't be a moat.

12:01Walter Hessert: might be a head start depending on your strategy, but really probably shouldn't be a moat. And that's how we have always thought about regulatory differentiation in our strategy, which is go and look for the highest levels of regulatory oversight so that we can work with the most trusted and discerning firms in the world, many of them themselves highly regulated entities. And that market has expanded from a very tiny market of basically PayPal to now the entire market of enterprises, FIs, and more or less like the whole economy is now looking for stablecoin solutions and they're looking for it from regulated players in the market.

12:36Walter Hessert: And so it felt like the village idiots maybe back in 2016, 2017, as regulated as we were, you went through a very tough administration in the Gensler area. That certainly didn't feel good. We have a lot of like scar tissue for that. Now it does feel like, hey, that has been the right strategy and is still continuing to differentiate Paxos, even as a bunch of companies are posting about their conditional approvals or submitting applications. That's very different than actually having subjected yourself and actually having, frankly, even the internal understanding and resources and DNA to be able to operate as a regulated entity for a decade like Paxos has.

13:15Paul Bances: Do you feel also now like putting in all that work, maybe at the detriment of pressing on some of the market leader opportunities. In hindsight, you look at that and it's like threading the needle. Threading the needle's hard because you're trying to really chart that course. Do you feel like all the bets you're making that were constraining some growth opportunities? Do you feel like have no regrets because it's all gonna pay off now or there's still a little bit, we could have maybe threaded that needle a little differently. If you look at right now, it's still this massive tidal wave that's happening with banks, all the regulatory players really looking how to get into this and they're revving up.

13:51Paul Bances: A lot of the use cases are still constrained around mostly trading. So they're all there. So how do you feel? Did you make all those right choices? Do you thread the needle as well as you'd like in hindsight? How do you feel like your position now moving forward?

14:03Walter Hessert: Well, it's hard. It's all like time horizon. And over the next 10 years from now, we'll feel like it was the right decision. Today, if I take a present snapshot, no. I mean, Circle has a couple hundred billion dollars of stable coins and it's an incredible business and it's not a regulated product, but it does have a lot of utility and serves a lot of underserved markets with U.S. dollars. Circle has created a really strong business. Both of those companies have a lot of limitations to serving the future growth and the expansion of the market that everyone now expects. And so in 10 years, we'll look back and say, hey, we did take the right path.

14:38Walter Hessert: But no, I'm not going to sit here and say like, hey, I wouldn't want to have$100 billion or a couple hundred billion dollars of circulating issuance today. And at one point, we did have $25 billion of issuance, but the regulators came and shut that down. And so that was the direct result of how we subjected ourselves to regulatory oversight. We had prudential oversight, DOJ, and the New York Fed, all of these different players at points have gone very aggressively after Tether. And that is a business that given the way they've structured it, you really can't shut it down the same way you can when you have a prudential regulatory oversight.

15:11Walter Hessert: The flip side of that is all of the trust and the consumer protection and the institutional grade product that you have as a result of that. And so now we're in the moment for that. Now is the time we're being regulated, really allows you to capture what we believe is the growth ahead of us in the stablecoin market.

15:28Brett Turner: Yeah. So I'm going to focus on that a bit. And just to mention, I did have a front row seat for those conversations with the New York DFS for many years. In the same way you credit PayPal with changing the industry. I'm going to credit Paxos because having been regulated by the New York DFS as a trust, having been a stable coin issuer, I think helped educate a little bit the regulators. And they're the first ones that came out with guidance when there was absolutely nothing out there except the NY DFS guidance on stable coins, which then fed some of what we see in the Genius Act and all of that.

15:59Brett Turner: Paxos being front and center with them since 2018 and difficult times at times, but overall the industry is better as a result of it. So I did want to focus on that. I know you and Chad and some others in your group are very active speaking to regulators across the world. So two things, just your thoughts on clarity, not making it past where it needed to go last week and what that signals to the market. And when you talk to institutions today, where do you feel comfortable telling folks that at least this area is settled, you can confidently move forward in which areas we still have to wait. And then the second part after you talk about that is I want to talk a little bit about your global approach to regulation and compliance as well.

16:36Brett Turner: You have a very strong presence in Singapore. You acquired an entity in Europe a couple of years ago. You are licensed in a couple of other areas. Tell me a little bit about the difficulty or how you manage what we used to call that multi-jurisdictional compliance, especially now in the world where you have a stablecoin, which is intended to be global. But now you have a series of regulators that want their oversight over that same stablecoin. And how do you manage that going forward? So if you don't mind focusing on those two things, I think it's important because a lot of our listeners are institutions that are wanting to get into this area, but just don't understand how all of that mixes together.

17:12Yeah.

17:14Walter Hessert: First off, I appreciate the compliment. You're repaying the compliment to Paxos that I paid you. I do think we did drive the industry forward in enormous ways. Paxos was behind and continues to be behind the largest enterprises and firms offering blockchain solutions into the market, whether it's crypto trading or stablecoin payments or stablecoin issuance. Paxos is often the player behind them that's making that possible. Because often these big players go out, they have large incumbent businesses, they're very huge, complex, global public companies. And blockchain is a strategic imperative, but that doesn't make it a top priority.

17:49Walter Hessert: I mean, it's like a top 10 priority. And so the approach there is often, hey, who can we partner with in the market? And I think Paxos has often been like highly differentiated and continues to be very different than anyone else in the market, in that we are highly regulated infrastructure that has been operating at scale, serving highly regulated clients on an institutional infrastructure basis for a decade. And so that's actually paved a way for a lot of these companies in some way for PayPal when we worked together, bringing this stuff to market back in 2019, Paul, to actually enter the market.

18:24Walter Hessert: And that's created all new types of awareness. That's created new types of adoption. It's created new types of utility. And so I am really proud of what we've done at Paxos in addition to just building a strong business and how we've moved the industry forward. And the regulatory strategy, although created a lot of pain along the way at times, it did make that possible and continues to do so today for new segments in the market. I think that your question on clarity, I think that genius is what matters. We're talking about stable coins here and genius is what matters. We have a regulatory framework that creates stable coins as this payment instrument.

18:57Walter Hessert: The market knows what a regulated stable coin is now. if we didn't have Genius today, the market would be in a very different place. Today, there is multiples more infrastructure being laid. We are busier at Paxos than we have ever been working with dozens of large FIs, including many GSIBs and some of the largest companies in the world in providing infrastructure and building new infrastructure now to power stablecoin adoption in the near future. That's all happening, or in most cases, is happening because of Genius. And so we're mid-implementation there, and the market is not waiting. The infrastructure is being put in place.

19:34Walter Hessert: Clarity is very different. Clarity is covering a wide swath of the digital asset ecosystem. And there were some really good things about Clarity, and there were probably some things that were just okay about Clarity, and some things that we would have liked to have seen better. We were very supportive of the bill, and we think it's unfortunate it didn't get passed. So much work has gone into Clarity, and that it didn't pass the cloture vote was a disappointing moment for the industry because there's so much momentum being created from the U.S. under this administration. And that would have just continued that momentum in a lot of ways.

20:06Walter Hessert: One question on that. And because, again, being old school with me back in the day,

20:11Brett Turner: are you surprised that the stablecoin bill was the first that passed over a broader market structure bill? Would you have guessed that back in 2022 or 2023 that we're going to see one of these get clarity first? Did you think it was going to be on the stablecoin side? Or did you think we were going to see broader market structure built first? And just wondering what your thoughts on the progression of that, where we say the stablecoin one is somewhat settled now, and now the broader market one is still up in the air.

20:39Walter Hessert: We're very active in D.C. It's a part of the DNA of the firm. It's part of how we serve clients. Our clients are large, global, very important firms and companies. They themselves have presences in D.C. and the way that we've set ourselves from a regulatory perspective makes policy super important for us. We've always been very active in DC and we were active in stablecoin legislation discussions going back to probably the earliest drafting of what ultimately became Genius, which would have been 2021, maybe 2020, I forget exactly which that was. But we had been active all along. I wasn't surprised.

21:16Walter Hessert: We obviously knew of the power of stablecoins very early on. We had been investing in the space, issuing regulated stablecoins at scale since 2018 and starting to work with some of the largest companies to power stablecoins like PayPal in 2020. And so we always thought that it was going to be really critical legislation and weren't surprised to see the focus continue there first. On the clarity side, although it's disappointing, I don't think anybody really cares that much about it other than the fact that it's disappointing. It would have been a great signal and momentum for the industry. And I only say that from the perspective of where I sit in Paxos and all of these firms that we're working with building infrastructure.

21:57Walter Hessert: No one has changed course. No one said, if clarity, then that. If it doesn't pass, then this. It was like a parallel track that had no bearing on actually what these companies are doing. And so I haven't seen anything as a result of the developments over the last several months. And I think the industry will continue to build momentum despite where we stand.

22:22Brett Turner: Excellent. So going back then to the international side, because I think something unique is obviously managing all of those different relationships across regulators across the world. Tell me a little bit about that concept of multi-jurisdictional compliance and when you have the global stablecoin that's supposed to, by design, cross borders and be available all over the world, how you manage some of that complexity of regulatory expectations from these different jurisdictions on one token without creating 35 different versions and then you have interoperability issues at all.

22:53Walter Hessert: This technology is global. You're right. That is like one of the main value propositions here that we're talking about. Why does this transform the way money moves is because it's global. It's real time. It's global. It's nearly free. It's better for compliance tooling, et cetera. And so all of these things are the reasons that we fundamentally believe that all of these use cases will ultimately get traction and change the way that we think about use, move, money, et cetera. And then on to other assets. It's important that we preserve that, the global nature of stablecoins. And that really comes from the right way of the policy and the legislation that gets passed.

23:30Walter Hessert: If you end up having to have a U.S. dollar stablecoin as an issuer that is issued from a different contract, has a different name in Europe than one that you offer in Southeast Asia than one that you offer in the U.S., you really create an enormous amount of friction in what otherwise is a technology and product that is removing a ton of friction in the legacy system. And so it will just hinder the ability for stablecoins to reach their true potential. If we can't have unified single assets that operate globally, a dollar that's regulated, that can be sent from someone on a regulated platform in Europe to someone in the U.S.

24:09Walter Hessert: to someone in Asia and can move seamlessly across borders the way that we're expecting blockchain technology to deliver to different products. Luckily, I'm really proud of the leadership in the U.S. legislation around reciprocity, and the rulemaking is being created around that right now coming out of Treasury, exactly how that is implemented. But the reciprocity basically says if you have a regulated stablecoin out of a regulatory regime that the U.S. regulators deem as sufficient or equivalent to Genius and U.S. oversight under Genius, that asset would become a permitted stablecoin in the U.S.

24:49Walter Hessert: And that's really important, not just because there are other regulated places out there where you can issue a stablecoin from out of the EU under Mika or out of Singapore or out of Japan. But it's really important, mostly because all of this legislation of stablecoin is evolving around the world. And the U.S. is always a leader from a legislative standpoint around financial services, certainly. And so by the U.S. creating that reciprocity in our stablecoin legislation, we create the standard or the expectation of that reciprocity globally. And so MJC, the multi-jurisdictional compliance, is very complex today.

25:30Walter Hessert: It takes an enormous amount and really no companies have achieved it outside of Circle sort of has a multi-jurisdictional compliance somewhat, but meaning that they operate with prudential oversight in Europe, but you can also access that asset that's issued elsewhere, that same asset in other markets in the U.S. The difference about them is that global issuance doesn't have prudential oversight. And so it doesn't take the collaboration or the reciprocity type of provision to make it possible. And they really just operate with that prudential oversight from the French regulator, as far as I understand today.

26:06Walter Hessert: And that will most likely change as Genius gets fully implemented. Paxos has, we have prudential oversight out of Singapore. We have prudential oversight out of a regulator, the FIN FSA in the EU that is MECA compliant. And now we have an OCC regulated entity, National Trust Bank, that will be Genius compliant when Genius is finalized. And so we're able to do this multi-jurisdictional compliance by having the right regulated entities in other places in the world. I'm hopeful that it gets even simpler for, frankly, other companies to be able to do over time as a result of the reciprocity provision that was included in Genius.

26:45Walter Hessert: And really the leadership it took to put that in there and the foresight, because I really think that's important for the global landscape and the global adoption of stablecoins over the long term.

26:55Paul Bances: That's awesome. Well, a lot of regulatory. Did you ever feel like you're joining a tech startup or got your hands on the plow of regulatory policy as much as you've done? I mean, you obviously know so much about a regulatory, you're providing an incredible service for everything that's going to be happening behind you. Is it hard to contact switch between the two sometimes?

27:13Walter Hessert: Certainly at some point, everything is sort of determined by regulators. And that's not really an efficient way to develop products relative to just developing it purely with feedback from the market. I have this like governor of regulatory oversight, limiting that and slowing that. does just that. It slows it down. Sometimes you certainly wish you could move faster. I think for us, the North Star is always like societal-wide outcomes and societal-wide impact. And so for us, it's just part of the equation. We've never, ever considered when we're launching any products, should we just ignore regulation or should we just go find some unregulated path?

27:52Walter Hessert: And that even sounds crazy for me to say, but that is the MO or the first operating principle for many tech companies. For Paxos, it's very different. It was always, how do we operate within regulated frameworks so that we can create this societal wide outcomes.

28:06Paul Bances: I just say that too, because I could identify with starting Travada and just when you're working with a lot of big corporate banks, the complexity with corporate finance, corporate treasury is just so different than just bringing about forecasting for a small business or using Plaid or if you're on the retail core of the bank, none of that really set up on the corporate side and having to pioneer APIs, do all this. It's just a whole different world. And so we've had to also play the long game. It takes a lot longer. I can identify just because there's times even as a builder at Travada, you're like two and a half years on a deal with a bank.

28:41Paul Bances: And it's like, man, what did I sign up for? I mean, it's all worth it. It's all awesome. But that's the other message I tell people when they're talking about. If you want to be an innovator, sometimes you get the fun aspects of the rewards of that. But this is not an overnight success. There's a lot that goes into that.

28:55Walter Hessert: You say that about Travada, it just strikes me about how vastly different business strategies can be. And the regulatory oversight and how that impacts product development, velocity, et cetera, is just one dimension of it. Another one is being enterprise infrastructure or an institutional facing business like you are versus a retail. There's totally different development cycles and mentalities completely. And so you just have to pick your lane, I think. And that's some of the greatest companies, most of the greatest companies really, I think over time are the ones that say, here's where we're going to focus and we're going to stay focused there for absolutely as long as possible.

29:32Walter Hessert: And it's just a very different business. I ran a retail or a consumer web business before on the gaming side. Paul, you've been in PayPal and Venmo, which is both a massive retail business and a massive S &B business together. And so it is really different. I can certainly appreciate some of the elements that you're talking about when you're serving high-end enterprise on the infrastructure side. Very long sales cycles, You have much slower feedback loops. And then -

30:00Paul Bances: What's the innovation cycle too? Because there's the startup mentality. It's like, oh yeah, we'll just lean startup. We'll just fail fast. Fail fast. And it's like, fake it till you make it. None of these things, you don't get to use any of that vernacular here. Because there's no such thing as fail fast because it's just, if you fail, you're done. So it's like, it's just game over. So I think those are the stakes are very different. It's awesome to hear you speak about that. It is a journey. And to see what you guys have done and really, again, laid so much of the groundwork. I think what's also gets exciting though, as you put all that work in and a lot that people don't really see.

30:33Paul Bances: Sometimes a mentor of mine and who took the company public 20 years ago, and he said he was with the bankers and when they were going through their roadshow and stuff like that. And one of the junior bankers on the team says, man, you guys just came out of nowhere. And he's like, yeah, just a 12 year overnight success story. So you just, you don't get the dozen years that builds up to maybe some of that limelight, but it does certainly feel what's exciting though. It feels like just where the industry is positioned, where things are headed, like the next wave, the next 10 years, this true transformation that's going to happen through the entire global financial system is, it's going to be worth it.

31:08Paul Bances: It's super exciting. It just, it's amazing what the future holds. So I'm sure that you guys feel the same way. It's just biding the time for as those things start to unfold, it gets more and more fun as you go.

31:19Walter Hessert: There is just like incredible excitement about where this whole space is going. And it's in a really fun space to be building in. And despite all of these different obstacles and complexities that we subject ourselves to by either being large enterprise facing businesses or highly regulated businesses or both. At the end of the day, at Paxos, we really know and we stay focused on the fact that these are all very important. And we are going to differentiate ourselves in the market by taking these different strategies. But at the end of the day, it comes down to product. And we have to continually win on product despite all of that.

31:53Walter Hessert: And so for our customers, it's about having the best product for them to meet their needs. The highest level of regulatory oversight and the best track record and history of compliance and the biggest logos. Those are all critical and supporting elements of what we're offering to the market. But at the end of the day, you have to be able to win on product. Like, can I solve the problems for my customers in an enterprise business for my customers that are trying to solve problems? Can I help them solve those problems? And you need to just be laser focused over time on continuing to be able to build the best product to do that.

32:27Walter Hessert: Or at the end of the day, the most regulatory oversight and whatever customers you want first aren't going to matter. You have to have the best product. And that's how we think about the business at Paxos.

32:38Paul Bances: Awesome. Well, maybe just shift gears a little bit into more of the corporate finance, corporate treasury space, use cases. I mean, one of the things that stood out when you were starting is just a couple of comments. I wrote down like definitions. It's almost like, like you said, what is a stable coin? Nobody really knows. It depends. And I think that one of the things too is that for a lot of folks on the corporate finance, corporate treasury side, these use cases haven't really happened yet. There's a lot of risk barriers. There's some blockers still. But I think just to level set a little bit, one of the things that's playing out too is that, again, the way banks operate, they have deposits that are a liability on their balance sheet, and then they lend money.

33:17Paul Bances: And then obviously a lot of other things, but that basic construct, now when you have stable coins that are sitting in custody in an asset manager, it's really a different instrument. So maybe break down a little bit of a deposit token, tokenized deposits, stable coins, give our audience a little bit of how you define that, how you see those different instruments. Are they the same? Are they all going to be obfuscated? Is it all going to be interoperable? Is anybody ever going to matter at the end of the day? It seems like from now until maybe then in the future, maybe when it won't as much, that's a very different world and a pretty big gap before that happens.

33:53Walter Hessert: Yeah, I get really excited about this stuff. And I think about it broadly as like tokenized forms of payment and forms of money and stablecoin in all of its different iterations and definitions have largely been the focus over the past half decade plus. And now people are starting to talk about, of course, over the past couple of years, tokenized money market funds. Now tokenized deposits are a real focus. And you had this argument between tokenized or debate between tokenized deposits or stablecoins. And I just think about this as a technology and this technology that as one expression of stable coins is also going to expression of other tokenized forms of money.

34:33Walter Hessert: And since we are an enterprise facing business that is providing infrastructure to firms that want to leverage blockchain technology, we really think about how this is really powerful and transformational to not only tech companies, but also to banks. I personally am really excited about where tokenized deposits are going to go here, especially since you have this idea that a tokenized demand deposit can be the reserve for a stablecoin. That really changes, I think, once you get banks into the space. And we know that's all happening now. Now, Paxos is working with literally dozens of large banks, many of them some of the largest global banks on stablecoin and blockchain infrastructure opportunities.

35:18Walter Hessert: As banks come into this space, the way that tokenized deposits will move from just this idea in innovation land into like a real important part of the ecosystem. And there'll be reserves for the stablecoin. There'll be products themselves that users use. And it really ultimately is going to bring just more and more users and wallets and assets on chain ways that are going to create all new types of opportunity and possibilities. That's great.

35:49Paul Bances: On that, as we push into that a little bit too, maybe going back a little bit of the origin story of how the intersection, it's public. week, Truvada has partnered with Faxos on what we're doing and trying to bring that really into more of the corporate sphere with all of the workflows and within Truvada and all of that. Shout out to Ryan Zachariah for making the introduction. It was a little over a year ago, and I'm sitting with him too. As I'm starting to go deeper, I think one thing that became a little bit of a catalyst in the industry is too, is just Circle's IPO that happened maybe 15, 16 months ago now.

36:21Paul Bances: That was just a good rising of the tide in some ways, awareness. we're starting to look more at, hey, let's bring this into our ecosystem. Are we ready yet? Like we got some incredible use cases. I kept hearing too, from maybe folks in the industry saying like, what are going to be the next use cases? We're trying to get stable coins into these use cases. Why isn't it really in corporates? And then I'm sharing, well, here's some of that divide, but we dug into that and figured out these are perfect use cases for how the utility of it, the corporate governance within a platform where all that's done today.

36:53Paul Bances: hey, let's bring that in. I show up, here's this crazy guy coming in talking about this whole corporate use case. It's not conventional right now, it's happening. What were your thoughts too, if maybe had you already seen at some point, it's gonna find its way into corporate, hearing a little bit about the Travada story could make sense. Go back when we were first talking about it of where that intersected with Paxos and your guys' journey.

37:16Walter Hessert: First, definitely just second that shout out to the Jamf and Topp guys who introduced us. I remember we got an email introduction in the morning. In today's world, that might be a Zoom call in a couple days, but we were in an office together, despite you living on the West Coast and me in the East Coast in about an hour and a half after that email introduction. And I think what immediately got me so excited, and I think, Paul, you were in there with us too. We all were in a room together. It's funny. This is the first time maybe we've all been in a room together since, so to speak. We were in a real room then.

37:44Walter Hessert: What I just loved about what you were doing is, and what I love about the Travada of business. And I tell people this all the time. People talk about all these use cases and like, you can rattle off the obvious five treasury and access to dollars internationally and cross-border payments and supply chain and all of these micropayments, all of these things where it's like, oh, these are obviously good things for the properties of stable coin to be able to solve. They're like very cheap to move. And so very small increments are sensible for them to move in a stable coin, or you don't have to have five different intermediaries to move an asset across border and take a few days, you can do it instantly.

38:20Walter Hessert: And so cross border makes a lot of sense. Or in Brazil, it's hard for a retail person to be able to have a US dollar account. And so access, so like all these like things, they are use cases based on properties, but they don't actually solve it because to solve a problem, you have to really like understand the user. And what you brought to my awareness, which makes the Travada plus stable coin so exciting for not just Paxos, but I think for the whole stable coin space is such a deep understanding of the user, the use case. And what I really loved about the way that you were thinking about your business was exactly like down to the buyer in the firms.

38:57Walter Hessert: Oh, great. It has all these properties. Yes, we can move it instantly. And it's not like a day lag to liquidate a money market fund. So I can put some liquidity over here. So you figured out how the properties were, the characteristics of stable coin made a great solution to the problem, but then you actually understood the whole market, the technology, why things are done the way they are, and all the way down to the exact buyer and what their motivations were to then create a solution that for me, as was as good as any application I've seen in the market at understanding the full value proposition of inserting stable coins as part of a solution to a business challenge today.

39:33Walter Hessert: And so that was really special and is like continues to be what makes me so bullish, not only about Travada, but frankly about the whole treasury use case is your deep understanding about how the transformation practically happens.

39:46Paul Bances: I appreciate it. Yeah. I promised I wasn't trying to fish for a compliment there, but it was great to hear your perspective. That's what continues to get excited as we talk to customers about it too. I think maybe just sum up what you're saying is like, we just want to do things. We just want to just get it done. Now it's one thing talking about these things and another thing actually doing it. And there's a lot of dots you got to connect to do that. Let's just do it and do that for clients and then let them get their hands on the levers and start doing them themselves. And I think that's in a nutshell what we're trying to do.

40:14Walter Hessert: As a stablecoin issuer, I can only know so much about each use case. And so when I got to you who are such an expert in it, and I would go to this, like someone who's running a treasury and I'd be like, oh, listen, as long as it's structured this way as like a distributor of the asset, you can get the yield rewards from the stablecoin that make it economically make sense. And it's super cheap to move and you can move it 24 seven. And then it'd be like, cool. That doesn't really matter. That's all nice. And then you figured out like exactly the incentives of that person to make the buy and the credit to the platform that they were using and all of these different mechanics that, again, are just so specific to the use case, to the buyer and the transformation, that if we could just have that happen over those five different use cases, and there are people doing that.

40:55Walter Hessert: Because ultimately what has to make you bullish about this is the application layer that is underway right now. But that's really what has to happen to make these ideas of use cases become true use cases, that level of understanding and commitment to solving the problem based on that deep understanding.

41:10Paul Bances: I think that's what we loved about the Paxos story and also just what resonated in working together as partners. It's just because for us, the stakes are high. It's not just doing it in a one-off point solution. You've got to provide all the other stuff that they're currently doing in a traditional way. And now you've got to bring that in one complete governed access, one where all your workflows are being done. You can't just need to go outside of that and doing shadow payments and some point solution here or there. You could do it, but if it's not in the context of all that, it's probably not going to go mainstream.

41:43Paul Bances: So I think that's what we've been working hard to do. It is a big challenge. Anybody on corporate finance or corporate treasury to do this is like, okay, but I get all that. And it seems like the use cases are great. And I'm sure they're starting to line up in people's minds and even connect into dots for those that do that and know that how that needs to happen. They can see that. But I think there's also a risk register about, okay, if I'm going to consume this, I'm going to use it. Where do you see, if you have any thoughts or advice on some of our customers, where do we get started? How do they view the risk?

42:13Paul Bances: Is this safe for them to use? I think some of that is dispelling a little bit of the myth. Early adopters typically pave the way, but what are your thoughts around that? What advice would you give to folks on the corporate finance and treasury side of how to use this, how to really teach from a governance perspective or even up to the board level if needed, how this is going to be okay to get through the risks and consume it and use it. I mean, I would tell them to talk to Brett.

42:38Walter Hessert: First and foremost, that's where I would send them to because ultimately I don't understand the way they think about risk. You understand the incentives, you understand the disincentives, you understand the risks of all of those profiles. And the reason that issuers are never going to be the ones that create$3 trillion of stablecoin demand, we can just create supply. The demand has to be created by people who really understand the risks and the incentives, building great businesses and great applications at that layer to solve these problems. I can only go around and do podcasts and talk about how great stable coins are, but that doesn't really create any demand.

43:10Walter Hessert: You have to solve the problem. And so what I can just tell them is like the obvious things is today you have like a fortune 500 companies that are holding it as treasury. You have a regulatory apparatus that is telling corporates, I know secondhand from credible sources telling I've heard where corporates have been told to just treat it as cash. And we have a regulatory framework that aligns with that, holds issuers to the same standard. And so from an underlying asset, you want to be comfortable with the issuance and you have the regulatory oversight as one way to do that. But you can also go deep into the issuer to understand how we operate at the level of a bank from an oversight I think that's part of it too is to provide that comfort.

43:57Paul Bances: Yeah, I think that's one of the things too is just the aspect of it's different than putting money in a major bank and then I'm going to do a wire transfer. So Paxos, you guys were one of the top players, but Paxos, maybe there's not enough brand recognition on that side. I think what was good too is with all of this regulatory awareness around how you guys treat it, how you guys focus on that, you mentioned it, comfort. I think a lot of this is like get comfortable with it, understanding where their money's going, how that's going to get moved, the safekeeping of that. We're not talking about, I'm just going to park a couple hundred bucks and I'm going to move it to my cousin overseas.

44:36Paul Bances: It's like now you're talking about our average payment is about$2.5 million. Yeah. Great discussion as always. Another great episode. Thanks so much, Walter, for joining us. I really appreciate you carving out time to meet with us and being on the podcast.

44:52Walter Hessert: Thanks, Brett. Thanks, Paul. Thanks for the partnership, Brett. It's really great to work with you and exciting to have this conversation. Keep on doing this.

45:16Thank you.