1069. Insights: Can stablecoins escape the fintech bubble? - Live from Money 20/20 Europe

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1:11Hello and welcome to Fintech Insider Insights, live from Money 2020 Europe in Amsterdam. I am Ross Gallagher from 11FS. Now, if you've walked around Money 2020 this week, it's hard to avoid one topic, stablecoins. They are everywhere. From cross-border payments and treasury operations to embedded finance and AI commerce, stablecoins have become one of the defining conversations shaping the future of financial services. But here's a question. Are stablecoins actually breaking into the mainstream financial system? Or are they largely still trapped inside the fintech bubble? So in this week's episode of Fintech Insider, in partnership with Format, we're asking what will it actually take for stablecoins to break out of that fintech bubble.

1:59Now, to help us answer that, we really do have a fantastic panel today. First up, Aileen Denovitser, Head of Operations at Formance. Aileen, great to have you. Welcome to the show. Maybe you can just tell us a little bit about yourself and what you're building over at Formance. Of course. Yeah. Hi, everyone. Yeah. Great to be here for the invite. I'm Aileen Denovitser. I'm Head of Operations at Formance. And essentially what we do at Formance is that we built a programmable core ledger. I know those are heavy words to use in this context, but essentially we are asset agnostic. So we bring together on-chain assets and connect that to a fiat world.

2:39Love it. You're definitely, that is the right expertise. I think that we need to answer the question that we've just teed up. Also joining us, we have George Davis, founder and CEO of Lorem. George, also great to have you with us. Maybe again, you can just tell us a little bit about yourself, a little bit about Lorem and the problems you're focused on solving.

2:57George Davis:Yeah, great. Thanks for having me. So with Lorem, what you can really think about us building is a new age Bank of New York, Bank for Banks. We believe that really the market is structurally disincentivized to build good services for other banks in the correspondent banking side. And that really what we see in the market is a flood of smaller community banks making loans with deposits with kind of inherently transient money. And so the thesis for Lorem really was, can we build a 100 % reserve-backed global custodian bank around the world? Previously, I also co-founded BVNK, so have some stablecoin experience and pain.

3:37George Davis:Skars on your back. Love that. All right, and finally, we have Robin Anderson, the head of product at Tribe Payments. Robin, again, welcome to FinTech Insider. Maybe you can just, again, give us a little bit of background on yourself and maybe what you're seeing across the payments landscape. Yeah, sure. So, as I say, Robin Anderson, head of product at Tribe Payments. So, Tribe Payments is an infrastructure provider and software provider for financial services companies, banks, acquirers, issuers, across the issue of processing and acquirer processing space, primarily focused historically on the UK and Europe, but recently expanding out into Asia Pacific and the Middle East.

4:19Love that. All right, well, that is our wonderful panel. I think from the expertise that we've just heard, I think we're very well placed to sort of dive into a little bit more detail where we're at with stablecoins right now and maybe what the future holds. I'm going to start off with maybe the obvious question. Maybe I'll come to you first on this. Where do you think we are with stablecoins today, right? I mean, are we genuinely seeing it break into that mainstream financial system? Or is it more pipe cycle? Are we still just sort of talking to ourselves largely within a fintech bubble? Yeah, that's a very good question.

4:57I'd first like to start to kind of put things in context, right? So there's specific use cases, such as accessing a hard currency or cross-border payments that were very obvious, these opportunities were captured mainly by either fintech or crypto-native companies. Naturally, because they are more tech-savvy, they move faster, less risk-averse in a context that were, until not so long ago, we lack a lot of contextual set of rules, regulations, what we could do and couldn't do, right? So until this point, or not so long ago, So naturally, only these type of players capture these opportunities. Now, on the back of a lot of regulation coming in, Genius in the U.S., MICA with a similar objective in Europe, created a more fertile territory for the mainstream companies in the financial services space to start capturing these opportunities.

6:04So we are seeing a switch in the last couple of years, but it is accelerating recently. where more traditional players are starting to include some sort of either offering or using stables and moving money on-chain asset technology. So stables become less of a tagline and more of the technology of choice. There's tons of examples by the top of my head. Visa, I think a couple of weeks ago, they announced that the annualized rate for settlements using stables for this year is$8 billion. If we put that in perspective of the size of what's being moved on an annual rate, that's still small, but it is signaled that there's a specific trend, right?

6:56So players are moving into the crypto space in that sense. Robin, Aileen mentioned about the regulation piece. I mean, how critical, how fundamental is that to, I suppose, legitimizing stablecoins and giving companies out there the confidence to actually experiment? I think it's absolutely fundamental. And I think the industry has massively underestimated how difficult that is. I think when people talk about stables, you know, it's very easy to think that the difficult part is actually moving the value. but actually, you know what, in some respects, that's kind of a solved problem. Actually, the really hard part about around, you know, doing this at scale is all the other stuff around it, that FIs need to pay attention to.

7:49KYC, sanctions, liquidity, exceptions handling, audit trails, customer support, all these kind of things that the FIs need to also do as part of their commitments, both from a regulatory and compliance perspective. So sending a stable coin from wallet A to wallet B, you know, that can be really seamless, it can be really elegant, it sounds very, very compelling, you know, but actually doing some of those other things at scale, that's the hard part. I mean, it's, I mentioned the term hype cycle at the top. But you know, I think you have that kind of typical trend where you've got these new emerging technologies, instantly all of the high ball of the narrative, all of the noises, this is going to change everything.

8:38And then Robin, I think to your point, the reality of the operational side of it and everything that needs to happen to actually fully embed it. And I think we obviously haven't, we're sort of fairly far down the track. We obviously haven't seen it completely reshape the financial system. George, from your perspective, building that infrastructure underneath the money movement that Robin was just talking about, you know, what's actually stopped stablecoins maybe going that a little bit further, really breaking into the mainstream?

9:06George Davis:I think generally, globally, we're not clear enough on where the value of a stablecoin truly is. I think in highly dollar illiquid markets, stablecoins can, for now, make a lot of sense because you can't buy local currency or you can't buy dollars out of that market and there a dollar reflective asset. And that can be very interesting, but it's also very short term. Like when you look at why those markets have these structural issues with buying dollars, it is not because there's something wrong with the US banking system or all the dollar ecosystem. It's because there's something wrong with those governments hoarding dollars.

9:41George Davis:And at scale, I think what you're going to see in those markets is stable coins will become as a liquid. And so I think when you go to a major bank or you're selling treasury services into a bank and you start to talk about stablecoins outside of the height there's not really a need for a stablecoin across g20 currencies like we we believe very strongly that swift is is not really broken it's the participants are it's the participants that don't manage settlement adequately and the number of hops in that chain is really the issue and stablecoins don't really change that they change maybe the messaging in between and you're swapping a triple a credit rated correspondent with a crypto exchange in a local market and i think what you ultimately see if you're doing say euro to Singapore dollar is that you end up going euro to dollar, dollar to USDC, USDC to dollar, and they'll often, the exchanges in Singapore will wait for that dollars to settle in from the US, and then they'll buy Singapore dollars there.

10:32George Davis:And so I think you have to then ask yourself, who in reality wants to use that as their clearing mechanism? And I think it's mostly payments that shouldn't be processed by a correspondent, or in markets where correspondent banking doesn't stretch. And so I think there's a huge amount of value in tokenized bank deposits and reflecting tokenized balances around the world and tokenized assets such as money market funds in time. But I think actually stablecoins as a form of remittance is either for high-risk markets, dollar-illiquid markets, or if you believe there's a future where you and I interact solely with stablecoins in our wallets and we never interact with the fiat ecosystem.

11:11George Davis:And then it can make total sense. But how close to that are we? And I would argue how much do we truly need that. And I think that has stopped stablecoins being completely embedded everywhere. And there's a lot of hype for leveraging them, but ultimately they're more expensive and they move away from a system that does work. It's just being leveraged wrong. And then just picking up on the point that you made, because it's a really interesting one. Does that reflect a limitation in the technology or does that reflect frictions and limitations in systems and everything that's in place today? I think ultimately the reason that you see difficulty now globally is that in the 90s, you build on top of cities, treasury and trade, you know, on TTS there.

11:53George Davis:And that was great when money wasn't that transient. And so they've built a huge network of, you know, 100 branches or whatever it is. But each of those branches operates independently. And so you've got structural issues inside those large correspondent banks with kind of traversing the silos, traversing the manual execution. And we've ended up in a world where it costs them the same to execute, whether you have$100 million or$100 billion. So they naturally debank and de-risk. I think that's more of the problem than the rail itself. Like if you actually look at what Swift is doing, all they're doing is telling someone, you know, rebalance your Nostra account.

12:25George Davis:And there's no problem with that. And I think ultimately today, you still need to settle with central banks. You still need to settle over Fedwire or faster payments or whoever. And actually stablecoins are never going to bridge that specific gap. They're always going to sit on top of banking. I think then tokenized bank deposits can be more interesting because you capture that execution plus the branch network, plus the deposit. But to imagine a future where we operate outside of your JP Morgans and your cities or whoever I think is slim. I think actually there's structural issues inside those banks that makes their services hard to spread.

12:59George Davis:But it's not actually an issue with the rail itself. Aylen, I think we've jumped straight into the limitations, which I suppose is natural. But where are we seeing some real traction with stable coins. What are some of the use cases where we're actually seeing them add real value and solve for difficult problems? Yeah, so I'm from Argentina, right? We've been using stables for the past over eight years. So it's not something new. And I think it goes back to what you were saying, George, on there's very specific use cases, such as regions or countries where you cannot access hard currency, where there's a real pain point.

13:51And there's definitely, that's a problem, this kind of solves it. Maybe there's room to argue, does it solve it on the long term? Because if there's, essentially, if there's, for instance, in this specific case, If there's a restriction on access to US dollars, this is a bit of a workaround, right? Until it gets in the regulated environment and then it's going to be capped as well. So that might be a bit of a short-term solution. Then again, it's been almost 10 years and Stables is still the solution for that problem. So, yeah, I don't have a definite answer on where that is going to go. So far, it's been quite a success story, I got to say.

14:36And it opened the doors for global payroll. This economy is working for companies abroad. So there's, I don't think, I think maybe a couple of years ago, it was like, oh, steals are going to, or crypto is going to change and replace the entire VN economy. and in 2026, I think all of us are pretty sure that's not how it's going to turn out. There's a fit. Sure, we can adopt this as just another technology that is better than whatever we're using now. But just saying like, oh, we will plug and play or just jump into the Stableswagon because it's cool. I think we're kind of past that hype, which is good.

15:22I think it's a sign of maturity.

15:24George Davis:I think there's actually two fiat economy types where this works. There's one where there's no dollar liquidity, like Nigeria or somewhere. And I think that's a much shorter term use case. Like eventually that's going to run out of liquidity when you get to scale, when you're moving hundreds of billions of dollars, that's going to be a problem. But I think where you have no faith in local currency, where you have no trust in local government, then there can be a very interesting use case there where actually you imagine that merchants inside the country that doesn't trust their currency are collecting in stable coins and then banking with a bank outside of their home country.

15:58George Davis:and they can be a really effective way to avoid local currency. I think the only place that you're going to see struggle with that ultimately is when that starts to really pull money out of the ecosystem of those countries, they are going to start to make it not a legal form of tender. But I think that's a much more solid use case where actually you don't want to hold the local currency at all. You never want to get in or out of that local currency and you want local currency somewhere else, like a US dollar bank or a euro bank or somewhere. And I think that's where I think they can have a lot more traction than they do today.

16:32George Davis:I think the liquidity use case is a poor one over time. Interesting. I think the other thing, Eileen, from the point that you made that stood out for me when you were saying about, look, I think we sort of have a handle on where we're at right now in terms of the role that stablecoin plays. But then I think equally, there's actually still quite a lot of maybe disagreement around the sort of the size of the stablecoin universe, even in the medium term. I think Citi and Standard Chartered have both sort of put out reports that sort of by the late 2020s into the early 2030s, they're expecting it around about the$2 trillion mark.

17:05Then I think JP Morgan came out with the report and said, look, if it gets to sort of$500 or$600 billion, it's actually done pretty well. And I think, you know, for me, I suppose the difference there is I feel like Standard Chartered City, those guys are fully anticipating that it's going to break out of just solving for those sort of narrower use cases around cross-border payments, more into the sort of, more into the sphere of sort of everyday banking. Whereas I think JP Morgan are being a lot less cautious and saying, actually, even today, a lot of what we're seeing in terms of the value around stable coins that we're seeing is actually being driven purely from within just the crypto universe.

17:42And so that to me feels like a big thing. Robin, I want to bring you back in on the infrastructure point because I know you've talked a lot about maybe stablecoins and AI running into similar problems in that transforming the existing infrastructure is actually much harder than people really realize. Yeah, look, I think there's always a natural bottleneck when it comes to payments infrastructure. It doesn't matter if it's stablecoins, it doesn't matter what it is. you know, the front end, you know, the glossy demos, they're always going to be far ahead of the back end, and the back end is always going to be far ahead of the operating model or the operating layer.

18:22In the case of AI and stablecoins, if you even think about a use case where they're put together, right? Like, so AI can make decisions in milliseconds. Stablecoins can move near enough instantly. But the problem you've got is that most of these FIs, particularly the legacy ones, they're running off extremely old ledgers that have been built decades ago. Perhaps formats can help with that. They're using batch processes, they're using manual controls. It doesn't matter what they put in their glossy decks out to customers. Ultimately, this is how their processes run most of the time. So I think the point here is that whether it's AI or stable coins when it comes to payments i think the tech is pretty much ready but the banks aren't yeah george how relevant because i think we talk we you know we do these insight shows we go deep on a particular topic or a particular you know whether it's stable coins or any other emerging technology but none of these things are happening in a vacuum right how relevant is it that we're starting to see technologies like stable coins and AI coming to age at the same time?

19:36George Davis:I think in a world of kind of agentic money movement, stable coins also can make a ton of sense because they're a way of immediately exchanging value. I think what we shouldn't underestimate is ultimately they have to leave that ecosystem eventually. And I think that's where stable coins can become a very interesting bridge between bank deposit tokens. So when you start looking at jpm releasing their own token or city or whoever i think it becomes interesting when your agentic commerce world can exchange value all day long through a stable coin and then they need to get it back into the end bank account of the underlying merchant and that's when you need your kind of interoperability between bank deposits and and the stable coin world and i think stable coins make total sense for that it's way easier to have a ai agent interact with stable stablecoins where you've kind of got settlement finality instantly, which is something you really lack with a swift payment or anything like that.

20:33George Davis:And then it's about how do you bridge into that world and banks are a natural liquidity source for that. So I think when I think about bank deposit tokens, I think about them more as a kind of like a market maker on the stablecoin side. They are like the liquidity source for getting back off ramp out because everyone talks of this vision of eventually you won't know stablecoins are there. They're going to be this silent rail the same way Swift is a silent level. And I think for agentic commerce, that will be true. You won't really care how your agent exchanges value as long as your JPM account gets its deposit token at the end of the day.

21:04George Davis:And I think that's very interesting. I mean, surely that's how you know we have actually reached the final stage of the hype cycle is we're not talking about it anymore. And it's just quietly doing what it needs to do in the background. And we're sort of tipping into, we're tipping into sort of programmable money again. I mean, maybe where are we at with that in terms of where things are today, but then also, I guess, what are some of the challenges, some of the operational challenges about maybe realizing some of the more utopian visions around programmable money? Yeah, so when talking about the challenges, just to put things in context, and because we were talking about adoption within a mainstream financial service company, orchestration becomes a real complexity.

21:52And the reason is pretty straightforward right no one runs money flows and payments on a single on just one rail right so um the money flow can touch bank uh card networks um etc etc and you're adding into that mix uh the stable current components and the way money flows on chain is quite different right so just just to mention a few things, but you were talking about finality, right? So finality operates completely, so you reach finality within seconds and it's always on, it's 24-7. That's very different from what we see with fiat money. Reversibility behaves completely different versus what you can do with fiat.

22:40So it's like you don't have exactly the same framework and way of moving money, right? So if you think of stablecoins just like you think of any other traditional fiat type of money flow, you're trying to put it in a square circle. It goes back to that point about AI. There's no point using AI to write a business requirements document in half the time. You need to sort of go back to first principles and almost go, what does AI mean that we don't even really need business requirements document in an oral? What's the future version of that? right? It's just building from first principles and ground up.

23:22All right, well, look, in this half of the show, we've just explored why stable coins still haven't fully escaped the fintech bubble and where they may finally be finding product market fit. We're going to move into the second half of the show, where we're going to look at what happens if stable coins do become mainstream infrastructure and what that means for the future of financial services. It is all coming up after this quick break. So don't go anywhere.

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24:47All right, well, welcome back to FinTech Insider live from Money 2020 Europe. George, I'm going to come to you first on this just as almost like maybe a point of antagonism in terms of stable coins and mainstream adoption and what we're talking about. Is it fair to sort of, I feel like I was getting a read from some of the stuff you were saying in the previous half of the show that like, there's almost a challenge to like, should stable coins become mainstream? Yeah.

25:13George Davis:And I think, I think like with everything, it depends on the specific use case. And I think what I don't believe in is this world where everything is replaced by a stable coin. I don't think that makes a ton of sense. I think as you start to see deposit tokens increase in usage, I think you'll start to see the normalization though. And really there'll be less opinion on which rail is correct or not because you take away a lot of the risk. What you see today with stablecoins is that you are shifting your risk from a correspondent to a crypto exchange in a local market. Well, if you imagine that actually you're using stablecoins for your kind of internet interaction and then you are exchanging them for your bank deposit token, you don't need the exchange your bank becomes that exchange it becomes a kind of central regulated exchange and then they'll go and deal with burning and minting the tokens on the other side they're likely also holding the deposits um underneath all of the usdc or usdt that you actually are picking up and i think then it opens doors for stable coins to really just become a neutral asset that you may use or you may not whereas today i think they're quite an opinionated asset to use because they they present risk for large banks because money can move anywhere and And it's difficult to be complying with travel rule and everything like that.

26:27George Davis:But also they present deposit kind of fleeting risk as well for the banks. And I think that's when we can neutralize that. That's when we can start to see this come through and just be generically useful all the time. But I still think G7 currencies, at least, it's not going to be your default rail of movement. So I think we strongly believe in kind of the future of tokenized deposits for that reason. but less so on the stablecoin sandwich of this kind of fiat stablecoin fiat. I think they're just going to become your way to move out of the digital world and into the physical world. Robin, do you think now with sort of more favorable regulation, like we mentioned in the previous half of the show, so Micah, Genius, do you think we're going to start to see at scale more meaningful innovation around the applications of stablecoins, looking at actually pushing the envelope a little bit in terms of where we can start to add additional value because the regulation is there, it's structured, it's defined, and that's going to give people confidence to sort of tinker a little bit in that space where maybe that didn't exist before.