Circle's CEO on the Booming Business of Stablecoins

26:19And so I think that that's something that we can kind of do uniquely because we have this widely adopted payment stable coin and then kind of marrying those two together. And we can do it in a very, very capital efficient way because essentially the reserves of USDC mirror the actual instruments in USYC. And so there's a sort of fungibility between USYC and USDC reserves. Let's talk about the competitive landscape in a few years from now. So at some point, you're going to revisit your agreement with Coinbase. maybe JP Morgan will have a payment coin that they're going to want to be the preferred coin that sits there.

26:56And maybe they're going to be willing to give Coinbase a huge split for pride of place. Or maybe there'll be some other coin that they use for interbank settlements that will be tokenized in some way to make their transfers with Citi and Bank of America and other banks more competitive. We have seen other coins rise, First Digital in Asia, for example. Like if you're paying all this money to Coinbase still and, you know, distribution is so important, what is the competitive advantage that Circle has in, say, the year, I don't know, 2028? Well, I think a couple of things. I think the first is that to understand Circle's business is to understand that we operate an Internet scale platform and network utility.

27:35We have very powerful Internet platform flywheels and developer flywheels. We have a network that consists of thousands and thousands of products and services that have implemented and integrated to our network. And so every time a developer says, hey, I want to be able to store and move digital dollars, they choose to implement USDC because USDC has this really broad established network. And so we have these really powerful flywheels. And as that provides new utility to your user, when, say, Nubank in Brazil adds USDC, wow, there's like 100 million people at Nubank who can interact with USDC.

28:10now the rest of the world can benefit from that user base of 100 million people. And so we have network effects that are there, and those exist in pretty powerful ways. So if you look at the movement of stablecoin in the on-chain ecosystem, what sometimes people call DeFi, we have about, I believe today, around 75 % of the market there. And we've built protocols that make it very seamless, safe, and secure, and capital efficient to transmit USDC across all these different networks. So we've built developer platforms. We've built flywheels for adoption. And this is a classic internet platform model.

28:47The other is that we've built these extraordinary liquidity network effects. And this is really critical. So over the past number of years, we've built out on a regulated basis infrastructure where we're regulated and where we have integration into the financial systems of Singapore, Hong Kong, Japan, the United Kingdom, the EU, the US, we've integrated into Brazil, Mexico, and we've just announced that we're coming online in UAE. So we've built out these integration points and we've built out primary liquidity in all of these markets. And so USDC is available and liquid at scale all around the world.

29:24That's the primary liquidity side. And so that's crucial. If you're going to use this, you need to be able to know I can get in, I can get out, and I can do that all around the world. And then we've created very large secondary liquidity, and that's really important as well. So when you get down to the e-money product in Vietnam, can you go from that e-money product in Vietnam into USDC and back? And all around the world, all of these different payment methods and payment instruments and the actual secondary liquidity between those and USDC is huge. And so the barrier to entry is actually fairly high.

29:56We have these large network modes. And right now - So it's not just like making a new ERC-20. Making a new coin, the marginal value of a net new stablecoin right now is effectively zero. You have to have established network utility and then liquidity at scale. And essentially, liquidity begets liquidity. Network velocity extends network velocity. And so we feel like that's a very, very good position. And I think the ability to be federally regulated and to have these higher bars on the infrastructure side and what's required of you is also really important. That's not something for the faint of heart.

30:31And doing that all around the world, not just in the United States. There's a lot of focus on the United States, but we've been under significant regulatory regimes in other jurisdictions for quite some time as well. Those are meaningful barriers. And I guess the bigger picture there is we're just focused on building this infrastructure, making it easy to adopt by whether it's a technology company, a fintech company, a bank. We're building partnerships with some of the biggest core banking infrastructure companies in the world. We announced something recently with Fiserv. Just yesterday, we announced a broad partnership with FIS Global.

31:05And these are companies that service tens of thousands of banks, and we're plugging USDC as an innovation into their infrastructure. And so we even do it with the card networks, Visa and MasterCard, where they're using USDC as an internal settlement system to move money from issuers back to home base faster than the correspondent banking system. There's lots of places we're getting integrated. And what I like to say is I believe that the stablecoin networks are a winner-take-most, not a winner-take-all market. This was going to be my next question. Can you talk about that a little bit more? Like 10 years from now, what does the landscape actually look like?

31:42And what does the interoperability of all these different stablecoins actually look like? Yeah. So I think 10 years from now, I don't think we have any idea what it's going to look like. But, I mean, there's several different components. That's a real forward-looking statement. Yeah, yeah, yeah. Several different components to this. So I think one is we take as a first principle that stablecoin money is the highest utility form of money that's ever been created. And it's the highest utility, not just because it has internet superpowers of speed and cost efficiency, but because it's actually the first truly programmable form of money.

32:18And if you're going to have a programmable form of money where software intermediation and software innovation on top of money has not existed. Open banking is like poor cousin. So you're introducing a new realm of money utility and we're at the very front edges of that. And we see that already today. I mean, the entire phenomenon of DeFi, which is highly sophisticated market structures that are just autonomous machines effectively running in code on the internet, that's pretty amazing. So when you unleash that and you unleash that kind of curve of innovation, like it's sort of like when mobile devices were out, people were into mobile for a really long time and they were like, Hey, mobile is going to be huge.

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36:21I had a use case recently where I wanted there to be a stablecoin use case, and I think maybe this will come in. So I've tried to do vibe coding where it's like going on cursor and making software. And I wanted to link up my software to ChatGPT so that it could query the AI. Yes. And to access the API, I had to enter in a credit card with ChatGPT, and then I had to copy and paste this code. It was really annoying. And I was like, why can't I just have my cursor be linked to a stable coin wallet? It make the connection with ChadGPT's AI so that I don't have to make an account and it just pays per usage for the intelligence.

36:57That is definitely what's going to happen. And in fact, this is where I was getting with my point actually in response to you, Tracy, which is like we think about the internet and like when the marginal cost of storing and moving information went to zero, the net world output of information like million X or when software could be distributed to a browser. The net world output of software was like up a million X. So we create these huge growth. So my view is that over 10 years, we're going to use your 10 year, is that the total payment volume, which is a measure that people like to use, is likely going to go up by many, many, many orders of magnitude because you've taken that cost and friction out and because of the new utility that comes from programmability.

37:36And so my own belief is that the scale of money that moves in the world will be so much larger than where we are today. It's sort of the internet infrastructure actually hitting the financial system, which is a scary thing because like, wow, you've got all this money velocity and you've got machines that are intermediating this through AI. It's like, oh my God, that's one of the reasons why it needs to be very safe, full reserve instruments. But it also, I think, gets to the heart of your question, which is, are we going after all the deposits of the banks or all this? The answer is no. But my belief is that financial institutions who create either places where people can lend their money and then that money can be used for other investing purposes or where people actually make specific investments with their money, those will proliferate.

38:26In fact, I think innovation in both credit intermediation and in investable assets is about to go through a new renaissance because of blockchains, tokenization, and stablecoins. And so my own view is in a system of full reserve money, you need to be able to do credit intermediation with that full reserve money, and you need to make that credit intermediation be as efficient as possible. And I think you can build on-chain credit intermediation in a way where you have greater safety, more transparency, more auditable risk management, and you can build market structures that are far more accessible to more people and institutions in the world.

39:05I think of it as like AdWords for credit, like this sort of these super scaled or Amazon marketplace for product creators. We haven't entered that world yet, but I think there will be firms and that many of them will likely be regulated by central banks who are standing in that infrastructure. And so it's an opportunity to reinvent what payments, credit, investing, all these things look like. Tracy, I kind of think, by the way, and we should maybe just separate, I think the internet as we know it in terms of like internet that's free to browse is probably going to die because on a matter of time, you know, if you're like AI bot can like go search the web, those sites are going to want payment for having all of their data scraped.

39:45And, you know, stable coins could solve that. But it does feel like we're going to have a totally thing where like you don't just get to use the web for free. Everything is like metered based on the data that you're pulling. Yeah. Well, we were talking about that earlier, right? this idea that we've already seen traffic start to collapse because the search engines are just providing AI summaries to individual pages. Yeah. How long are content providers like us, how long are they going to stand for that? I don't know. Well, can I say something on that, which is we actually worked together with Coinbase and a couple of others on implementing something called X402.

40:20Now you're like, what is that? And Marc Andreessen talks about this. He has over the years. Back in the early days of the web, Oh, yeah, there you go. Pay via API without registration. That's what I want. That's what I want for my VibreCode. That's exactly what I'm looking for. And so it already exists as a protocol that is built into the way that every web server, every web browser, every client that interacts with the internet works. It's a protocol that's there. It uses the existing HTTP transport. And now you can actually say, hey, I'm hitting my piece of content or data, and I can challenge whoever's accessing it and say, to get to this, you need to pay me.

40:56And it can basically come back and say, you can pay me on a blockchain with a stablecoin. And so we're doing that with USDC. We're encouraging developers to do that. There's lots of third parties that are building layers for AI agents to use this. And so I think that's one example, but I think it gets to the heart of what you're saying, which is there may be more of a subscription model. Spotify is probably the best example where you have the Celestial Jukebox and you pay your 15 bucks and you get access to everything. You know, there's a kind of question about could there be a Celestial Data Box, which is more broad and where the actual consumer front ends are companies like OpenAI or Google.

41:31and you're paying a subscription. And then there's like a behind the scenes, either pro rata or usage-based model that is actually compensating the actual data providers and creators. And so lots to be unfold here, yeah. Can I ask a slightly awkward question? It's a leading question. How much do you hate Tether? Given that not only are they number one, but there's been questions over their reserve quality for many years, although I think some of their transparency. has improved. But thirdly, you know, we had the Tether CEO on a few months ago, and they're expanding into the U.S. So that would seem to, you know, directly be competing with you on your sort of home turf, although I understand you're also expanding elsewhere in the world.

42:18How do you feel about Tether? Yeah, I mean, look, I think our view has always been that we're building for the long run, and we've taken a different approach really since inception. We've taken a sort of regulatory-first approach, a compliance-first approach, becoming widely licensed, widely regulated, always advocating to improve that. And that's allowed us to build, obviously, what we think is a great business. It's allowed us to have deep integration into the financial sector with banks. If you're a major institution partnering in this space, the probability of you doing that with Circle is reasonably high.

42:57And so we built a really great franchise and we are really well known for integrity, for trustworthiness. We're a publicly traded company with the highest standards of governance and accountability that are out there. And we've always sought to uplevel that. And so my view is that if we're building a new internet financial system, and that new internet financial system is going to be this incredibly broadly used infrastructure, and it's going to be used by mainstream companies and public companies and financial institutions and financial intermediaries all around the world are going to integrate with that and build on that.

43:31They're going to want to do that with trusted, well-regulated companies. And so our view is that the early adopter segment of the market, which has really been dominated by sort of the crypto trading side of things, is that early adopter segment. We're now going into a different chapter. And if you actually look at over the last 18 months, we've taken market share. We've taken material market share. And we're growing in many, many areas. And I would say also internationally, I would say the majority of our business now is international. So we're in many, many markets and in many other markets as well.

44:06The regulators are putting in place very clear regulations around what stablecoin issuers need to be. And so we are the only large global dollar stablecoin that's legally available in Europe as an example. And so I think we just keep doing what we're doing. I think we're building great infrastructure for companies, for enterprises, for developers, and we just got to keep doing that and we'll grow. And this is a really significant size market. And so I actually, you know, I have a lot of respect for what they've been able to build. We took a different path. We built something also, I think, really special.

44:40And over five years, 10 years, as we said earlier, right, this is very likely a winner take most, not a winner take all market. And I actually don't think we know, you know, if there are, you know, maybe three or five big players. I don't know what that'll be in five years or 10 years, but there's probably some that don't exist yet that will show up too. I take it as a sign of maturity. Years ago when it came to crypto, people were just excited about number go up, right? And then now it's like people are really excited about number go sideways. And so if it just stays at one forever, that's like a really good sign.

45:11And so I take it as a sign of maturity for the industry that there is all this interest in stable coins. Nonetheless, no pun intended. Nonetheless, all those public chains are still out there and USDC is on a number of chains. 24. When we talk about like who collects the profits from this, and we've talked specifically about, say, your distribution with Coinbase and whether that do you see value accruing to token holders of different chains in the future? Because it seems to me like for the most part, as long as it's like really fast and cheap, it really doesn't matter. If I'm sending something to Tracy, I care about your reputation and your money in the bank.

45:50I don't really care about what chain that you actually transact over at the end. So if you want to do it under Solana or some layer three that gives almost no value back to the ETH chain or something like that. I don't really care. Do you see like token holders of the public chains collecting rents in your future, collecting a meaningful amount of rents from this on-chain commerce? It's a great question. I'd say a couple of things, and I'm actually going to relate back to my mobile commentary from earlier, which is our mental model is that blockchain networks are Internet operating systems. And they provide a way to store data, conduct transactions on that data and provide compute around those transactions and data.

46:31That's what they do. They're public computing machines. And there are a lot of them. There's actually thousands that have been launched. We're on 23 or 24 today. And we see this as a space that is constantly evolving. And so there's constantly innovation on the layer ones. There's these layer twos. When I think about where we are relative to where we were with, say, iPhone, we're in the pre-iPhone era of blockchain networks, in my view. I think there's lots of operating systems out there, just like there were lots of mobile operating systems. And some of them got better than others and improved the user experience.

47:08Some of them started enabling consumer things. Remember, NTT Docomo in Japan or things like that. And so I think that we're still really early. And so that's one of the reasons why we've really tried to make sure we're trying to operate our own stablecoin network on the best ones that are out there. It just seems to me that decentralized chains, you pay them a rent because you want some advantage of decentralization. If I'm using USDC, I've already accepted the premise of centralization. You have money with the BlackRock Fund. It's about as centralized and legacy fi as you could probably get. Once I've already accepted this premise of centralization, that my money is just backed by a bank account or something like that, why do I even care?

47:48Why pay these rents to some network of computers? Well, so this is a different layer, is essentially my thinking, is that public blockchains are a general purpose layer that many, many applications can be built on top of. Stablecoins are the killer app, for sure, I will say, in my own opinion. But there are many, many different kinds of applications that can be built on that. And we need innovation in those computing platforms. We need higher speed. We need greater privacy. We need better forms of compute. We need new and more primitives in that infrastructure. And that needs to expand. We need to get to a point where these public networks are supporting huge scales of consumer applications and enterprise applications.

48:27And so there's like a growth in that kind of infrastructure side of it. And those are shared infrastructures that many people can take advantage of. And so there needs to be a kind of fee model on those networks. We've actually created a way for the fees on many of these blockchain networks to actually just be paid in USDC. And so that's something that we see more of happening, that the notion of gas fees or the notion of gas fees in some other crypto commodity will become less and less common, and fees will just be paid in stablecoin. But I think there is value in these networks. And I think that there's very likely value for token holders on these networks if these networks provide scalable infrastructure that people can take advantage of.

49:10Again, stablecoin is one application layer there, and there'll be many, many other application layers on those. And so you kind of pay for the shared state of the machine, the shared data state, the shared transaction state, the shared compute state. There's value in paying for that shared state. Just on this note, can you tell us when you're talking to clients or potential partners, what is it that they are most interested in getting from you? Can you provide us with a sort of hierarchy of needs for, you know, USDC customers in the sense of are they worried about the speed of the technology? Are they worried about the reserve assets and, I guess, corporate governance and things like that?

49:51How would you prioritize what people are actually thinking about? Well, we have a huge range of types of people that we work with from like individual developers that are creating a new product in some emerging market to, you know, people building on-chain protocols to very large, you know, financial institutions that are looking at using this or integrating this in different ways. And so the things that they care about do vary across those. But I would say trust, transparency, liquidity are really, really important. to everyone, right? If I'm a developer and I'm building a product, I need to know that this is a legitimate digital dollar, that it's accessible in the markets that I'm intending to serve, that people can easily access it and use it, and that the infrastructure is good.

50:40I can build good product experiences. I can build good user experiences and build an application or something for my own customers that works well. And so they care about the developer tooling, the on-chain infra, the liquidity, the trust. They care about all those things as a startup. But even a large company, say you're a big fintech and you're like, hey, I want to start leaning into this. I want to add stable coins for payments, or I want to enable my customers to access DeFi or other things like that. They're going to care more about the kind of legal and compliance status of Circle. They're going to care about the governance of the company itself, but also of the underlying regulation that affects us because they have to face those same issues, whether they're in the Philippines or in Brazil or in the United States.

51:26So they care a lot about those things. And then they also care about infrastructure, clearly like infrastructure readiness. Is this something like I could bring a large number of users to? And then everyone cares about user experience, right? Can I craft an experience where the crypto disappears, where I don't need to know what blockchain I'm on and I don't need to know about gas fees. And I just want to create a way for I have stored value. I want to enable people to move it around really easily. They care a lot about that, whether you're the biggest company in the world or a small startup. Jeremy Allaire, thank you so much for coming on AdLine.

52:01Thank you. My pleasure. Probably the first crypto company I can think of that actually tried to go through the regulatory approach and didn't get destroyed and bogged down in the process. Very impressive. And yeah, great chatting with you. Thank you.

52:24Tracy, you know, one question I didn't get to ask or I forgot to ask is like the perennial, like, will I ever buy coffee with a stable coin at some point? Maybe I will. Maybe I won't. But in the conversation, I started thinking that's probably the wrong way to think about it. It's going to be those machine to machine payments that if stable coins become a real important payments thing, it's going to be like those like computer to computer. payments that have to be seen. Right. And they're sort of plugged into the inner workings of the Internet. Yeah. That makes sense. Maybe the coffee thing will happen.

52:55Who knows? But like, I don't know. I don't find it that hard to buy a coffee right now. No, that's the thing. That's the problem. Right. Exactly. Buying coffees is a solved problem as far as I'm concerned. Yes. But this is a new problem. You're right. That could be solved. That's interesting. The other thing I thought was really interesting was you hit upon the sort of tension in the decentralization versus like traditional finance and this idea that like, OK, it's all about DeFi and blockchain and all that stuff. But ultimately, like BlackRock is holding the money. Yeah, no, totally. And this is like, you know, it goes back to those formative episodes we did with Austin Campbell, which is a big part of the story to the extent that this will be a thing is like just solving the sort of software payments layer.

53:39Because we could do a million episodes on legacy tech stacks and why JP Morgan's or whatever company's internal software will always be spending billions of dollars upgrading it, whatever it is, and the difficulty of integrations. But if you just have like a one-off global platform that anyone can plug into and program where money can easily be transmitted, that's very powerful. Yeah. This is why I say user interface, user experience is underrated, right? That's like me saying Michael Jordan is underrated. But like that really is it, right? Like that's where the battleground kind of is, the ability to like plug in and interoperate with all these different systems.

54:19Yeah, well, I'm really excited. I think we should have Jeremy back at some point. Yeah, we should. All right, shall we leave it there for now? Let's leave it there. This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Jill Weisenthal. You can follow me at The Stalwart. Follow our guest, Jeremy Allaire. He's at Jer Allaire. Follow our producers, Carmen Rodriguez at CarmenArmond, Dashiell Bennett at Dashbot, and Kale Brooks at Kale Brooks. For more OddLots content, go to Bloomberg.com slash OddLots, where we have a daily newsletter and all of our episodes.

54:49And you can chat about all of these topics 24-7 in our Discord, discord.gg slash OddLots. And if you enjoy OddLots, if you want us to do more episodes on the future of the payment system, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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