Episode 03Aug 25, 202241min

Crypto, Clarified


Episode Description

Circle’s Geetha Panchapakesan and Nium’s Joaquin Ayuso joined us to untangle the knot between crypto and payments, explain why stablecoins aren’t dead yet, educate us on what the global momentum around Central Bank Digital Currencies (CBDC) has to do with anything, and examine the opportunities and challenges ahead for crypto as a payment instrument.

Episode Transcript

This is Forward Exchanges by Nium. What’s next in modern money movement? One global conversation at a time.

Siobhan O’Neill-Schwenk

Hello, and welcome to Forward Exchanges from Nium. We know you’re trying to stay on top of fast emerging changes and global payments when it’s all you can do to keep up with your day to day challenges. Hi, I’m Siobhan O’Neill-Schwenk, and on this podcast, we are joined by trail blazers and veteran players to investigate the real driving forces that are modernizing money movement, and what’s building or blocking its momentum around the world. Whether you’re new to global payments, a digital transformation veteran, or you just wanna hear some great advice on what strategies create momentum in the global digital payments revolution, then this is the podcast for you. Today I am joined by some very special guests, Joaquin Ayuso de Paul, SVP and head of crypto services at Nium, and Geetha Panchapakesan, VP of financial partnerships at Circle. Today, we’re going to jump right in and see if we can’t decode the future of banking with a deep dive into crypto.

Geetha Panchapakesan

So my name is Geetha Panchapakesan, I work for Circle, and I basically manage partnerships for Circle around payments and financial services. So Circle basically is the issuer of a digital asset or a token, just like a Bitcoin or an Ethereum, but we issue a stable coin which is an aspect that is pegged one to one with the dollar. We are the issuer of USDC, which is a digital stable coin.

Joaquin Ayuso

I’m Joaquin Ayuso de Paul. I run crypto for Nium. Nium is a money movement company, we do modern money movement. We move money very well around the world, 190 countries, 100 currencies, 85 of them are real time. We issue cards in 35 of them, so everything about money movement we can do very well. And the job we have on the crypto team is to expand this capability to the crypto world, both to allow crypto companies to engage with the traditional financial system we are connected to, and vice versa. And it [inaudible 00:02:18] non-crypto companies to access the benefits of the crypto world and the Web Three world. We want to call ourselves the bridge between crypto Web Three and tradfi.

Siobhan O’Neill-Schwenk

What I wanted to start with was Web Three. Crypto is a currency and payments model where Web Three is kind of this new idea for this new iteration of the world wide web based on blockchain technology, but it’s incorporating concepts like decentralization and token based economics, and there’s a lot of people who are betting on what technologies are gonna make it into the Web Three transition. And I was curious to start sort of at this macro level, because I think it’s helpful to understand, Joaquin, out of curiosity, what do you think? What technologies are you really excited about, or that you think are going to make it into sort of this transition from Web Two to Web Three based on your experience in payments and money so far?

Joaquin Ayuso

Well, uh, first I will start by trying to define what Web Three is. There’s a, a lot of tweet comments whether Web Three is a new thing or not, or is just a flow of, or is just an [inaudible 00:03:24] new thing where they’re pouring a lot of millions of dollars. There was a recent article in Bloomberg about it. I think that the way we define Web Three in our team and, and the way we believe Web Three is better defined is, any application that is leveraging the blockchain technology for the benefit of it, for d-, the centralization of it, for the auditability of it, for the trustability of it, and foremost, for the inter availability of it, right?

So anything that your application leverages from those four items of the block chain will be a Web Three application. And uh, it will disrupt a lot of the current paradigms, and it will change how we do things today because i-it’s like when Uber started, everyone was saying like, well, like, you could get a taxi or you can walk, right? Why would I take Uber, why, why would I complicate my life? And then later on everyone discovered that the use case was actually better than, uh, what the explanation was. And I think Web Three is gonna bring that change to a lot of things that we do, and [inaudible 00:04:29] had a good first point, which is, it’s gonna add economics to the base of any of the technologies that we bring in, but there is much more that Web Three will bring in. And I think that we’ll talk about them on the podcast today.

Siobhan O’Neill-Schwenk Geetha, what do you think?

Geetha Panchapakesan

I mean, I think Joaquin nailed it absolutely. You know, to me, Web Three is interchangeable with anything that is blockchain based. That’s how I think about it. I think we will see a slow shift of multiple use cases going towards more of a web three model. It may not be over night, there are gonna be business applications, there are gonna be consumer applications. On the consumer side of things, we’re already seeing, you know, with gaming, with payments of course, with the Metaverse, there’s just so much already new use cases that have been unleashed. Anything that is, you know, that can have a community driven covenant model, anything where you can tokenize an asset, where you can have fractional ownership, like things that you really, you may have seen before but it wasn’t very efficient, it wasn’t very good, suddenly there’s a whole new way of doing it. On the business side, we may not see a lot of new use cases as such, but we will see existing use cases just much more efficiently managed on the back end, transparently managed, much more to Joaquin’s point, where there’s auditability, suddenly there’s a level of trust in the public square that wasn’t there before. So I think there are going to be a lot of new applications and existing applications that have just been made so much easier, so much more efficient.

Siobhan O’Neill-Schwenk

If there is one thing that I have learned from all the research that I’ve done and all the conversations I’ve had so far, is that there is something fundamentally broken on the back end of a lot of financial applications, not just crypto, but you were talking about treasury management as well, that it takes days, that you can get a wire transfer twice, that City Bank can wire $900 million dollars to the wrong person because they didn’t check and email address. It’s mind blowing to me that any transaction gets where it needs to be, basically, as a result of these conversations.

Geetha Panchapakesan
Yeah. And it costs $25 to do a $100 wire. Like it just makes absolutely no sense. Siobhan O’Neill-Schwenk

I wanted to ask about DAO’s, decentralized autonomous organizations. These are so unique. Joaquin, I know you’ve said in the past how inspiring that these governance models can be. Can you explain to our, our listeners what you’re excited about here? Because your enthusiasm was infectious even if I didn’t totally get it when I first read it.

Joaquin Ayuso

I believe the DAO’s are the response for the newer generations to how broken the current governance models are. These boards and hierarchical situations of companies and organizations, these new generations see them broken, see a lot of politics going on, see a lot of back and forth, see a lot of ego management. Their response leveraging Web Three technology is the DAO; the decentralized autonomous organization. Basically, what they’re saying is, let us all decide together. Currently if you try to do that in a company it’s virtually impossible. There are so many nuances to try to make a company decide something, just board level, that I don’t want to imagine with 10,000 people. Well, DAO’s have proven with billions of dollars in reserves that they can do it, and they can do it well, they can do it fast, they can do it in a profitable way, and they are able to pay vendors, take very on the spot decisions with voting, with the capability of l-, getting everyone involved. And only when Web Three appeared with all the targetization, with all the, uh, the ability to program the votings, to all the ability to put everything on a traceable blockchain, with that ability and removing all the trust issues happening on that voting process, enabled all these big organizations to start doing unimaginable things, like trying to buy the constitution.

I was part of the original, like, on the initial team that started, I was like, I entered as number 50 or 55 on the Discord server for trying to buy the constitution, and it was a Thursday. It was crazy. That Sunday we already had like $15 million already collected and that Wednesday we had $42 million collected, and then we had several other investors that came in and put even more money. And within a week, we were able to put 5,000 plus people together, raised $42 million to try to buy the constitution, a copy of the constitution, [inaudible 00:09:03] no, nowhere else. So i-it, DAO brings a new way of executing things, that it’s com-, it’s a completely new paradigm. And by no means it will replace traditional corporate management, it’s just that sometimes corporate management doesn’t fix the situation where DAO’s will. So there’s gonna be a new model of governance. I, I can see for example cities being governed in the model of DAO’s, where there is a city token, Miami’s trying to push that way.

I don’t know how they’re going, but that city token all of the sudden, if I have some spare time and I want to earn some money, why not helping the city by cleaning a few blocks of my street, for example. And it can earn some tokens on the spot, there’s no complications, there’s no paperwork, I just send proof that I did my job and I get my tokens and I’m fine, all from my phone. With this Web Three technology trust is removed out of the question because everything is trustable. So there, there is a lot that can be done with the DAO governance model that, that today we cannot even imagine. And that’s what I love. It’s like, we’re, we’re learning so fast.

And all these governance models are mutating so fast, and you can see friends with benefits started one way and now mutated to another way, but now they just changed it again and centralized it again. All the [inaudible 00:10:19] believers are complete decentralization in multiple PUD’s, and you see like, all these PUD’s going on. And then you see others that are just focusing on a protocol. I-It’s just amazing, uh, there is a DAO that is buying a PUD to start a new city. And it, it’s just incredible. I think that there’s gonna be, uh, there’s gonna be a lot to say, a lot to say from DAO’s in the future. We’ll see different copy cats of DAO’s being applied to our traditional governance models. I’m curious to see how that evolves.

Geetha Panchapakesan
I mean, that was inspiring, Joaquin. I t-totally…

No, I, I mean, I, I completely agree with Joaquin, that there is just, there is a lot that can still happen. I’ll just throw in a little bit of the other side of it. I think certain things have to happen for DAOs to, to, to really be acceptable for mainstream adoption, for carpeted option. I think regulation, legal structures, accounting and tax treatments, some of these things have to be created, the framework has to be created. How do you regulate something where it’s a bunch of people and no one really has authority?

And so there’s a lot of thinking that has to go along with that, but I do agree with Joaquin that I think this is the way of the future. In certain cases more than others, I think there will always be large organizations, I think. But then within large organizations, there may be certain, like, innovation parts that can be done in a DAO, you know, kind of manner. They can be, I don’t know, project things that come together as a DAO for, for one specific purpose. There, there are things that can happen, but I do think that there are, there are some fundamental infrastructure elements that have to be created before this will actually be mainstream option. But that’s happening, that’s happening as we speak.

Joaquin Ayuso

But we’re seeing new paradigms being made in, in the making. We’re, we’re seeing, like … There’s certain times in history that you see the shift of paradigms. DAOs is one of them. And it, it’s just gonna be beautiful to see how these, the new generations see governments. And they’re reflecting it on these newer conversations, as, as Geetha said, the rest of us have to follow. Regulations, laws, taxes, there’s so much that needs to follow, but it’s, it’s beautiful.

Siobhan O’Neill-Schwenk

One thing you wrote about recently, Joaquin, was, and, and this was related to DAOs and it was fascinating, it was, it, it was about companies that are experimenting with new compensation models outside of salary and stock options and the almighty IPO is token and allowing the market to decide. It was an ERC20 token, I believe you, that you mentioned. So tell me in plain English what that’s all about, because I have a follow-up question for you, Geetha. But how does that work? And what is an ERC20 token?

Joaquin Ayuso

Today, the way we compensate our employees, and especially in the tech world where we’ve learned how to, to basically share our upside with our employees, right, in most traditional corporations, you don’t share the upside with employees, you just pay variable in cash, right? In, in the tech world, we’ve learned that you can create stock option programs and equivalents that allow you to share the growth and the success of the company with employees getting them involved and taking them, uh, a sense of ownership. But these programs are complicated, super hard in terms of taxation and it’s a, it’s a, and they’re very expensive to put up in place. And the bigger the company is, the worse the problem is.

So that basically constrains the way that you can share upside with your employees. You eventually have to decide which stratas of your company can get the upside, because you cannot give it to everyone or else it will defeat the whole purpose. The overhead of managing all that program will, will be too big for your company, right?

But what if you were able to allow your employees, all of them, to decide how much upside they want from the company so that you don’t have to worry about that? You don’t have to worry about having, about having an upside program for your employees or having a stock option pool or having to figure out how much each, each layer gets from the upside of a company. Because you may have a very lower strata person on your company that want to participate 100% in it, because they, they don’t need the cash. They want the upside, right? And others will be the opposite, they want all the cash.

So the tokens help mitigate that problem. Why do they help mitigate that problem? Imagine, imagine Uber was able to issue instead of paying every employee and driver with money and stock options, they would pay them with Uber tokens. And then there is a market, they, they generate market for these Uber tokens and utility for the Uber tokens. What happens is I, as a driver, receive, let’s say, $1,000 worth of Uber tokens a week. I can choose how much of that I want to keep in Uber tokens, as they’re gonna be growing in value, or I want to cash out to be able to pay my bills.

So now I, as an employee, decide how much I can take in cash and how much I can keep on, on upside, right? I can even exchange my Uber tokens for upside of another company, right? As of today, you cannot do that with a, with your stock options. You’re stuck with that. And the beauty of it is that you get the upside of the moment that you, you’re get rewarded with the upside at the moment you worked for it.

Today the stock option plans have vesting periods and you have to wait at a certain amount of time to get them. This makes the upside completely fluid so that each employee decides when and how. And, and, and there’s gonna be certain times where an employee didn’t want upside, they need all the cash because they, they have a big investment on their, on their life, or the opposite. So the compensation based on tokens, ERC20s are, are kind of like the go-to, but I’m sure there, there will be newer standards that will try to mitigate this.

That’s how we’re gonna see compensation happening in the future. And then that will bring new models of workforce. Uh, it will be new models of workforce where I can choose to work for Uber 40 hours a week and then 20 more hours for another company and then 10 more hours for another company. And then I will get tokens for all these three companies and decide how much I want in, in cash and how much I want in upside. And the beauty of it, again, because it’s blockchain related and it’s within business standards, all these tokens can go to exchanges and they can, you can create market with them so that your employees can cash them out. And then you can even create utility with those Uber tokens that say that you need, uh, Uber tokens to pay for Uber, for example. That will basically give the full utility of those tokens so that there is a market.

And then you, you solve all the problems. Now, that doesn’t mean that, as Geetha said before, that, that the, the market is ready for that. Legally, tax related and many other aspects like, uh, social security or even your, uh, medical insurance, right, there are many aspects that need to learn how to live with this new compensation model. But out of the box, tokens can solve that problem. While today we’re spending millions of dollars, if you’re a large corporation, to figure out business stock option plans. So that’s what I was referring on, on the article that I was talking.

Siobhan O’Neill-Schwenk

So let’s talk a little bit about the elephant in the room. And it was on the front page of Bloomberg on Tuesday about the cryptocurrency crash. Joaquin, what happened in a nutshell (laughs)?

Geetha Panchapakesan
What happened, Joaquin? It’s entirely your fault. What happened?

Joaquin Ayuso
(laughs) What happened, what happened? There’s so many theories. Siobhan O’Neill-Schwenk
The short answer (laughs).
Joaquin Ayuso
So many theories.

I am in the opinion that this is a good thing. There are very unfortunate situations for people who have lost their savings, and they did as well on the crash of the tech bubble in the 2000s with a di- completely different industry, investment industry. So it’s happening today with crypto. I think that there is a market correction that is happening, not a price correction but a market correct. There is a clean scene of players. There is a clean scene of productions, and there is a clean scene of, I, I’m not gonna say algorithms, but paradigms of investments that, uh, and assets, uh, assets values that were never designed to be resilient for downturns. There were always designed for optimistic situations.

When a downturn happened where, like, Uber shares or, like, market shares went down 90% and crypto hence went down 90%, then all these, I don’t know, like, uh, completely wishful thinking ideas just went to the drain (laughs). Yeah.

Geetha Panchapakesan

I think that this is a market reset. This is the 2001 tech bubble. This is basically the version of that for crypto. I mean, we’ve seen crypto winters before, right? I, this is the third one. And a crypto winter basically being where values of crypto tokens just crashed, but generally those were brief periods of time and a pretty solid upside following them. This could be one of those, but truthfully today, kind of the global economic factors that are, you know, uh, effecting everything else, not just crypto, are also effecting crypto. Exactly as Joaquin said, crypto is meant to be a, today, and to your point, uh, Siobhan, crypto is an optimistic upside-based, it’s an investment tool today.

And it is an investment tool right now. It’s not, it will not continue to be that. There’s already a lot of [inaudible 00:19:39] made it, uh, other ways in which it is. Today though, the majority of the, what use to be three trillion in value, not anymore, closer to one, is an investment. And because of that, it is, you know, it’s an asset that you buy if you have

disposable funds, that you wait for the fund, the, the value of the asset to grow. But if you don’t, then, you know, you’re, you’re gonna wait it out. This is not where you’re gonna put your money.

Circle, funnily enough, has seen significant growth during this period, because people are moving to stability, right? And so they are taking the money out of volatile assets and moving it into stable coins, right? And so right now, USTC has grown to, like, 56 billion over the last, uh, you know, three weeks to two months, because people moved away from the other stable coin that imploded UST [inaudible 00:20:30]. And peo- people are moving their money away from other crypto tokens like Bitcoin and Ethereum over to USTC, because it’s a win which you can hold your money and not have to worry about it at all, right? So that’s really what’s happening. It’s a move to stability. It’s a move to kind of comfort and reliability at the moment.

Siobhan O’Neill-Schwenk

Anybody who has been reading about crypto and is kind of in the know lately is probably aware that one of the stable coins out there, UST, Terra, I believe, recently imploded. And Joaquin, I think we saw Celsius melt down. And HEX is headed there now. In fact, it may well be there by (laughs), by the time we post this episode. That’s how fast this is moving. So I don’t mean to be combative, but why should anybody trust stablecoins if we know that those are subject to the same meltdowns that the rest of the crypto market is?

Geetha Panchapakesan

It’s a very good question, and I was gonna say Terra who? But the, not all stablecoins are created equal, right, and that’s a fundamental premise and that’s something that people have to understand. And different stablecoin issuers have taken different approaches to how to ensure the backing, the peg, the reserve, the stability of that coin today. So with Terra, for example, Terra was, was an experiment. I mean, Terra was, “Let’s keep the dollar peg of the stablecoin not based on actual dollars,” which is what Circle does, “but based on algorithm that relies on supply and demand of another token. And it was, it was, it was, again, it was an …

… and demand of another token. And it was, it was, it was again, it was an interesting, it was an interesting experiment. It’s, it’s, you know, something that… But people lost a lot of value, as part of the experiment. The way Circle does things, it’s very straightforward. Like for every coin that we create, we have $1 sitting in the bank, and we actually have a third party that comes in and checks on a monthly basis. “This is how much USDC you have, these are the dollars you have in your account in the bank. Are they equal? Great, check, move on.” So i- we are very, very particular about making sure that every dollar… every USDC we create has $1 in the bank, and we are transparent about the fact that we

tell the rest of the world exactly how much each of those are every month. So from our perspective, if tomorrow somebody wants to pull out all of the USDC that they have, we are able to very easily go to the bank, get all those dollars, hand it back to you. For, for us, it’s actually a very easy, easy process.

Joaquin Ayuso

It makes total sense, I think that people shouldn’t get confused when talking about Circle as, as if they were a bank, ’cause they’re, they’re not a bank, they’re minting a currency. As the central bank needs to hold liability for each dollar that they issue, Circle has to hold liability for it. And, and the mistake that Terra and others did with their stablecoins based on algorithms is that they were not treating the stablecoin as if they were a central bank, but as if they were a bank. So they were holding a certain percentage of the total value market cap of the stablecoin in reserves, in the case of Terra was in Bitcoin, and they were holding a few billion dollars in Bitcoin, just in case the price volatility would shift a little bit. But that was a percentage of their reserves. So they were working as if they were a bank.

You know, banks today, they don’t have all the cash that you put in your bank is not in a bank, it’s actually meant to others. So the banks only remain with a very small percentage of the deposits in their capital. So that i- if more than that comes in, then… if, if more than that person takes comes in and wants to cash out, banks can get in trouble, and it almost kind of happened in 2008. So the issue here is that all these stablecoins, uh, as, uh, Geetha said, not created equal, and we, we see new paradigms and new algorithms coming out and popping out and, and we’re gonna still see how it evolves, and it- it’s part of the learning curve.

The issue here is that it’s so accessible, that it’s, um, no longer qualified investors access to these products, but non- qualified investors access to, and they have a lot of money, and we can see it with the meme stocks, same thing is happening with a cryptocurrencies, and the issue against mem stocks is that the cryptocurrencies are not backed by any regulator. So you can lose everything in a heartbeat. And only when you see companies like Circle, doing things right, and making sure that there’s that transparency, and that every, uh, USDC is backed by $1 is when you can start seeing that the industry is moving in the right direction. And I think that that’s why Circle is working closely with regulators to, to make sure that there are… there is a regulatory framework that allows these to grow safely, ’cause the, the way governments work is industries, when they go slow, they subsidize the industry, when the industry grows fast, they start taxing it, and they start implementing taxes, but when an industry grows super fast, what is the first thing they do? They regulate it.

Siobhan O’Neill-Schwenk

I think we probably all agree that there’s a lot of reasons why regulation is a great thing for cryptocurrency as a whole. It can be a great thing when done properly. And Joaquin, you recently wrote about this, how this economy and this payments are on their way to being heavily regulated for a lot of the reasons you stated. The FCC had just, has just issued a warning that it will be developing regulations, for example, to make all decentralize exchanges register as brokerage houses with the SEC. This seems like a mess. No, because that, i- brokerage houses keep the order books between different parties, and that’s ensures to the SEC that they’re doing things properly, but decentralized exchanges have no such mechanism, because everything is on the blockchain. So the SEC doesn’t have the tools for this. Isn’t that kind of counter the nature of crypto or i- is this a matter of the government needing to catch up to what the market is doing?

Joaquin Ayuso

So the government’s need to catch up, they, they… but they need to catch up on everything. They always go way slower than how the industry goes. So like i- i- it’s inevitable for any industry, including crypto, but I can give you another example that happened for example, in Europe. So the European Union decided that even the noncustodial wallets, these are wallets that are outside of control of any company or any custody, the end user is the one custody in their crypto. It’s like your pocket money in your pocket, right? It’s exactly the same kind of like, uh, concept, but in technology with crypto. They decided that every wallet owner… noncustodial wallet owner needs to be KYC. And everyone in the crypto industry just came in and said like, “How are they gonna do that? It’s impossible. You don’t know who is out there.”

And I have a very simple answer to that. It is absolutely doable, and they’re gonna do it. And the way they’re gonna approach it is currently the noncustodial wallets… Like noncustodial wallets are basically a set of keys. Users don’t handle keys, they don’t know how to handle keys, they use clients. Those clients are created by companies. ConsenSys, for example, with MetaMask is the largest. So the first thing they’re gonna do is, “Hey, ConsenSys, from now on, every MetaMask that you have, or anyone that is using their keys through MetaMask needs to be KYC.” So now there is a legal entity, reliability, and persons that can go to jail to execute an executive order from the European Union.

So in the end, all these things can be enforced, and, and same with the Rainbow wallets, and same with the other wallets that are cu- that are going out there, even the Coinbase wallet, which is another very prolific one out there. So same will happen with the centralized exchanges too. I am sure that they’ve imposed these because they know how to make it happen. I don’t think that the FCC will come in and just randomly state, “Oh,

we’re gonna treat them like this,” without having an actual roadmap of how they’re gonna slowly… Because the, the United States’ regulators work in boxes, right? So they make a big box, and they slowly are making the boxes smaller and smaller and smaller, and leaving the edge cases in the smaller boxes slowly, right? So they’re probably gonna be doing that with these decentralized exchanges, like VXY and all these guys. Honestly, I don’t know how they’re gonna do it.

Geetha Panchapakesan

I will say, though, Joaquin, i- i- you’re absolutely right. And I think Siobhan, to your point, it is a mess today, right? No, but there is… o- obviously there is no kind of internationally coordinated standard, although I believe I, I have been reading that, there is a plan to kind of get there. Every country is doing this the wrong way. China, for example, one of the first, uh, pilot, uh, CBDC and promptly has, you know, banned crypto trading, brand crypto… Like, where are you? Like, you know, mixed signals over there. Europe has very focused standards for stablecoins that they actually issued called MiCa regulations. Singapore was very pro-crypto initially, and very innovative, very forward. They’ve started taking interesting steps like, you know, slowly kind of scaling things back.

So everybody’s trying to figure things out. The US government, of course, is at the base level, they’re like, “Is it a security? Is it a commodity? Does it have to be SEC? Does it have to be CFTC? And stablecoins, do they fit in either, or are they completely separate?” So they’re trying to figure all of those things out. So at this moment, I think… I think like right now, it is a mess. I think ba- there’s so much attention on it, and everyone’s trying to figure out what to do. There will be regulation. Regulation will happen over the next, you know, three to five years. I think some cou- cou- countries will be sooner, some later, like I think, you know, India, Brazil, Nigeria, where generally financial regulations are really strong, I think it will take longer for them to do anything, when India is very nationalistic. So whatever they do, it’s gonna be their own little thing that they do, it’ll to be CBDCs.

But I think the US, Europe, Singapore, like the G10 markets, that’s going to happen within the next couple of years. We’re gonna have very real regulation, solid regulation, technology will always be ahead of it. But for whatever we’re seeing today, we will definitely see, uh, regulatory framework.

Joaquin Ayuso

It reminds me to where AML regulations were 20 years ago, where each country had their own way of seeing how to protect themselves from money laundering. And all of a sudden, the problem became so big that the biggest countries ca- came together and created the international AML organization, that started putting together all these regulatory framework, so where all the countries, uh, started to adopt in. So that was 20

years ago, you could see very strict AML countries and very non-strict AML countries, like we see crypto today, but it’s slowly they were like slowly coordinating to end up being a, a very more homogeneous ecosystem.

Today, AML regulations look very similar in most of the countries. There are some countries that focus more in some part of the AML than others. Like, for example, Asia countries versus America’s countries, or even Latin America is versus the, the North America’s, with crypto is going to happen the same. So depending on the major problem that each country may have, they’ll focus on that, on their regulations, and then eventually, they’re normalized with the rest of the world. So we’ll see how it goes. But, uh, it reminds me to that time, Geetha, were AML was all over the place and everyone wanted to do something different, and you have to create all these heavily complex things to make sure that you were doing things the right way.

Siobhan O’Neill-Schwenk

What… I wanna shift gears a little bit into sort of the adoption of crypto in what we think of as money stream payments. And I know that’s a really broad topic and there are, you know, al- alternative payments and all sorts of things, but just in general. What do you think that the key barriers to adoption of crypto in that mainstream payment space is?

Joaquin Ayuso
Siobhan O’Neill-Schwenk
(laughs), you want, you want Geetha to start? Geetha Panchapakesan

(laughs). So I think from a, from, from a… purely from a payments perspective, if that’s what we’re talking about, I think, barriers to adoption is an interesting way of thinking about it, because I don’t know that necessarily, ’cause I think adoption is happening. Let me start there, right? Regulation to Joaquin, point is definitely, definitely an, an issue. But today, I mean, we at Circle, for example, are seeing a number of companies that are asking for the ability to accept crypto-based payments, because there’s demand from their consumers. There are a lot of people holding value in crypto, that the process of converting that value into Fiat and then using that to…

Converting that value into fiat and then using that to make a payment I just like more effort than it’s worth it. So, there is, there is actually very active demand. Again, when you have three trillion in value, there is active demand in terms of how do I use this value that’s in my pocket today to actually make a payment. Of course, the fundamental question is are people willing to expend, you know, value that could, the is volatile, that could go up or down, to actually purchase products. And the truth is depending on the vertical, depending on the kind of point product it is, they are. We get a lot of demand fundamentally from payment providers that are in APAC, where there are a number of newly minted, you know, rich people who’ve got Bitcoin galore, and they’re like, “I wanna buy a Porsche. Can I just use my bloody coin to buy a Porsche?” Excuse my language, but can you, (laughs) you know, “I just wanna use my crypto to buy the Porsche. I don’t wanna go make it into money to buy.” They’re like, “How can we accept this?”

We genuinely see large transaction values come through because there are a lot of those. Now, that’s not your real world scenario. That is the, you know, exception case, but in the real world, there’s a lot happening today where you actually have companies like BitPay, which are allowing you to borrow against your Bitcoin value, rather than have to convert that to fiat to pay. So, there are interesting models that are being created, and companies like BitPay and OpenNode, and now we’re also working on kind of, you know, crypto payments, are actually seeing a lot of demand and a lot of growth in payment gateways and payment processing that are purely based on crypto-based payments.

I do think, last thing I will say, is that I think ultimately what’s gonna happen is that the ecosystem is gonna depend more on stablecoin than it is on crypto, because even merchants today, they wanna accept crypto because people are asking them to accept crypto, but they don’t want to settle in crypto. They don’t wanna hold crypto on the backend, but they’re willing to hold stablecoins on the backend, right? Today a lot of them actually want to hold US dollars in the backend, but where, you know, that’s where we kind of continue to drive within this ecosystem what is the value of stablecoin versus holding traditional dollars. But ultimately that’s what they wanna hold. They want the value of what they hold in the backend because they need to use it to pay their suppliers, they need to use it to, for their treasury needs. They can’t have volatile assets for that. They want to hold stable assets for that. So even though they want to accept crypto payments on the backend, they want to manage primarily stable assets. So, we see a lot of stablecoin settlement demand on the backend as well.

Siobhan O’Neill-Schwenk Joaquin?

Joaquin Ayuso

I’m gonna put my [inaudible 00:35:41] more from the consumer perspective, user experience. The user experience on what [inaudible 00:35:47] in crypto is is still a work in progress. I’m not gonna say awful, but it’s like still a work in process. Try to get an NFT, try to get any tokens. Like-

Siobhan O’Neill-Schwenk I’ve tried. It’s-
Joaquin Ayuso

Siobhan O’Neill-Schwenk … yeah.
Joaquin Ayuso

Siobhan O’Neill-Schwenk

Yeah, there’s a whole universe of language and, and community [inaudible 00:36:03], and it’s hard to get your brain around.

Joaquin Ayuso

So, but, in order to mainstream crypto, there is gonna be the user experience. And unless you are able to get your Pokemon cards on NFTs, and the kids are able to have those like instantly, or you can, um, transact and receive, uh, money in USDC, like just, like tapping on the phone or scanning a QR code, in a much easier way. ‘Cause the problem is not moving the money around. Just scan a QR code and you do a transaction. The problem is how you onboard that consumer to that crypto on their wallet, right? And, and it, it, the user experience is, it’s not there yet, and, and there’s so much work to do, including removing the word wallet. I think that wallet limits what you can do with the, with the Web3 set of keys that, that you’re given when you, when you operate Web3. Whomever comes with the right word will redefine the industry completely.

And I don’t have any candidate word, so don’t ask me. But, uh, but wallet is so constrained. It only talks about value, but you can have so much more in that mechanism, in that wallet. You, you can have so much more. So, user experience will be my number one by far.

Siobhan O’Neill-Schwenk

It has been a really wild year for crypto, not just payments and coins, but crypto in general, and it’s barely half over. What are your predictions, in a nutshell, maybe top three, for where crypto and payments are going to be either by the end of this year or in the next three years? Like what are the top three things that you’re expecting to happen, or you would be surprised if happened? All right, we’ll start with you, Geetha.

Geetha Panchapakesan
Man, I was hoping that one would go to Joaquin first. But-

… (laughs) let me see what I can, what I can drum up. I genuinely believe that as the, you know, the inflation [inaudible 00:37:56] pressure go away, hopefully, you know, war in Ukraine goes away, I do think that we’re gonna start seeing crypto values go back up, just like we start seeing overall market values go back up. I’m expecting that to happen within a year or two years. I think in the meanwhile, there are a number of companies that are out there, including Neom, that are actually working to incorporate the value of crypto into the mainstream. So, we’re are gonna start seeing a lot more mainstreaming of crypto payments, both on the database side and on the beta B and beta C side. Again, I, I come from a payments kind of thought process, so for me, that will be like the next big thing that will happen.

And then I think the third that’s is that even today, we’ve already seen a lot of, you know, investment managers and banks kind of start to open up investment and trading as part of like, okay, you know, I can pass on stock, I can buy Bitcoin. I- and, and that’s going to just continue to grow. It’s going to start becoming much more mainstream for people to be able to invest in and buy crypto. I think all of these things are well on track. All of these things will happen over the next three years. I don’t see the crypto market kind of going down being a longterm thing. I think it will bounce back, and I think we’ll start seeing all of these things becoming mainstream.

Joaquin Ayuso
Yeah, for, uh, like the, Geetha took the goods ones. I’m gonna try to get- (laughs) … the other ones.

Siobhan O’Neill-Schwenk
You can just say you agree, Joaquin, it’s okay. Joaquin Ayuso
(laughs) I 100% agree with Geetha.

I 100% agree with Geetha, that all she said is exactly what is going to happen. We’re gonna see from the nonpayment see, we’re gonna see a growth of these, uh, dollar organizations becoming more prominent and more front page in, uh, certain areas. So we’re gonna start seeing, for example, [inaudible 00:39:39] that are trying to attack climate change, and they’re gonna have so much money raised that they’re gonna be able to execute things that corporates or either nonprofit organizations were never able to execute before. Maybe because they are in gray area, legally speaking, so they can execute in a more nimble way than if you were a nonprofit organization. Maybe because they can execute things faster because of Web3. But there’s gonna be a, a, a huge impact on those.

And then the other thing is we’re not gonna see the Bitcoin going very up. The logarithmic support curve says that it won’t hit the all time high until 20- end of ’23 or ’24. And that seems to be the theory that resonates with most of, uh, investors in Bitcoin. So, w- we’re gonna see a slow recovery from the crypto. And the best part, is that we’re gonna see maturity on investment on crypto. We’re gonna see a lot more material investment then, and due diligence on the crypto projects that you may invest. And we’re, we’re gonna see a lot of more maturity on the projects that are gonna come out, uh, out of these downturns. So, it’s gonna be a better world for crypto investments and for the mainstream crypto investments, so, uh, it will allow more people to come in, and regulators are gonna be more comfortable regulating what comes after than trying to regulate what was before this downturn.

Siobhan O’Neill-Schwenk

Okay. Six months from now, set your watches, six months from now we’re gonna come back and we’re gonna do this again. I could sit here all day and listen to you you guys. Sadly, that is all that we have time for. This was really fun. I can’t wait to do it again, so, thank you both.

That is all the time that we have today. I wanna say thank you so much to Geetha and Joaquin for joining us to give us some insight, and discuss what modern money movement is really all about. On this show, we’re investigating the real driving forces that are modernizing money movement, and what’s building or blocking its momentum around the world. Make sure you’re subscribed. Check us out at Nium.com\ForwardExchanges, or wherever you listen to podcasts. And if you’re enjoying this show, leave us a review and tell us what you like. We’d love to hear from you. I’m Siobhan O’Neill-Schwenk, and this has been Forward Exchanges from Neom.

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