This conversation from Davos with Circle Founder and CEO Jeremy Allaire is about the rise of stable coins like USDC, why these technologies will win out as technology advances, and what the US needs to do to stay competitive in a new global financial order.
0:00 Introduction
3:47 Public Skills With Technology: Are We Behind?
6:50 Issues With Households And Digital Access For Technology Advances
11:33 How Infrastructure Plays A Part In Digital Advancement In Communities
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0:00 Introduction
3:47 Public Skills With Technology: Are We Behind?
6:50 Issues With Households And Digital Access For Technology Advances
11:33 How Infrastructure Plays A Part In Digital Advancement In Communities
Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1
Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:
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More From Forbes: http://forbes.com
Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.
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TechTranscript
00:00 I hear that you've been excited about regulation of stablecoins.
00:05 Is that like a hot thing for you right now?
00:08 Yeah, absolutely.
00:10 We're the purveyor of USDC, which is the largest regulated dollar stablecoin in the world.
00:16 And rated much higher than Tether, right?
00:19 Yes, I mean it's...
00:21 It's sort of obvious, right?
00:23 It's regulated and fully reserved with Bank of New York Mellon and BlackRock
00:27 and sort of widely used in many applications around the world.
00:32 So what's going to happen when things are regulated?
00:36 How is that going to change the world of commerce just generally, not just crypto?
00:42 Yeah, so I mean I think...
00:44 My interest in particular in the AI topic related to this as well is
00:50 what we're seeing happen is the building of a...
00:55 essentially a new internet-based financial system.
00:59 And it's an internet-based financial system where value can be exchanged
01:05 effectively with the same speed and efficiency and cost-effectiveness as data.
01:12 And there are these new networks, blockchain networks,
01:16 that effectively provide an execution environment for money.
01:21 And the really powerful thing about this is that in the next few years
01:26 we'll reach a point where essentially the marginal cost of moving around money will go to zero.
01:33 And at the same time, these blockchain networks are essentially trust machines.
01:39 They provide a way to have trustworthy data, trustworthy transactions, trusted compute.
01:46 And it's the combination of that, the kind of smart contracts,
01:51 the programmability of money, and the frictionless movement of money
01:56 that makes this really exciting.
01:58 And so I think from...
02:01 What becomes possible?
02:03 Well, once these are essentially treated as legal forms of money,
02:08 which is happening around the world right now,
02:10 and you have this kind of infrastructure,
02:13 it makes it possible for, effectively, for machines to enter into contracts on our behalf.
02:21 So AI agents that can transact with each other, transact with others,
02:27 over a medium of exchange that is itself machine programmable.
02:32 And so I'm interested in and looking forward to this convergence of machine intelligence,
02:39 machine code generation, verifiable data, verifiable compute,
02:44 and the ability for economic contracts to actually be both generated, executed, and enforced by machines.
02:52 And I think that's the convergence that I'm excited about here.
02:56 So one of the things you might not know about is we co-chair ITF committee on exactly this.
03:04 So there is now going to be a standard so that you know that it's trustworthy
03:09 to move things from one network to the other.
03:12 Because currently, it's a source of a lot of fraud, a lot of...
03:16 Half of the North Korea's ICBM program is...
03:21 From hacks.
03:22 From hacks of stable coins.
03:24 Of bridges.
03:25 Of bridges, yeah.
03:26 So we'll get rid of that, right?
03:28 Yeah, and we have something called the cross-chain transfer protocol.
03:32 Yeah, your protocol is really pretty good.
03:34 Which actually deals with this issue.
03:35 And we've got to make that everywhere, right?
03:36 Yeah, absolutely.
03:38 So one of the questions that comes up with the people that I talk to
03:42 are people like Swift who are moving to a blockchain-like system.
03:47 It's a distributed ledger system put on top of their existing system.
03:54 Well, how does that interact with what your vision is?
03:57 Well, I think we're really focused on how to build new fundamental building blocks
04:02 and protocols for the public Internet.
04:04 So public protocols that are public APIs that any developer who wants to build
04:11 an application that uses programmable money, that wants to build an application
04:16 that uses Web3 native primitives, for them to be able to do that
04:20 in a permissionless way and to do that on a global basis.
04:26 So I think our vantage point is just very different.
04:29 We're looking at this as an Internet platform utility
04:32 that is an open infrastructure for people to build on top of.
04:36 Underneath, of course, the actual stable coins are increasingly
04:41 a highly regulated form of digital fiat money.
04:44 And so it sort of has bank-like prudential regulation around it.
04:50 But the actual technology layer is not an infrastructure
04:55 that's tightly managed and controlled by a small set of private sector actors.
04:59 It's actually the public Internet.
05:01 And I think we've seen that when you have open networks and open platforms
05:06 that are widely available that any developer can build on top of,
05:10 that we see the most innovation.
05:11 And so we're just very focused on how to build this as open infrastructure
05:16 on the Internet as opposed to kind of augmenting and adding on top
05:20 of kind of legacy closed networks.
05:22 Yeah, understood.
05:24 So one of the problems or the concerns that people come up with
05:28 is that you're not the only person in this game,
05:31 and the open Internet is really the Western Internet,
05:35 and that China, Russia, other entities are building
05:40 a quite separate Internet on top of TCP/IP.
05:44 But therefore, as I was talking about, BRICS coins having a very different thing,
05:49 which means the dollar wouldn't be a reserve currency the same way anymore.
05:53 The rules of the road might be different in different countries.
05:57 Yeah, I mean, I think this is a critical national security
06:01 and national economic issue for the United States
06:03 and certainly for other Western countries.
06:05 I think that the way I look at it is that we're in a digital currency space race,
06:13 and the future of currency competition is actually technology competition.
06:18 And what values do we want in that system?
06:22 Do we want values that are grounded in open, free market, competitive,
06:28 you know, full access?
06:31 And I think that's largely what the world wants.
06:34 And so the United States needs to lead there.
06:36 It needs to obviously enable the private sector to innovate in this space,
06:41 and it should be driving essentially digital dollars like USDC
06:45 as a major export product around the world
06:48 because this essentially has the reach of the Internet.
06:50 I have to agree with you.
06:51 This is a point of real competition because you have Belt and Road,
06:55 you have other sort of initiatives, and those are competition.
06:59 Right, and individuals and households will get to choose with their smartphone
07:04 what global economic system they want to participate in.
07:07 And so that's a choice people will make.
07:10 Now, there will be, you know, great firewalls that attempt to enforce
07:15 a balkanized Internet, as there already are,
07:17 but I believe for most of the world it will remain open.
07:22 And in a world that largely remains open,
07:25 that's a tremendous opportunity for this kind of digital currency competition
07:30 to take place and to thrive.
07:32 So people wonder about sort of a race to the bottom.
07:36 So I could set up a system that doesn't have quite the overview
07:40 that, say, the Western system does.
07:43 It's a little cheaper as a consequence.
07:46 And wouldn't all the consumers go to that one,
07:50 even though in the long run it's a bad choice?
07:53 Well, I think this comes back to a fundamental attribute of money
07:59 and the use of money, which is it is grounded in trust.
08:04 And it is grounded in an individual or an entity's understanding
08:09 of the fundamental safety and soundness of that instrument.
08:14 It's why every person in the world would rather hold U.S. dollars
08:18 than almost any other currency,
08:20 because they understand that there is the most creditworthy,
08:25 relatively speaking, hopefully for a long time--
08:28 We hope, yes.
08:30 --economy.
08:31 But there are many, many dimensions to that trust.
08:35 And so I don't think it's as simple as,
08:38 here's this cheaper alternative, go use it.
08:41 I think that digital dollars and other currencies,
08:48 like the euros and the like, have network effects,
08:52 have embedded trust.
08:54 And I think if you can build the technology infrastructure in a way,
08:58 which is also something that people can depend on and trust as well,
09:02 that you can certainly have a situation where you can prevail.
09:06 Yeah, I mean, so one of the things that,
09:09 as someone who advises some very sovereign wealth funds
09:14 and does things like that,
09:16 I noticed that in 2008 we had a problem.
09:19 And the problem, really at its heart, was the math was wrong.
09:24 We used the wrong distributions in the models
09:27 so that you could get the head of Lehman out there saying,
09:30 "This was a 26 standard deviation event, which is on the face of it's stupid."
09:35 We don't have events like that.
09:37 What we have is bad models.
09:39 And so when you get something that's a very liquid network,
09:42 where you can move things around,
09:44 where you can have essentially DeFi,
09:46 it becomes hard to know that you're doing it right.
09:49 Well, this is a fundamental-- I wouldn't call it a paradox,
09:53 but it's one of the really fundamental things about this.
09:56 Blockchain infrastructure emerged in part as a reaction
09:59 to the global financial crisis.
10:01 Yeah.
10:02 Both to establish more sound forms of money,
10:05 to avoid some of the pitfalls of leverage and fractional reserve banking,
10:10 and that's actually embedded even in full reserve dollar stable coins,
10:14 which do not seek to take money and then rehypothecate it and lend it,
10:18 but instead hold it in full reserve.
10:20 But I think importantly is you're going to have--
10:23 I like to call it the new physics of money.
10:25 Blockchain networks essentially gives money the physics of Internet data.
10:29 And so when you have the physics of Internet data,
10:31 you're going to have the highest velocity money that the world has ever had,
10:34 and you're already seeing that.
10:36 And so I think you're right with this incredibly high velocity money
10:39 doesn't that allow just an unprecedented amount of risk to proliferate.
10:46 But the flip side is that if done right,
10:50 everything can be built on provable, verifiable, real-time auditable networks,
10:59 and you can build effectively a level of visibility
11:05 into capital, risk, liquidity, and flows,
11:11 and you can have a real-time visibility into it
11:13 that would be unbelievable from a regulatory perspective as well.
11:17 And so properly designed,
11:19 you should be able to have a radically larger financial system,
11:24 a financial system with significantly more reach than we have today
11:28 that increases economic velocity
11:30 and something that is fundamentally safer.
11:34 So I believe that it's possible to build something like what you're saying.
11:38 But if I look at current high-frequency trading,
11:41 I see crashes regularly.
11:44 But the crashes only last for a millisecond.
11:48 What that means, though, is that somehow the equations,
11:52 the strategies that are being done,
11:54 which are mathematical, they're things that ought to be solid,
12:00 have these bugs, and we're just fortunate that they recover really quickly.
12:04 So there's worry that as you make that across the entire world
12:09 and you make the amount of money trading large,
12:12 you're going to get those sorts of things also.
12:15 And then the other thing is, like you look at high-frequency trading,
12:19 the only people who can do it are really, really wealthy people
12:22 who have special access to the, you know,
12:25 they're half a millisecond away from the central server that does the resolution.
12:31 The rest of us just have to live on the crumbs.
12:34 How can you--so I believe you about the infrastructure,
12:38 but then there's this other sort of thing of, like, what's actually happening
12:42 and who's able to actually put the resources together
12:45 to get at it in a competitive way.
12:48 Well, there's a lot going on in the on-chain finance space,
12:51 and even something like an automated market maker,
12:54 which is an invention of DeFi,
12:57 allows an individual to basically provide liquidity
13:00 to what is effectively a market-making strategy
13:03 that can be very, very sophisticated.
13:05 You're also actually seeing, you know, AI and crypto convergence
13:10 in the sense that you're seeing protocols that effectively allow people
13:15 to pull behind highly sophisticated, you know,
13:19 automated market-making strategies and effectively fund those
13:23 almost like an LP funding citadel or what have you.
13:27 And so you do have, you know, what I would say, green shoots
13:30 of this kind of democratization to access to hyper-efficient market structures.
13:36 So one final question because we're running out of time.
13:39 So given that there are these concerns about the algorithms and the math,
13:44 not the infrastructure, how would you start off in a way
13:48 where we can sort of sandbox this or be cautionary
13:53 before we sort of release it on the world?
13:56 Well, I think it's tricky.
14:00 You know, clearly public blockchains are a public computing surface,
14:05 and there's just a constant amount of innovation that's happening.
14:07 So there are options protocols, derivatives protocols, lending protocols,
14:11 all these things that are being built.
14:14 And that is the laboratory. That is the sandbox.
14:17 Okay. Well, I think a lot of people would like to see a smaller sandbox
14:21 that's a little safer. Thank you very much.
14:23 Thank you, Sandy.
14:24 [BLANK_AUDIO]