Transcription
Welcome everybody. So I'm Mark Reigns. I'm the head of solutions at Chainlink Labs, and we're here to talk about the evolving landscape of stablecoins, touch on some of the regulatory developments and scalability challenges. I'm joined here by a great panel. I'll start by asking everyone to introduce themselves. Alex.
Yeah, Alex. I have the pleasure to run all-unity, a joint venture between DWS, Galaxy, and Flow Traders, and we're the only BaFin German regulated Euro stablecoin. Andrew Walker. I run commercialization for Apex Digital, uh, based out of London. Charles Johnson from S&P Global, leading uh, index provider and rating agency. Uh, Sil Sachev from Fiserv, head up digital assets for the firm.
Thanks. Okay. So, we'll kick things off with a question for all the panelists. Stablecoins have become the backbone of digital asset markets. What does their current role in global payments and capital markets reveal about the convergence of on-chain assets in traditional finance? Start with that.
Um, no role, zero. I mean, literally, uh, volume in classical financial transactions when stablecoins is literally zero. Yeah. But there's a lot of, let's say, prerequisites that still have to be fulfilled. When you talk about classical corporates using stablecoins for cross-border payments, then the corporates don't want to change their banking relationship just to use stablecoins. So the banks need to offer a wallet. The next thing is they want to use their uh treasury management system that they use for global transactions. So you need to be embedded into the treasury management system. You need to be embedded in the classic banking system, and then they can use the stablecoins. This is currently being built, and this is going to be introduced, but we are not there yet. So will it be a major step in global financial services? Yes, absolutely. But we're not yet there yet. And the big thing that has not been tackled yet, which comes after that, is how do you manage actually global off-ramp? Because sending a stablecoin is easy. But if the stablecoin is issued in one country, you send the stablecoin in another country, and you want to off-ramp in that country, the reserves are still in the center country. So that is then the next big hurdle that has to be tackled. So zero yet, but a lot coming mid-next year, I would assume, and then it really kicks off. So lots of progress, but lots still to do.
Any other thoughts on that question?
I've got a bit of a slightly different angle, but I'm just talking a bit more into the future. So, I think there's a very interesting uh pattern that's emerging around the use of tokenized money market funds or money market funds to back stablecoins. Uh, we are building uh, platform to run money market funds 24/7, and we're using the same operating models as stablecoins. But what's happening is that we're seeing an increasing number of wealth and asset managers tokenizing money market funds and then providing that as collateral to DeFi for them to either uh, mint and distribute stablecoins off the back of that collateral or to use it for things like DeFi lending and what have you. So I think one of the ways in which we'll see convergence is through the use of tokenized money market funds being used to effectively become the backing asset for stablecoins. And I think that will bring convergence between DeFi and TradFi relatively quickly. But I agree with you, we're not there yet. Now, a lot of that is held back not by technology, because we can do it and we can do it 24/7, but it's held back by regulatory asymmetry and uh, and uncertainty. So.
Well, that brings me on to the next uh, question, which is around regulatory clarity. Obviously, there's been a lot of progress uh, in this area in recent years, but there's uh, still a lot of inconsistency globally. Uh, how are each of you navigating this patchwork, and what models of governance and reserve management do you think will ultimately set the standard for trusted, compliant stablecoins?
Yeah. So I, I think just kind of jumping on to the last question as well. I think the regulatory framework that we're seeing uh, introduced in the US is helping promote that convergence. I agree with Alex that we're not there yet, but as a financial software provider to financial institutions and merchants to facilitate commerce in the US, we are introducing those on and off-ramps as we speak uh, to allow people to co-mingle digital assets with fiat currency. Uh, whether it's through a custodial wallet or through a third-party wallet, and being able to build that asset platform to allow for that uh, interoperability across different compliant coins in the marketplace. So we're extremely excited that we have a rulebook in place. Um, but to the other comments, we're looking for that reciprocity globally so we can have a standard set of rules to allow uh, digital assets to flow freely. But I think we're pretty close there already because everybody's complaining that there's maybe still a lot of gaps. But when you look at MiCA and also regulatory regimes in South Korea, Japan, Australia, Singapore, and Hong Kong, they are pretty comparable to MiCA, not necessarily by the reserves, but from the general structure. And actually, MiCA, although it was not targeted for payments, if I may say, um, helped a lot because it a little bit killed or pushed backwards the discussion about CBDCs and pushed really stablecoins to the forefront. So there is already enough interoperability on the regulatory side that you can actually build a global bridge.
So on our side, we don't issue stablecoins. We don't use them directly. We do a lot of risk assessment, etc. But we speak with regulators all around the world. Uh, and we saw the impact of the MiCA act in other jurisdictions. For instance, in Japan, there was very little conversation last year when we spoke with all the bigger players. Now everybody is speaking about stablecoins. Going back on the previous question, there was something that, uh, we are seeing being an vantage point where everybody is asking us what can be done with risk is the emergence of institutional DeFi, and it's backed by stablecoins. Stablecoins being the cash on-chain, they are the first step that enables this second step, which is really growing right now.
And I just, on the, I'm just reading the question again, actually, on the reserve management side, one of the things that we've done over the last few months, big, big shout out Chainlink, um, is that Apex and Chainlink have actually integrated their core technologies for their stablecoin-as-a-service offering. And the reason that's important is because you want to make sure that if you're minting stablecoins, and we've seen a recent example of how that can go horribly wrong with 300 trillion being minted with no reserve backing at all. Um, things like proof of reserve are super important. We've got to be able to not only monitor the amount of coins in circulation in real-time, but we've also got to monitor the treasury that's backing that. We've got to be able to value that treasury to make sure it's commensurate with the coins that are being circulated. So one of the things that we did when we launched our stablecoin-as-a-service offering, which we're launching now, it's being announced today, is we actually used a proof of reserve from Chainlink to monitor permanently the reserves versus the minted coins in circulation. And we also used it in conjunction with the Chainlink compliance framework. So we can actually define uh, certain policies around where those stablecoins go, for example, jurisdictionally, if you look at jurisdictions like the UAE, a dollar-denominated stablecoin can't be used other than domestically. So that policy engine is really important in how we circulate stablecoins, and we've integrated that in alongside the proof of reserve and the secure mint function to make sure you neither can over-mint nor can you circulate outside of the jurisdictions in which the coin can be operated. So these things are really important because they, we need to give people consumer confidence, and they're vital components of that. So.
Yeah, we, we're very excited about the compliance. Tremendous demand since announcing it. So it's, it's good to see. Um, Alex, turning to you, um, obviously all-unity is focused on a Euro-denominated stablecoin. How do you see, um, regional stablecoins complementing or competing with dollar-backed coins?
I think, uh, in the light of the time that we have, I don't want to go into the details why US dollar stablecoins were the starting point and rightfully so. But when you look at global payments, I mean, there are national currencies, and just because we tokenize the stuff doesn't make the national currencies go away. There's about 600 billion euro in and out on a daily basis in the European Union. And as long as we have the euro, there is a means and a right to have that tokenized. In that sense, you will have, um, locally denominated stablecoins evolving. Yes, there are dominant currencies in the world like you have today. The US dollar is the dominant currency. The euro is the number two reserve currency. This will not change. And so therefore, the local companies and the local market participants, they want to ideally pay in the local currency, but they also want that then whoever does the support takes care of the FX, that the relevant currency arrives at the end of the transaction. And therefore, I think they play the same role they play today. Just because we're tokenizing the stuff doesn't make CBDCs, deposit tokens, central bank tokens go away. I mean, this is just another technical solution, so to say. So in that sense, it plays the same role as the classical fiat currencies.
Leo, turning to you, uh, Fiserv operates at the intersection of banking and payment rails. Uh, how are stablecoins, tokenized deposits transforming commerce, particularly around how merchants, consumers, and institutions handle instant settlement and liquidity?
Yeah. No, thank you for that. So for us, as we kind of move billions of dollars every day between financial institutions and merchants around the world, one of the things that we've been hearing from both audiences is, uh, leveraging the programmability in stablecoins. Uh, because exchange of value is great. Having access to a 24/7/365 rail for settlement is great, but I think the ability to basically go beyond ISO 20022 or ISO 8583 is the real promise for stablecoins. So for us, being able to provide payment optionality in instead of just paying and payout functions, that's the real win. And a lot of these financial institutions that we're talking to and merchants we're talking to are looking at stablecoins as a way to create more efficient middle and back offices as well. Because when you look at, you know, how escrow accounts are handled today, when you look at how cross-border is done today, or other types of commercial money movement, there's a lot of if-then statements that can be made in a stablecoin contract, right? That can be handled automatically without waiting for somebody to actually press a button. So we see this as more of a, a much more efficient payment rail, but leveraging the smart contract itself is unlocking a lot more value for these customers.
Makes a lot of sense. Okay. Um, turning to you, Andrew, from an asset servicing, commercialization perspective. How is Apex helping clients integrate stablecoin infrastructure, and what operational hurdles need to be overcome for large-scale adoption?
So, I'll cover the operational hurdles first, because that's the easier of the two questions. Um, so from an operational perspective, stablecoins are, as you can imagine, a high-velocity instrument. So they're 24/7. You want to be able to access them 24/7, and we need to be able to basically mint and distribute and control the distribution on an ongoing basis on a follow-the-sun basis. That's the whole purpose of having stablecoins so we can use them 24 hours a day. Um, that requires quite a big shift operationally. Well, if you're starting from scratch, it's an enormous lift anyway, because you've got to run the operational function of minting, distributing, maintaining, auditing, uh, and and constantly matching against the treasury, what you're distributing and circulating. But for us, because we already had an existing service offering which was underpinning, you know, 3.8 trillion of uh, private markets assets, we've had to lift the operating model from a, a sort of a traditional 7 by 5 to a 24 by 7. That's actually quite a big lift. And we've also had to incorporate more functionality in our treasury so that we're constantly monitoring. And of course, they don't, stablecoin operators won't leave all of their backing assets with one custodian. They're going to spread the risk around multiple custodians. So we're actually having to make sure that from a treasury perspective, we are monitoring those backing assets through the various custodians, uh, in effectively in near real-time. We have to do that even though we don't report in near real-time, and that's one of the reasons why obviously, uh, being able to access data via data oracles becomes incredibly important. Uh, in terms of the integration, the integration into existing systems is incredibly important as well. As you can imagine, if you're delivery versus payment, which is one of the big use cases for stablecoins, then you need to be able to facilitate that transaction in a situation where the actual asset may not necessarily be sitting on the same chain that you've got your stablecoin. So you need to be able to facilitate that delivery versus payment either off-chain as an off-chain on-chain transaction or as a cross-chain transaction. So that's very important that we can support that, and we work very hard on the integration and the APIs, and also using chain cross-chain interoperability protocols which allows us to do that. But also we need to be able to integrate into, uh, legacy or existing systems and payment systems to receive messaging and transaction instructions and data. And so again, we've worked really hard on that. So there's, so we, we, there's going to be a long period of time. In fact, there will always be a coexistence of traditional centralized technologies alongside, um, decentralized technologies for the use of facilitating stablecoin payments and other forms of digital currency. And that's, that's, you know, blockchain is not a silver bullet in that regard, and we'll have both types of technology existing pretty much forevermore. Um, and therefore the integration is very important. But what we're doing is we're trying to make that relatively seamless. So if you think about the front-to-back experience, hopefully there's no, it's relatively frictionless whether we're going on-chain or off-chain or between chains. We're trying to make that as frictionless as we possibly can in terms of the end-user experience. So it's a, it's a really important part of what we're doing is that integration between on-chain and off-chain.
Excellent. Thank you. Okay, Charles. Um, you recently announced, uh, the stablecoin stability assessments on-chain using Chainlink Data Feeds, which is great. Um, why was it important to get these ratings on-chain, and where do you see this going?
Stablecoin stability assessment, it's a score with a report that gives you visibility on the probability of de-pegging of a stablecoin. Now, in our team, and well, most opinions are my own, but we believe in the tokenization of everything. We believe that blockchain is the next set of rails for the financial system. Now, in this new world, the pace, we know, is increased, and the need for risk assessment, risk assessment remains. Now, for stablecoins specifically, if we're saying that there are different risks, does it make sense to be able to check that at the transaction level? So we know, for instance, that well, we need to look at having faster risk assessment, and all that, and that's kind of the rating, the data. But when you're from a rating standpoint, now with this on-chain, you can check the validity and our opinion on the risk of de-pegging of a stablecoin. And eventually, later on, it could be applied to ratings, real-time. So you can have a lending protocol, a decentralized exchange, whichever application that will, at every transaction, be able to check, is the risk the same as per the opinion of S&P? And when it changes, it doesn't change often, but when it changes, it usually matters. When it changes, then you can have already pre-coded what will happen. Do you still accept this as collateral? Do you want to change the yield you're using? So we'll be in a world where a lot of this rule will be coded on-chain, and the data for that has to be also on-chain. So that's the first step for us, showing we could do this with Chainlink. Now it's on Base, if you want it anywhere else, let us know. If you're interested in other types of data points that can be from ratings or other divisions that we have, we can do it. And when we have use cases, so people came to us, asking, you know, to do tokenized green bonds, but they would like to have the data on-chain to do such bonds. So it's a first step, and it's needed in a world where everything is acting on some contract.
Oh, no, you're going.
I was only going to say the attestation thing is really important because you can't, the green bond's a great example of that. But if you remember last year, we, uh, did a project with the Brazilian Central Bank and Bank, and, uh, and they actually used data, uh, going on-chain data to, to, uh, essentially trigger payments. So they used a wholesale CBDC cross-border, uh, trade finance, agricultural commodities use case. They were shipping soybeans between Brazil and China, and they're basically using on-chain data to deliver confirmation that the transaction had, or the consignment had reached various stages in its journey. We, and we were involved in that, obviously Chainlink was involved in that, and it allowed them then to trigger payments that were then facilitated through CBDC wholesale between within central bank and HKMA. Now, the reason that was, that was very interesting is because for trade finance, for the small and medium-sized participants, the cost of funding is incredibly painful and high. And if you can facilitate a mechanism where that payment comes back to the supplier, the producer, in stages throughout the journey, it massively transforms trade finance for small and medium enterprises, and it, it is excruciatingly expensive. And, uh, and so if we can find an alternative way, so that's a really good example of where we can use attestation on-chain in order to, uh, allow an event to happen, which, in the case of, uh, Brazilian Central Bank, was a trigger payment. But I think for things like green bonds and sustainability type initiatives, I think putting data on-chain is incredibly valuable, um, because we can then continue the attestation throughout the life of the contract or the asset, which is really important.
But this will trigger, and it's super important, don't get me wrong. Yeah. Um, this will trigger some challenges because imagine that currently everybody jumps into stablecoins. You know, it's hot. Everybody wants to list their own stablecoin, or the banks coming up with their own stablecoins. Now imagine that you, you're a corporate and you have B2B cross-border business, and you have a subsidiary in another country, and you have maybe a supplier, and then you have a customer, and everybody's banking with a different bank, and every bank has a different stablecoin, and every stablecoin has a different rating. Hey, you as a company, you just want to pay. I need an OTC desk to manage my currencies. This is ridiculous. It's not going to work because it's not working today. Today, you have a euro is a euro is a euro, or a US dollar is a US dollar is a US dollar. In the future, a US dollar is not a US dollar anymore because there's various grades of risk in US dollar usage when it comes to stablecoins, euro the same, or whatever. And it is super important to have the ratings. Don't get me wrong, super important. It is crucial. But the next step is then how do you manage that as a global corporation? Because there's the benefit, and if you ultimately have to handle more currencies than you handle today, then adoption rate might drop dramatically.
It's always the challenge, isn't it? New technology, not to just create a new set of problems that we have to manage. Um, so, yeah, it makes sense. Um, okay. Uh, final question uh, to everyone. Uh, looking ahead, do you envision stablecoins evolving into core settlement assets underpinning global markets, or will they remain a bridge technology until we see CBDCs and tokenized deposits, uh, mature?
About so, um, CBDCs were discussed a lot, but since the US made a ban on them, there've been a lot of reaction on, well, if the US is against it, should we really do it? I think it's being rediscussed in Europe. Uh, tokenized deposits, I was, uh, listening to a very interesting panel on that in Washington last week. A bank was explaining that, well, as per the MiCA act, to be able to have a stablecoin, you have to have an independent subsidiary, and that kind of thing. It was a non-starter for them. So there will probably be space for both stablecoins. So when we launched the stablecoin stability assessment, around two years ago, we were reached out to, like all the banks in the world reached out to us saying, we're doing a stablecoin. Some sovereign entity came and did the same. So is there too many stablecoins? Well, I mean, opinion on [laughter] my own, but, uh, probably. But then what we see, I think when we'll have JP Morgan launching their own token deposit, there'll be use cases for both. It's really hard to know where they go. I don't think any will disappear because countries like China will prefer. But yes, they'll all remain.
Yes.
Yeah. I, I agree with Charles. I think where we are, it's good to appreciate what's happening today, but we also need to take a longer lens and say the adoption curve in terms of digital assets, it's at the very earliest, nascent stage, right? Especially in the US with the regulatory framework just getting passed. So if you look at history, when we came out with a debit card, a credit card, there was a lot of fragmentation before there was a unifying standard, right? And I think you spoke to that a little bit ago. So for us, we kind of see a room for all, and we believe that so much in the blockchain that there'll be an opportunity to change states, right, on the token, based on use case. So what may eventually start as a, what starts as a stablecoin transaction could get converted into a tokenized deposit, as an example. And I know there's different rules from a collateralization perspective on both of those areas, but we believe that on-chain, we can work through the smart contracts to be able to change state based on the transaction and who the recipient is of that coin. I know that seems very far out today, but that's the promise of the chain for, at least from our perspective.
So I do think, I'm going to answer a question. I do think, um, that stablecoins will become a core settlement asset, and I'll give you two examples. So if you look at the, uh, EU pilot regime, and you look at what SIX Digital Exchange has done, they are basically issuing assets and settling securitized assets and settling them using a stablecoin, and that's regulated under BaFin. It's on Polygon. It's on a blockchain. It's the first time that a license has ever been granted for a multilateral trading facility on a blockchain. So it's game-changing from an industry's perspective, but they are settling. Their plan is to settle atomically using a stablecoin. So that's, that's, that's DVP securitized assets settling. So that's core capital markets type activity. And then if you look at what's going on in the, uh, digital security sandbox in the UK, uh, similar situation. They started off originally saying that they would only allow settlement using central bank cash for securities, but they are now shifting. And I think the view is that they will change their, uh, scope to allow for settlement using stablecoins. And again, that's securitized instruments, and the first example of that, of course, will be the digital gilt. So I think you're seeing, and look at what SDX, I mean, Mark, you and I built SDX eight years ago, right? SDX has had a digital exchange and digital CSD on Corda, and it's been settling atomically using central bank cash delivered by SNB. So, I mean, whether CBDCs are widespread or not is sort of a little bit irrelevant, I guess. But the point is, you're right, uh, stablecoins are part of a range of digital currencies, and it's horses for courses, as they say, depending on what you're doing, you might want to use a stablecoin, you might want to use a tokenized deposit. It's entirely up to, I guess, the quality of the cash, whether it's M0 money or not, commercial bank cash, and the risk profile of the use case. So I do think it will be core. I don't think it will just be a bridge. I don't want to repeat what my colleagues have already said. There's a reason for various payment means today: CBDCs, deposit money, commercial bank money, and e-money. Just tokenizing it doesn't make it go away. So there's use cases, but you can only use what the other counterparty is using. So, as I said before, if the US is not using CBDCs, then my European CBDCs don't help me to do business with the US. So I think ultimately stablecoins will be, maybe, if I want to say so, the winner because, and core asset, because they're the most flexible one. As soon as I said programmability, freedom of movement, freedom of parties to use it. Not everybody can use CBDCs. Not everybody can use deposit tokens of a special bank. Yeah. So, um, stablecoins are the most flexible tool, are the most accessible tool from a programmability standpoint, also the most flexible one. And therefore, my take is it will be the core asset to be used in the future.
Okay, well, I think that's the last question. Um, yeah, I mean, there's loads of progress, excitement, um, but still lots to do, is kind of what I'm hearing. So, but thanks very much for your time. Appreciate it.
Thank you. Thank you much.
[applause]