NCI: Stablecoins: The Future of Visa and Payments

NCI Stablecoins The Future of Visa and Payments

Speaker1: [00:00:00] All right. Good afternoon. Pleased to kick off our next episode of Lumina Non-Consensus Investing. We are live, I'm with Ben Forman from Purify. Ben like me is a Tradify digital asset crossover. He's got a great background that it includes K-K-R-T-P-G sixth Street and he leads Purify.

They've been a leader in digital assets for quite a while. We wanted to focus today on stable coins. Stable coins are really all the rage and you're seeing the success of stable coins and public market offerings. You saw the Genius Act was passed by Congress a few weeks ago. SEC Chair Paul Atkins was commenting on how digital assets can transform capital markets.

There's a lot to get into. There's really no better person to dig into it than Ben. Ben, thank you for joining us. I noticed, by the way, that. You were UPenn and you were a philosophy and economics major. So was I actually. So it's really funny. It's great to see that and see you get [00:01:00] in the space. Before we get into stable coins how did you get into digital assets?

How did you make this leap? From hard assets, free cash flow and yield into digital assets? 

Speaker2: I I actually ate lunch at the Coinbase cafeteria in 2014 when it was I think it was like a series A or B company at the time. And I had a couple friends that were interviewing for jobs there, worked there.

And I had, prior to that I had bought Bitcoin, but that really accelerated and piqued my interest. This was like my nights and weekends hobby while I was doing traditional credit investing in, in, traditional industries while at KKR. But I just completely caught the bug.

And I pitched KKR to buy crypto actually to buy Bitcoin specifically in 2015 back when it was, trading at two to $300 a coin. And I would say it didn't take a while. Yeah, it, eventually they came they came around. [00:02:00] But at the time actually during a discussion, I think like I presented to 25 people and I think 23 said they would short, Bitcoin and me, myself and the summer intern at the time said, we would go along.

But that, that was my first kind of, interaction with Bitcoin and how I got into it. And then, with the ICO boom in 2017 and just the industry growing and smart contracts, executing financial logic and stable coins, I came to this fork in the road where I said I could either continue to do traditional investing in credit.

For the rest of my career or I could take a leap into the wild west of crypto. And I chose the the path less traveled by. And that's made all the difference in a way. I but what's really interesting now, and I'm sure we'll get into it, is the paths are re converging.

Like they diverged, there was crypto and trad and traditional markets, and now they're coming back together in areas like stable coins, tokenization, defi digital asset [00:03:00] treasuries, and many more use cases like prediction markets and so on. So the worlds are really like one and the same now, which is fantastic to see because I think like crypto is just like increasingly more difficult to ignore.

It's increasingly just relevant. I don't think today you can be a bank or a FinTech company. And just ignore the space. And all the biggest players, like whether it's PayPal or Robinhood or Aian or Newbank or Revolut or JP Morgan or Bank, everyone is doing is probably the most active they've ever been in crypto.

Like without, without, that there's no subjectivity to that statement. Post Genius Act there's just been a flurry of activity. So that's, yeah, what gets me very excited, 

Speaker1: The banks are quote unquote frantically getting after this opportunity. What an incredible lunch at Coinbase.

Back then there would've been a lot of career risk. Talk about Bitcoin, actually, not really. 'cause it didn't even really exist as a concept. Now there's career risk if you're not in digital [00:04:00] assets. So let's double click into stable coins. I saw you present at Deason. I had already had an espresso, as I do every morning.

And I already been enthusiastic around stable coins and what does this mean for the future of capital markets? And I saw you speak and I felt like I had a double shot espresso right there. I really gotta get Ben on the show. So tell me why are you excited about you stable coins and what the Genius Act unlocks for us?

Yeah, 

Speaker2: so I think stable coins are, not only like a new kind of like financial primitive, but they have, what's really interesting about stable coins is they are like a geopolitical phenomenon, like socioeconomic phenomenon a technological phenomenon. And they're like, they're really poised to reshape the way we use money and the way money moves and the way we think about the risk behind, behind money.

And I think there are a few different, dimensions to this. One [00:05:00] is this idea of a stable coin is really M1, it's not M two. So if you think about like checking deposits at, in, in a commercial bank those, your deposits are relent and re ated many times over.

But what's interesting about stable coins is they're basically like tokenized treasuries, which I believe is a much, it, like you, you're one to one collateralized. So that is a much safer like legal structure for money than, taking effectively counterparty risk of a non systemically important financial institution, like a community bank that, so it's really it's just as much I think, a legal innovation as it is a tech innovation.

But look I think at its core look, the most popular consumer product in the world is the US dollar. Like the America's biggest export is the dollar. The dollar is used in 70% of all global commercial transactions. And I think, what's very interesting about stable [00:06:00] coins is they are like reinventing that market.

They so today, if you look at stable coins, they're about a $265 billion market that's up about 60% year over year. Tether today became the 14th largest holder of US treasuries. Wow. And these all a nonbank 

Speaker1: that the Department of Homeland Security was focused on is the 14th largest holder of US Treasury.

Exactly. Can't make this up. Exactly. Like 

Speaker2: It's, I mean it's really interesting because Tether is almost I think about like stable coins in large part is as Euro dollars. So like idea of a eurodollar, like a, not it's a dollar deposit held outside of the US so that's not subject to us legal or banking regulations and can be accessed by, whether you have a multinational in a multinational oil company in the Middle East that maybe wants to hold dollars outside of the us.

Or a Chinese business that wants to, transact in dollars and hold [00:07:00] dollars outside of the banking system. They can now do that with something like USDT. And that's why you're seeing, USDT adoption just take off in, the Middle East Africa, Latin America all throughout.

Asia, Southeast Asia is a huge hub and and it's all tether. And it's not USDC. And these the uptake has been incredible and the network effects are very strong. And the Eurodollar market today is roughly $13 trillion. So there's actually more the, that the total, so Eurodollar market, which is dollar deposits held outside of the US, is actually greater than all commercial checking deposits inside of the us.

And so Tether has really, just dominated that market. It's very much a monopolistic business is money is a network effects phenomenon, and there's a lot of path dependency. And then te and then Circle has basically been dominating a bit more in, in B2B use cases and as well as [00:08:00] in I would say more like US centric payments and financial institution use cases.

I so look like I think that what is interesting to me about stable coins as well is it's not really a technology bet anymore. It's really more just the technology's kind of been built, like it will be improved incrementally, but the idea of moving a dollar on the internet has never been easier due to stable coins.

And what's, it's very much now a go-to market play. And if you look at all the data and dig really deep into the data, most stablecoin related KPIs are growing at compounded annual growth rates of a hundred to 200% year over year. So one great metric is the number of wallets that send a stablecoin in a given month.

Last month was about 42 million wallets sent to receive the stablecoin. If you look at that number. 42 million. That's [00:09:00] grown every single year since 2019. And it's grown at about 150% compounded annual growth rate. So this is a secular trend. Yeah. Like people think about crypto as cyclical because the prices are very volatile, but stable coin adoption is secular.

The other really great like metric is that the average wallet last year in 2020 in this is 2024 versus 2023, the average wallet in 2023 had nine stablecoin transactions a month. This in 2024. The average wallet had 13 stable coin transactions per month. So not only are there more wallets using stable coins every month, but they're actually using them more often.

Yeah. And then if you look at like the dollar volume that's being sent, if you look at all the different types of use cases for stable coins, whether it's card linked payments or B2B payments or remittance, like all of these things tend to be [00:10:00] very much up into the right, which is you think about a world in a few years where there could be, instead of 260 billion of stable coins on chain, 2 trillion of stable coins on chain 

Speaker1: aren't talked about a trillion plus.

He sees that potential us a source of funding for treasuries. Let's start with the macro piece and we'll get to the company level winners and losers. After that, you start off by saying, Hey, look, stable coins are fully backed by a dollar. In a way, we're getting back to classic banking. The original function of banks were to perform custody and not rehypothecate.

Of course, here those dollars are held at banks, and banks continue to perform credit creation. Do you see some changes in how banking and lending transforms as a result of stable coins? Think about how you're allowing deposits to move frictionlessly 24 7 nights and weekends. Banks aren't accustomed to that.

Of course. We [00:11:00] saw this very sharply with Silicon Valley Bank, first Republic Bank back in the 2023 kind of banking crisis. What are some of the kind of macro changes and impacts to credit and lending, if any, that you might expect? 

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