Token Forum 3 | Stablecoins: The Mass Market Use Case | Kory, Shamir, David, Chris
Organized by Token Forum Blockchain 3 on March 28th 2019, this discussion panel included Kory Hoang, CEO of Stably, Chris Banbury, Vice President of Prime Trust, David Segura, COO of Carbon, Shamir Karkal, CEO of Sila, and the moderator Mitchell Moos, editorial manager of CryptoSlate.
(Source: TF Labs)
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Transcript of video below, there may be some grammatical errors.
00:00
KORY HOANG: Hey everyone, my name is Kory. I’m the CEO and founder of Stably. We are a Seattle-based stablecoin startup, whoo-hoo in the 206. And we recently got our stablecoin list on Binance, what the largest crypto exchange in the world that actually has real volume and not fake volume.
CHRIS BANBURY: My name is Chris Banbury. I’m vice president at Prime Trust. We provide trust and custody services and escrow services to the industry. A couple of our customers are actually with us on stage, you’re Kory and David here from Carbon. We actually provide the banking services for them, so they hold their USD assets in our bank accounts and then therefore use web hooks to actually make the stablecoin visible one to one to the dollar in the account, kind of piggyback on the previous people up on stage here. I got started in Bitcoin in 2013. I spent over a decade in mainland China. I was looking at some sources to get beyond Chinese capital controls. We can only take $40,000 a year out of China and didn’t actually end up using that as a mechanism, but that really got me interested in the tech and kind of went from there essentially.
DAVID SEGURA: I’m David Segura. I’m the COO of Carbon, a company based in New York, also in the stablecoin space. I guess our biggest claim to fame is that we built out a product that’s called Fiber. I’m sure we’ll have a chance to talk about that today, but it’s essentially a modular kind of Fiat on-off ramp. And we see ourselves as more engaged as building out the payment rails versus let’s say listening on every available exchange out of the marketplace. For my background, I first got into crypto I guess in 2014 after I sold a previous company a good friend of mine, Brock Pierce encouraged me to put if not everything a lot into it and have to admit I didn’t put nearly enough. There’s not a week that goes by where I don’t like think about that and why I didn’t, but anyways I’m happy to be here today.
SHAMIR KARKAL: Hi my name is Shamir Karkal. I’m the CEO and Co-founder of Sila. We’re a Fintech API platform designed to help developers build financial applications and we have a stablecoin at our core and our ledger is basically the ERC 20 token.
02:26
MITCHELL MOOS: And I am your moderator, Mitchell Moos, editorial manager at Cryptoslate and content engine, your source for original compelling and objective cryptocurrency and blockchain news so… let’s start off with an easy question so: Stablecoins, what role do they play within both the cryptocurrency ecosystem and the overall broader finance system? What do you see them assuming
KORY HOANG: I guess I’ll start off. Cryptocurrencies are… you know, as we know, are very volatile from Bitcoins to Ether to Litecoin and most of the alternative coins out there. They’re… you know, average volatility is of 20, 30, 40 % often. And with such a… with such price movement, it’s not suitable to be… you know, a stable that medium of exchange. It cannot help you… store value. And so there needs to be something else that replaced these cryptocurrency in order to help facilitate transfer value and payment purposes often time remittance, so I think in the crypto space alone, besides just price stability, stablecoin can also act as very efficient forms of value transfer and outside of that space… you know, we can also talk about real life remittance and payment and many other use cases that stablecoin can tackle.
CHRIS BANBURY: I’ll do a little bit on that right there from what I see from we deal a lot in this aspect right here. There’s three as it exists today. We have arbitrage, we have foreign exchange and then currently we actually were putting settlements actually into effect right now. So where people can move beyond USD and maybe they have bank with Silvergate in the past. We are actually implementing essentially an agnostic system where people can use stablecoins ERC 20 based whatever to effect settlements 24/7 365. But what I’d like to see is it moving towards more merchant accounts… you know, kind of… you know, for lack of a better term, banking the unbanked, so on and so forth. But in my opinion, we got to start somewhere, start with what we know and then make what we don’t know essentially.
SHAMIR KARKAL: Yeah and just add to that especially that last part, I think it’s the most fundamental level… you know, when I have a lot of conversations with bankers around the world whether it’s in… you know, Thailand or New York, a lot of them think that not now but in the future, stablecoins will essentially be long-term replacement for banks potentially. It’s essentially a great way to bridge the legacy financial system with this new emerging digital economy, so that’s what we’re excited about and we think we’re all on our way to that. I mean money by definition is an information insensitive asset, so like I love owning Apple stock, I’d love trading it but I don’t want to get my salary paid in Apple stock. I don’t pay my bills in Apple stock. For day-to-day transactions, people need something that they don’t have to think about so the… that’s… that’s what stablecoins do and that’s what stable currencies do, that’s what the USD Euro and all the other currencies around the globe have been doing for a long time. Let’s see if you can replace some of them.
05:33
MITCHELL MOOS: So it sounds like that there’s a couple different use cases that you guys are talking about remittances in terms of also on-ramps and off-ramps for different crypto currencies, trying to hedge against volatility but I would also like to raise a question about a stablecoins kind of existed for half a century, it’s called the US dollar. It’s been digitized, people are using it quite frequently, it’s pretty liquid. Why do you now suddenly need to put another cryptocurrency layer on top of that? What problems does that solve?
KORY HOANG: So let’s tackle a fundamental question, right, if the United States government were to create its own stablecoin, US dollar stablecoin, theoretically, there wouldn’t be a need for a company like us to exist, right? It would completely take away that need. However, if the US government were to do that which… you know, we can talk about why they probably won’t do it anytime soon, companies like I can still build on top of these layers at adding additional functions and features and utilities on top of it with the… with the blockchain technology that we have nowadays. We’re not just confined to what we can build so… you know, with the… you know, advent of blockchain technology, the issuance of money does not have to be centralized within one single party anymore which is the government. And for a lack of a better purpose, if the US government would select something like this remain the hand of the private sector, you can see a lot more innovation, a lot of progress that could come out of it that as well I mean these are just like… like first use cases, like just the ground level of everything here.
CHRIS BANBURY: I mean… yeah, like we look at sovereign fiat currency is what those can be, what those could potentially be but what can a cryptocurrency be. And I think governance is honestly the key issue around this right here is where… you know, you know, of course, you have a governor’s over Fiat USD Fiat, but we’re able to put and distributed and decentralized mechanisms for government is over stablecoins. So that allows a lot more opportunity for things we don’t even understand is it exists right now.
DAVID SEGURA: Yeah I mean from a governance standpoint, yeah I mean at the end of the day, the US is the US. We’re all Americans but you know it’s a… it’s a choke point, right, so if we do eventually kind of fulfill what we want to do in terms of our long-term vision, what I’m sure a lot of you want to do as well, it’ll be truly self sovereign and that could be an exciting possibility. I think also, just talking to traders, talking to hedge funds, there needs to be significant, I think, more trust in the system right now. But the idea that they could settle 24/7 365 days a year would be a significant improvement over the US dollar and traders are aware of this. It’s just that if they’re executing a ten million dollar trade, they don’t necessarily have enough confidence, let’s say in Tether to pull that off. So I think there’s a real genuine need for an outside US dollar.
SHAMIR KARKAL: So the US dollar is a great currency once the Fed figured out stability which is only the 70s before that it was there… was some inflation issues. But 90% of the planet doesn’t have access to it, right, so let’s not forget that this is you… you’re living in the US, and it’s a great place. But the rest of the world still has lots of issues with just currency volatility. And the dollar isn’t programmable… like you, anybody on the planet can, who has a computer can connect to the internet, download Ethereum, get it up and running. You need to learn a little bit but there’s a lot of medium on it. You can write an ERC20 smart contract tomorrow, if you are so determined. It’s gonna take you hundreds of millions of dollars and multiple years and probably inaccessible for most people in this room to get direct access to the Federal Reserve and be able to directly access dollars, right? And so that system is just completely locked off only the biggest banks have access to it and giving that access to something like that with 24/7 365… you know, settlement capability is guaranteed, settlement, easy accessibility that I think is the true promise of the future of Finance.
KORY HOANG: So I’ll answer that. Some of the market makers that we work with, their volume, trading volume in Southeast Asia or in Asia in general, it’s about 70 to 80 percent stablecoins whereas in North America that volume is 78 percent Bitcoin, Ethereum so you can kind of see… you know, where adoptions are taking place in the world, in places where… you know, you need the utilities of a US dollar, but it’s not always easily accessible, or freely movable.
10:08
MITCHELL MOOS: I’m gonna have your own packet in a second. But so it sounds like right now, innovation additional functionality built on top of a stable fiat currency and governance are the main issue, main reasons, drivers behind having a stablecoin in the first place. So you touched on an interesting topic: Tether. Why don’t you tell us about what kind of context, what kind of background we have in the stablecoin market where there’s a need to innovate in this space beyond what the incumbents are? Which is the biggest stablecoin Tether to billion in market cap and it is… as far as I know, in terms of a volume, if the volume can be trusted, it is the most traded pair against most crypto currencies as a stablecoin?
DAVID SEGURA: Yeah I mean, I mean first look, first I’ll say something that’s a maybe bit surprising. I mean I have a lot of respect for Tether at the end of the day, like they’ve survived so much, they’ve had their banking access cut off so many times. And yet they’re still around and to your point, I do think it’s mostly like valid volume. So the reality is like we’ve learned a lot from them. But I do think it’s a problem that so few people are authorized including know Americans technically to have redemptions. Like to me for example, the biggest Fiasco when like Gemini and Paxos. Both companies respect a lot as well had that issue where they were preventing people were making redemptions reading into the legalese, they had a claim traders were doing with traders do and creating like additional companies to get around the lockups too. But nonetheless that freaks people out the idea that like I’m buying a stablecoin so it’s truly liquid and that can redeem it at some point in the future. If there’s fine print except these conditions is it really fulfilling its function, I would argue not really. And on top of that as well I’ve actually talked to a lot of people that do engage into other trading and they love the fact that it’s a very kind of closed almost illiquid system, because they’re making a lot of money from it shitload doesn’t work for everyone else, but it works for them, so I am quite confident even though as big as Tether is, but there’s a lot of room for innovation for not just Carbon, but for a lot of other companies as well.
SHAMIR KARKAL: I mean how big is Tether is, what 2 billion outstanding 3 billion, something like that. I think the global forex markets trade about four point seven trillion every working day. So when you see the room to grow, I think the entire crypto and FinTech space is I wouldn’t… I don’t think it’s even point one percent of global finance.
MITCHELL MOOS: You also see a phenomenon where there’s a lot of different companies trying to get into the stablecoin space, there’s dozens of different stablecoins and it seems like a very fragmented market, do you actually think that the market’s going to consolidate over time or do you think many different players in the stablecoin space will coexist?
DAVID SEGURA: Okay I love that question because I get it a lot. Yeah, here’s my viewpoint, I mean fragmentation I think will continue to exist for the record but yeah a lot of companies will collapse but it won’t because of consolidation, will be because failure. That’s the most fate of most startups and I expect this will… will happen. There’ll be many more bases in the future. But at the same time I think the only reason people do think it will consolidate is that it’s just intellectually easier. But there’s a lot of companies that I think that’ll be founded and exist whether it’s here or a place like the Philippines that look very differently from what we consider to be a stablecoin today. And so as a result of that it will essentially function maybe as a bank, it’ll be technically a stablecoin but it won’t really position itself as such. So I really do believe from a technical standpoint fragmentation will increase, not decrease and the only people that consistently tell me that it’s in fact going to consolidate are people like our investors who don’t really know stablecoins are and just assume and hope that everyone consolidates so that it intellectually makes the job easier but it won’t.
SHAMIR KARKAL: Yeah I agree. I think it’s gonna fragment even more. I mean that’s a hundred… hundred fifty global currencies already. And then if you look lots of smaller local currencies used in different countries, so there’s no reason why I mean it’s easier to build currencies now than it was when you needed a government to do it. So there should be even more I wouldn’t be surprised if in a few years we have thousands of different stablecoin… stablecoins. But I do actually agree with your investors. I do think it will eventually consolidate. I’m just not sure it’s gonna happen in the next 10 20 years, it might be 50 years from now.
14:19
KORY HOANG: Yeah I believe that consolidation will happen, perhaps to a few major players but around these major players, you’re still gonna be hundreds, if not thousands, about others stablecoin players like you said. Think about the different currencies that… you know, these stablecoins could be based in. And think about what happens if an existing business well… a lot of networks start getting into the space like a Shell gas station right or Facebook right or Costco or Walmart. And one day this ecosystem could be huge. One day you could be looking at your digital wallet and in it not only will there be one type of US dollar coin, you’ll see a Facebook coin or an Amazon coin or a Costco coin. Each one of them will have… (so yeah why would you want that?) Well each wallet would have specific special utility or function within their ecosystem, perhaps if I use the Amazon coins to shop on Amazon, I get some sort of discount or you know utility or return of points, right? Similar with the shell coin right, for example if I use the shell coin to pay for gases at Shell, perhaps it could get discount for the gas price. I mean they’re already doing that right now with their credit card reward system and all that. so putting it on a blockchain to form a stablecoins and not a way to basically… you know, evolutionize that process.
MITCHELL MOOS: So it sounds like it’s going to be fragmented in the short term at least and some of you think that might consolidate over the longer term because of intellectual ease. Yeah potentially. So the next question I have is what bootstrapping adoption, because I know that a big point of a stablecoin is needs to be liquid, people need to know that it’s worth roughly $1 and they need to know that they can redeem it conveniently, what are some things that you guys have done to ensure that… that liquidity is present whether that’s market making or providing rebates and discounts at… what are your opinions around those specific behaviors?
KORY HOANG: Well since we’re listed on Binance, I can answer to some of that question. We don’t provide discount first of all… (so why is that?) to market makers or anyone that purchase our stablecoin because that ultimately gets reflected back into the trading price on a market which could cause instability, right. If I, for example, if I give a two percent discount on my stablecoin whoever buys it could instantly turn around and sell it for $0.99 instead of 98, they pocket one penny, but what… that just causes is cost my token to be to start trading at 99 cents, it’s now at 1% discount which is not something that I want, because my mandate is to stay as close to the dollar as possible to $1.00 parity. So we don’t give out any discount period. And with our market makers, we have contracts with them, so that they would cover every single exchange and provide sufficient liquidity within a certain band and that band is very tight. It has to be very tight for us and if there is any additional liquidity needed, we have other capital sources to pull in and to provide that liquidity.
CHRIS BANBURY: Yeah I think honestly, this is just obviously again current technologies, but it’s settlements and we looked at how do… how do technologies trickle down and you got to have early adopters and for settlements… you know, that’s gonna be Wall Street right there. You look at the aspect of liquidity 24/7 365. And yeah, they’re gonna adopt it. Once they started and adopted, more eyes are gonna got an industry where people gonna be looking at things and other methods of market making or adoption will appear.
DAVID SEGURA: Yeah it’s kind of interesting I was just like kind of smiling. But when you’re talking about the discounts and your policy against it, I couldn’t agree with you more. But I’ll say this informal conversation certainly not a formal one with a regulator no action is imminent or anything but the funny part about… you know, Paxos and Gemini, all these guys giving these like steep discounts to market makers and traders is that, you’re a trader, I mean you’re gonna take that right, right, it’s money in the books either today or tomorrow. And the best thing about that is that creates an obvious expectation of profit right, so this regular basically just kind of floated soft floated to me the idea that anybody that does that is in violation essentially the Howey test. And it could be in like the pinch for that. So I’m sure will just be like fine this stuff but for a company like ours, we have no interest in like kind of walking right into like a straight shot to the jaw, so we’re gonna avoid that. Yeah and then beyond that to you on the liquidity side… you know, our big focus is really EOS. We are also in the ethereum blockchain, but since we’re really the first robust EOS stablecoin, we actually have built at our own capital markets team. We’ve all, we think there are a lot of great options in the marketplace, the team is pretty highly technical, we just didn’t want to pay off fees for it, so we’re doing that, it’s been exciting. We’re also like learning a lot more about the business as a result and now we’re making that available that service available to clients outside of our… our own company.
MITCHELL MOOS: So you guys do not think that the 20 percent APR for Tron tether the new Tron tether pair smart is what I’m hearing. (Well for some people) Yeah let’s hit some questions.
Audience: Thank you Paul from meadow cert, I’m a huge fan of stablecoins for all the obvious reasons. I’m not convinced that trade volumes has anything to do with adoption, but my question is this long-term technically why does the world need more than one stablecoin if it’s a stablecoin written in software? I know we’re comparing it to currencies around the world but that’s because we have different cultures and governments and borders and all the other issues that we want to get rid of so why does the world technically need more than one stablecoin? SHAMIR KARKAL: Because the… so I’ll make the case for why it doesn’t, I could also do the other way as well though the… like if everybody on the planet right now had a US dollar denominated bank account, would that solve everything and the answer is no. People don’t need much more than just a bank account, right? They need investment they need payments there’s thousands of fintechs, tens of thousands of FinTech startups and a few thousands of crypto startups and thirty thousand plus banks around the world. They could all move to using the US dollar, but they all provide sort of different levels of functionality on top of that. And that’s even leaving aside kind of the economics argument to the dollar isn’t a great fit for like India for example, so that the real reason kind of we see so many different stablecoins. And we’ll see more is… yeah… is usability and the use case, right, like the use case the Tether is targeting. It’s completely different from the use case that Sila is targeting. I will probably never run into Tether for the next few years. And that could be different between all the different stablecoins. It’s quite possible everybody on this panel and 50 others all succeed and never compete against each other because it’s different markets. And I think that’s why you’ll see a lot of different stablecoins because they’re optimized for the market that they are serving. Some of them are focusing on exchange listing. Some of them are focusing on on and off ramp. Some were focusing on you know developer API tooling or different things and that’s what makes it fit for a use case, right.
MITCHELL MOOS: I want to get one more quick question here.
Audience: My name is Carlos Tappan. I’m also a stablecoin company. I think I would answer the question in a different way. I would say competition is good… so you know in any market competition is good. (it’s a statement?) yeah this is a statement. Now this is the question, we all are dealing with money, right, and it’s a very complex thing, right, I think we all understand that there has been… you know, a thinking about this for centuries, and there are books written called monetary economics, that’s the field, what do you think your stablecoin is going to be like if it is going to be tied to the dollar like the Tether? What is the… the benefit with respect with just using the dollar of using your… your cryptocurrency aside from just being on the blockchain?
KORY HOANG: I’ll go answer that. Recently I saw the announcement that Carbon added a privacy layer to their stablecoins, so now they have a private stablecoin. We are having initiatives with our project to work with other protocols, other blockchain protocol to create what’s called utility stablecoins, stablecoins that have additional utilities and functions and features on top of them other than just being money on a blockchain, right, you have money on a blockchain, but why just stop there? You can build a lot more on top of it.
DAVID SEGURA: It’s programmatic. There’s just so much you can do as a developer.
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