Should Banks Fear Stablecoin Yield?

Sy Taylor  0:00  

Tai, welcome to tokenized these. Show focused on stable coins and the institutional adoption of tokenized real world assets. My name is Simon Taylor. I'm your host for today, author at FinTech brain food and head of market dev over at tempo no Kai today, but we do have two stellar guests to help us power through this week's news. And first off, making a long awaited debut, is a good friend of mine from the world of FinTech, the one and only Alex Johnson, author of FinTech takes How are you, sir? I'm doing well, thanks for having me. Oh, so excited to have you on the show. We do a regular podcast together on your feed. Finally, time to have you back on on tokenized. And also joining us is Nikhil Vishwanath and who is the CEO and co founder of alchemy. How you doing?

Unknown Speaker  0:53  

Sir, great. Thanks for having me. Thank you so

Sy Taylor  0:54  

much for being here. We're gonna get on with the news in a second, but before we do, I've gotta remind everybody that views and opinions of our contributors today, maybe their own and might not reflect those of companies they represent. And most importantly, please don't take anything we say is tax, legal or financial advice. Do your own research, folks. And with that, the first story, this was about visa stripe and Zodiac custody by Standard Chartered becoming validators on tempo's payments blockchain, of course, as many people know, validators run the infrastructure that verifies orders and finalizes transactions on chain, and a role that typically lends itself to established, well capitalized institutions capable of operating these always on systems in payments Historically, and these are companies that today operate and process trillions of dollars of payments during peak load. Nikhil, I think you might know a little bit more about what validators are than anyone else on this call. So do you want to talk about the role of validators in blockchains and the importance of larger companies getting into that as well?

Speaker 1  2:00  

Totally so probably the simplest way to think about validators is cryptocurrencies are a mathematical construct that gives you the properties of decentralization and not needing to have an intermediate person to coordinate all the efforts, but the payment for that is a set of mathematical equations that need to be computed. So more concretely, when you talk about Bitcoin, the miners in Bitcoin are the ones that actually make the network run. And in Ethereum and Ethereum based chains, there's a similar concept called validators, and that is the mechanism by which the network is secured. And the really, the really cool part about visa and all these larger companies jumping in is it's not just a vote of confidence for blockchain or tempo in particular. It's a deep interest in actually running in Val, in building the technology, because to do the validators, they need to actually get their hands dirty and spin up infrastructure and run it themselves.

Sy Taylor  2:59  

Yeah, it's kind of wild to me that this is happening in 2026 from where we were in 2022 Alex, your thoughts when you see stories like this, is it like bigger institutions looking to monetize the stable coin hype, or is the business model here like, what are your observations?

Alex Johnson  3:15  

Yeah. I mean, I think it's interesting. Obviously, tempo, as you know, better than anyone, Simon is sort of a payments focused l1 and so I think the question that everyone's been kind of wrestling with is, when you try to design layer one for payments use cases, what trade offs do you have to make with kind of traditional decentralization principles? And I think this is a good indicator of, you know, it's going to be more decentralized than a traditional payments network, so you're sort of starting at a more decentralized place. But it's also very, very different than like true decentralization, the way that you know a blockchain or Ethereum or something works. So I think it's interesting. I wasn't shocked. Obviously that stripe was one, because they're an owner of tempo. You know, Visa also didn't really totally surprise me. The other thing that's interesting, I was reading D hawks book about chaotic organizations. You read that one? Simon? Yeah, phenomenal book. It's a great book. It's really interesting. But one of the things that's interesting about it. D Hawk is the founder of visa, and he talks about the very early days of like trying to get banks to agree to cooperate, and how hard it was, right? Like, how incredibly difficult, like, locking people in conference rooms until they would come to an agreement. Type hard to get them to agree to do that in the 70s. And you fast forward to today, and there's just an agreement that everyone will play nicely as validators in a network that no one owns. So I do think we have probably, thanks to just the decentralized nature of the technology, arrived at a place where everyone kind of starts from the position of being more cooperative on this stuff, which historically is a big leap forward relative to where we used

Sy Taylor  4:59  

to be. Yeah. Yeah. And also, the incentive mechanism is sort of baked in a little bit Nico with what you were saying about mining, right? Like, because validators have an economic incentive to validate, they get paid for doing that job. But it's not an easy job to do. Like, this isn't something that you should half ass. Like, validating is pretty hard, totally.

Speaker 1  5:17  

And to your earlier point, I think the biggest story here is actually the environmental and regulatory shift, if you look back, you know, four or five years to a similar situation when, arguably, like a much larger company, Facebook, was launching their protocol, you know, Libra, and as it pivoted to DM, if you remember, on Twitter afterwards, the letters came out of how the government literally sent letters I believe, I believe Patrick posted one, also from stripe. The government came and threatened these institutions who said they're going to be validators for DM, and said, If you do this, we're going to come investigate you. If you put your name on to be a validator, right? And you fast forward to 2026 and we've done a 180 in the other direction, which I think is a really good thing, kind of conceptually, if you think about it, crypto is good for the globe. But even if you're just thinking about it from like a national United States perspective, United States is strong as a country because the computer industry was built here. Because the internet industry was built here. If you look at the 1020, largest companies in the world, the majority of them are technology companies, and those industries were built in the United States. We were, like, very much at risk. It wasn't even at risk. Crypto industry was being built outside of the United States because of stifling regulation. And it's really great someone living here to see that bigger first. Yeah, it's kind

Sy Taylor  6:35  

of fascinating to me, at least. We'll get into some of the regulatory stuff later on, but how the banks might be viewing this. I mean, you speak to a lot of banks of all size, shapes, and especially the community banks, they're sort of locked more in the yield concern at the moment. But do you think they see stories like this? Does it register on their radar, and do they see economic upside or just threat? What's your take?

Alex Johnson  6:57  

Yeah. I mean, I think that it depends, obviously, on the banks you're talking to, community banks have way bigger problems to deal with, quite frankly, than this type of news, and so I don't think it registers there. Obviously, if you're talking about a JPMorgan Chase or someone like that, they're not going to be surprised by this news. They have a strategy for how they're going to deal with this. I always joke about chase that they like to, sort of like sit down at the blackjack table and play all the hands at the blackjack table simultaneously, because they have the resources to do that. So they'll play nicely with payment focused l ones. They'll do their own tokenized deposit thing, like they're going to do a whole bunch of different things simultaneously to cover their bases. I think the interesting banks are always the ones in the middle, right, the like regional and Super Regional Banks who probably do a decent amount of the type of payments business that could really benefit from blockchain based payment technology, right? And so I think those are the banks where you see the ones that are a little ahead of the curve, really leaning into this and trying to figure out, like, Well, should we be a validator? Should we find a way to participate in this network? How do we think about this as a alternative rail to the business that we already provide? And then you have other ones that sort of have their heads in the sand a little bit still, and they might be talking about activating receive but not send on fed now, you know, and that's just a very different perspective on the threat of new infrastructure. But you want to look at those like mid size and regional banks to see where the drama is playing out, because those are the ones that have hard choices to make,

Sy Taylor  8:33  

yeah, and as I've spoken to them, we've had the debate before about like, where's the domestic use case for stable coins, and in those regional banks, one of them pointed out to me. They said, Well, you know, tch, people think that the clearing house does real time payments. It doesn't actually do real time settlement, though it does. I think every six hours or intraday, stable coins do give you real time settlement as a backbone, and that is something where, if the banks themselves are the issuers of those stable coins, then a lot of the things they're concerned about, like deposit flight, go out the window, and they get some immediate benefit, which is like potentially reducing their credit and settlement risk in Tch, and they're getting money in the door sooner. So what does a bank always want to do? They want money to go out the door as late as possible, and money to come in the door as soon as possible. This might help money come in the door sooner. And I think those tangible business cases become possible when you have credible networks that manage some of the trade offs that you face as an organization. I've also got some breaking news folks and so Alex and Nicola, you wouldn't have seen this just yet, but tempo literally just announced our privacy approach, which is called tempo zones. And the idea here is that tempo zones are built to be an alternative for privacy, you know. So as many of you know, blockchains tend to default to broadcasting all transactions in public, which is not so good if you're. In payroll, or if you don't want anybody to see all of your supplier documentation. And historically, there's been a number of approaches to be able to resolve that. You could have a private chain, or private networks to do that, and the banks did that. Initially. You could have some privacy focused chains, specifically like ZK sync and many others. And there's been lots of good innovations, or you can do really advanced cryptography on a per transaction basis, and all of these had trade offs. Typically, the more closed the network was, the harder it was to have liquidity outside of that world. And then, typically, the more open it was, then the less privacy you had. So privacy zones are an intent to really solve the problem that a lot of financial institutions have when they look at blockchains, they go, I like the idea of all of the liquidity in the 24/7 I don't like the idea of the lack of confidentiality. So Nico, I know you probably wouldn't have had chance to look into this one specifically yet, but I am curious on your views is what you've heard as you work with institutions and larger organizations looking to kind of get closer to the infrastructure. Is that a common concern for you? And what are the concerns to you?

Speaker 1  11:11  

That's spot on. I think that's one of the core areas where innovation is actually very needed. So excited to check it out. We obviously partner with tempo and power a lot of your guys stuff. So the way I think about it is, there was this shift around 2017 2018 and probably to, like, the early 2021, 2022 you saw this massive kind of excitement around private blockchains and all large institutions were basically saying, Hey, we're gonna, we're gonna take our own, you know, anything from, like hyper ledger to custom, private blockchains, and this is going to be how we run our products in the challenge with that is in the spoiler is basically that's not happening anymore. Everyone's adopting public blockchains. However, privacy is a huge concern, and I think there were two or three reasons why permissioned private blockchains just didn't work that well. One is the whole purpose of a blockchain is to be interconnected with other systems. And if you're on your own islands in a little silo, it's much less effective. You can still have like intra company systems on blockchain, but the true power is when you can interact with other services. The second piece is that the technology just evolves really fast, and you effectively almost have to have your own like research team that's going at it 24/7 if you want to be able to have the latest technology. And the third thing is, at the end of the day, blockchains are very driven by consumer demand. You can think about the isolated use cases of a I'm going to have internal money movement, but typically banks and institutions and brokerages want to be where customers are and customers are on the public blockchain. So I think, I think privacy is absolutely essential. And I think the debate on private versus public blockchain is, like, essentially resolved for most people, where it's going to be public blockchains with some sort of privacy model.

Sy Taylor  12:56  

Yeah, fascinating. I don't know if that's ever come up for you as well. Alex, if you've ever spoken to any of the banks, I know a number of them as well have been like, launching their own tokenized deposit networks. There was some community banks that did that. Like, what's your thoughts generally on who's adopting this in the institutional space, and who's held back by privacy? Have you heard

Alex Johnson  13:16  

that one? I have. Yeah, it's came up. There was another company that's working on solving this, and it's, it's interesting, because I think the tension that you're going to run into, and it kind of relates to just the tension we were talking about before with, like a payments sort of oriented l1 versus, kind of the principles of decentralization and the trade offs you have to Make there. The same thing applies, I think, between privacy and sort of permissionless infrastructure, right? So like in a traditional and I think this is how the banks look at it. In a traditional banking environment, payments are private, right? Like they're not available for anyone to see. You can't look at someone's counterparties, but it goes through centralized infrastructure that has choke points built into it that makes people uncomfortable, because you can get cut off from it, like it's not permissionless, the same way that blockchain based payments are. The flip side, of course, is the public blockchains, where you know the payments are flying around, there's more permissionless. It's decentralized, so you're less worried about, like, any choke points getting in the way and stopping payments. But the trade off is that they're public and anyone can see them. And when it comes to like AML and BSA, I can tell you that regulators like having choke points and control over it makes them feel more comfortable in terms of identifying and stopping money laundering. And the pitch I've always heard on like payment focused blockchains is, yeah, if it's more permissionless, some of those things might be a little bit more difficult, but the trade off is, it's all public. We can audit it, we can trace it, we can see what's happening. And so the sort of pro crypto argument for public blockchains has been the fact that everything is just out there, and you can trace all the information. I'll be. Very curious to see how banks and regulators react to sort of permissionless infrastructure, or semi permissionless infrastructure that has more privacy built into it, because that sort of undercuts that crypto value proposition of everything's transparent, everything's on the chain. And so I'm sure the folks at tempo and other folks who are working on this have thought a lot about this, but you're going to need to build in some mechanism for regulators to still feel comfortable that things are happening that they can see and they can have some control over.

Sy Taylor  15:31  

Yeah, I think that's absolutely the case. So view keys for regulated market actors, right? So you could, you could operate in complete anonymity on the l1 in principle, but also as an institution, you can make sure that no tokens touch you or your privacy zone that are tokens you don't want to touch, or wallets you don't want to touch. And it's about giving everybody the tools, right? Because fundamentally, we could have closed networks before. But what was the benefit of a blockchain? It works for everybody with compatible software, instantly. 24/7, all I need to do is just connect my software to it. I describe privacy zones as being like, JP Morgan, Connexus for everyone else. Like, if you don't have the organizational heft to build your own Connexus, to build your own closed loop blockchain and maintain it, then a privacy zone is a way to have that. And it's a nice way for banks to kind of get started. And institutions to get started at running those transactions. But also then it's like a firewalled way in to the rest of the tempo blockchain, which can then also bridge you into the rest of the crypto ecosystem, if you have client demand for that. So gotta be fascinating to kind of see that play out. Nikhil Any other thoughts on this privacy topic, or more broadly, like the institutional adoption that's coming? Are you seeing anything in your own business that's really standing out

Speaker 1  16:50  

to you? Yeah, I think there's a massive shift in institutional mindset and adoption. So at a high level, if you looked back to 2017 we worked with some of the largest banks in the world. We were just getting started as a tiny company then, and it was really a research experiment by a small set of people in, you know, call it 510, people in a bank building a tokenized product in some way, shape or form. As soon as the market crashed, everything was killed. It was put on pause and kind of finished. The reason is that you have to think about the risk, reward trade off at that time. There is very high risk, because the government could come audit your business, and you'll get under a lot more regulatory scrutiny for doing this blockchain stuff. And the reward is unclear. It's not clear if it's going to have usage. It's not clear if a crypto is going to be around a lot of people, at least in the tradfi world, that was the sentiment in 2018 now the risk reward has like, completely flipped. The risk has decreased very, very, very significantly through all the government regulations and the regulatory clarity, the reward has also increased. You look at companies like Coinbase, Robinhood, Revolut, these companies are making, you know, over 50% of their revenue from, and definitely in terms of a much higher profit margin business line than than their core business from, from crypto, I guess Coinbase, 100% but the banks are looking at this and they're saying, Hey, we get a couple basis points on yield or spread for the services we offer. You know, we work with JP Morgan and a lot of the largest banks in the world, and Coinbase is sitting here taking 3% on all staking rewards like that is wild, right? That's that's like 100x of what these banks are getting in terms of spreads and fees. So, so I think there's this massive, massive opportunity here that everyone is realizing both on the Hey, this is going to disrupt our internal business if payments move on the blockchain, and we need to adapt to that. But also in terms of trading custody, all these products and services that you give the massive amounts of revenue that are and if you look at a large bank in 2017 those were not big sources of revenue. But today, if you look at a coin base or Robin head, they're starting to be like significant sources of revenue, even

Sy Taylor  19:05  

for companies like JP Morgan. It's kind of nuts how JP Morgan now is helping its institutional clients settle crypto asset trades by coming back into jpmd and onto Connexus. This is a major client segment for a bank of that sort of slide. So I don't think we'll be at the end of this. I have to do my day job now and say, if you want to check out those validators or the new privacy zone solutions, go to tempo, dot XYZ and take a look at the blogs we put out there. The team put a phenomenal effort into it. I want to talk about the next story, which is kind of a regulatory wrap up. The double header here is that the White House is apparently putting pressure to pass the clarity act, and then we'll come on to the SEC saying wallets and defi and not broker dealers, but the Trump administration is turning up pressure to pass a major cryptocurrency bill as Congress has returned from its two week recess with an ever shrinking. Window, frankly, to get the legislation across the finish line. I think there's a bit of an assumption that, from a calendar perspective, that if they're going to get this done, now is the time, my understanding of this, Alex, is that it's currently stuck at Senate Banking. So this passed the lower house and is now stuck at the Senate. But you understand these processes a little better than I do. So do you want to talk about, like, why this has stuck, and some of the yield debate and kind of you're screaming into the void that you've done on this topic in the past?

Alex Johnson  20:28  

Yeah, I'm happy to scream here, too. So basically, you described it well, right? The genius act clarified a great many things regarding stable coins. One of the things that it probably didn't clarify as much as it needed to, was the ability for stable coin issuers or other affiliated parties to offer yield as a reward for either using or holding stable coins. It essentially left the ability for affiliated parties to offer yield, even if stable coin issuers themselves can't offer yield. So of course, the coin bases of the world, PayPal, examples like that. This has caught the attention of banks who are really freaked out by the idea that stable coins can act not just as a payment alternative, but as an alternative for deposit accounts, savings accounts, which is functionally kind of what they become if they're able to offer yield. So they have sort of rallied all of their lobbying power focused on the Senate Banking Committee, and have essentially tried to clarify through the clarity Act, which is the second piece of legislation that's being worked on, but has not yet passed, some of the things that they wanted in genius around restricting the ability for stable coins to offer yield in various formats, and this has sort of ground everything to a halt. And what's been interesting, and I don't know, Nikhil, you might have a perspective on this, is not everyone in the crypto ecosystem wants to necessarily die on this hill, but Coinbase and Brian Armstrong really want to die on this hill. And so it's had this very interesting effect of bouncing back and forth in terms of who has sort of the momentum on Capitol Hill at any one moment. And so, you know, it'll look like crypto is kind of pulling ahead, and they're making progress, and then the banks will sort of stop it, and then they'll get to a place where they almost have a compromise. But then Brian Armstrong says he's not satisfied with that, and then it kind of shutters everything. So they've been kind of going back and forth on this, as you referenced with the White House. The Council of Economic Advisors put out a report recently that sort of tried to quantify the impact that yield bearing payment stable coins would have on bank deposits. And I guess unsurprisingly, given that the White House is trying to sort of push through this objection, the conclusion of the report was that it would have very little impact on bank deposits. I know banks have their own academic papers and studies that suggest that it could be much worse, so no one really knows what the impact would be. The screaming into the void. Part that I will just do briefly is I think this fight is really stupid. And I think my general take on it is that we already have yield bearing payment stable coins in the market. Coinbase offers one today, and they have for a while. PayPal offers incentives to hold pyusd. This exists already, and I don't think we've seen any real evidence that it's caused a massive amount of deposit displacement. The reality for banks is they have a lot of customers who choose to work with them despite not getting the absolute highest interest on their money, right. They work with them because they trust them. They work with them because they value the broader relationship and all the different products and services they get from that bank. Savings being just one of the many things, I don't think all of those value propositions that banks offer to their customers go away in that scenario. And I will say that I found banks' fear on this particular topic to be a really interesting indicator of, like, how little confidence they have in the value they provide to their customers today. Like, I don't know, most deposits aren't hot deposits in the market right now. And so if payment stable coins can offer yield in some fashion, that doesn't necessarily mean that all your customers are going to flee. And on top of that, and I think this is the other thing that's important, Akil brought this up before the core economics of all this matter, right? And as good a business as it is to hold stable coins and invest the reserves in treasuries and just take a return and maybe use some of those funds to pay out rewards. Potentially, the reality is, like bank lending is vastly more lucrative than holding T bills, right? Like it is a more lucrative source of revenue and a more stable, I think, source of revenue over different economic conditions than just holding reserves in T bills. And so the reality is, if banks need to pay up a little bit more, they're going to be in a position to pay more because they make more money, they have a more sort of lucrative way of generating revenue. And so I find this whole debate to be very strange, and I wish that it would just go away and we could move on. Quite frankly, yeah, it's super interesting.

Speaker 1  24:59  

I think. That's like a great point on Well, it probably won't make that big of an impact. I also say the flip side of it is we should call a spade a spade. I think there's two ways to build a business, and one, you can build better products and provide value to your customers, and that you can win through that. The other one was you can hold everyone else back and be like, No, you can't do it. And we have a term for this, called regulatory capture. And effectively, most of the audience probably knows what this is, but you use the government to say, Hey, I'm going to hold all my competitors back, so I'm going to win. And there's a lot of industries in United States where that that happens, right? And I think the honest answer is banks, they had kind of a monopoly on holding customers money, and they didn't give a great service in return for it, right? They kept all the yield, and now that's changing, and it's scary to them as it should be. Look, if I was a bank, I would do exactly the same thing. I would say, No, we should not allow yield on stable coins. That, being said, this cannot be held off forever. The point of technology is to provide better experiences for humans, and crypto especially provides better experiences for money for humans. And there's no way that you look 100 years in the future and like banks are going to keep all the yield for money for deposits, like that's just not going to happen. And I think there's an argument you're asking about, like, whether you know we should die in this hell as an industry or not. I think it's like purely a percent confidence in whether we can get this bill passed, with or without it. Obviously, if you think it's not going to happen at all, that if we don't say yes, then, you know, Brian would probably feel the same way and say yes. But you know, he probably has confidence that we can get it done with with this. But I think, I think the bigger picture here is that these institutions have to adapt or they're going to die. It might get delayed for a little bit because of the passages that stop stable coin yield from being returned. But that's not going to hold forever, and we're just delaying the inevitable. So I think at the end of the day, if you're building a business, you're trying to provide value to your customers, and I think the way to do that is actually by providing better products. So I think a better scenario would be the banks adopting these technologies and restructuring their business. I get it's hard, like, you look at the Robin Hoods and why they were able to offer, like, no fee trading. Obviously, it's like, you know, hidden and spread. But besides that, they had just a different capital structure, where they didn't have these physical offices and they didn't have like, large head counts, like serving people live. So they're able to have save those costs and pass those on to their users in terms of benefit. So I think, I think the industry will have to change whether it's this quarter in terms of this regulation, or a year, or two years or five years like it's going to happen. But you know, who knows whether we're going to delay the nether ball

Alex Johnson  27:33  

or not? Well? And just a couple notes on that, because I think those are really good points, right? One is that on the crypto side of the ledger, so to speak, I do think that crypto companies oftentimes don't fully understand or appreciate the role that fractional reserve banking plays in credit creation, and so I don't think yield bearing payment stable coins will cause a massive flight out of deposits. That's why I'm not super worried about it. If that were to happen, it would have bad sort of secondary effects that I think regulators and others should be concerned about. So I get the source of the concern. I just don't happen to think that this will lead to a massive displacement of deposits. But to your point about competition, Nikhil, one story I heard that I thought was just a fascinating historical parallel to all of this is this goes way back in time, but during the Civil War, when we standardized on the dollar, the US dollar, and created the OCC and basically eliminated the ability for state banks to all issue their own currencies, one of the things that happened in the aftermath of that, to basically try to get all of the state bank issued currencies out of the market, was that Congress imposed a tax on those currencies, right? So there's like a 10% tax on those state bank issued currencies. And so state banks. The thought, I think at the time, was, oh, gosh, this is just going to drive state banks out of business. There's not going to be any state banks anymore. And what state banks did, in order to stay relevant, is they invented the checking account. And so that's like, where the checking account came from. And to your point, Nikhil, it came from. We have to compete, we have to innovate, we have to build something new that customers want in order to stay relevant. Now that we can't issue our own currencies. And so the industry does have a history of adapting to this kind of stuff, and I think that that's an important lesson to just keep in mind as we go through this

Speaker 1  29:23  

totally and maybe just add one more point on that. I think, I think if you, like, zoom out, I think the State Bank is a great example. Because I think people don't realize this, right? If you look at the history of money, what was at first we bartered like goods, like, I'll give you, you know, three sheep for that piece of bread or whatever. Then it was like things that represented value, seashells, beads, these kind of things. Then, you know, it was gold. Then gold was, like, hard to move around. So we said, okay, each local bank would do its own kind of note in exchange for the gold held in the bank. Then state banks, it consolidated because people were moving around and needed to move between cities. Then, like you. Said it was like each country has its own bank, and that's kind of the phase we are in the timeline. But if you look at the history of technology, right? If you look at the internet, 30 years ago, you couldn't just pick up this magical device and talk to anyone, anywhere in the world instantly for free, like that was just not possible. Now you have instant communication with everyone on the planet. All of humanity's knowledge is instantly accessible for free. And I think you look at you look at money, I'll just give you pose you two questions, right? Are we going back to the seashells and wampum worlds, or are we going to have some sort of digital, universal money that can be moved around? And if you live in the United States, you do not understand how difficult this experience is, right? I was just in Costa Rica last week, and it was very difficult. Like, we literally had to try to pull out cash we couldn't pay. You know, you every form of payment, like Venmo is not accepted. PayPal takes 7% and the currency exchange fees are high. Like, it's just, it's just very, very difficult to do. So I think you can only try to hold back and slow down technology. You can't stop technology. And we are moving to a world where money will flow as freely as information, and I think anybody trying to stop it is just like delaying the inevitable.

Sy Taylor  31:07  

Yeah, it's a great point. I think people forget that don't travel often, that retail and small business gets their face ripped off by FX. And if you're not using Y's everywhere, and even if you are, like, it's hard to use that at the last mile in Costa Rica, right? There are still challenges in all these places where stable coins just work like it's anywhere that's connected to the internet can accept it. You don't have the same quad acceptance problems at all, though, assuming you have an educated merch and understands what a stable coin is, and you're not forcing them to download an app to do it. But I do think that's one area that's really important for people to understand is, like, you may not have experienced this pain that stablecoin solves today, but it is still really, really painful. It's a problem, and that's something that has material benefit, and we see that coming up the long tail. The other thought, I've said this before on the podcast, and I'm going to say it again, and I'm going to keep saying it till everybody's bored of hearing it. Deposits are money that likes to stay still. Banks don't want that money to move. They want to collect the net interest margin and the float on that JP Morgan will quite happily give you instant 24/7 ability to move deposits around different branches of JP Morgan. But if you want to take that out of JP Morgan, suddenly it's not instant anymore, and it will go anywhere in the world, inside the bank, but it won't go outside it. And I think this is the incentive structure. Is like I hold on to the deposit for as long as I can. I also have to manage a balance sheet and a Treasury, and that's how I'm able to offer you yield, but also, by parking your deposits with me, I will give you far better lending rates. And this is another thing I think people forget about the banks is they do give you differentiated pricing on the lending. They can price the most competitively on lending, even compared to defi markets, even compared to private credit. Private credit and defi can go further out on the risk curve, but they can't necessarily price as well as a bank can and normal market situations over the long run, I think that's their durable advantage. Stable coins are money that moves. They're really great at moving quickly. You can hold on to it too, but it's real superpower is money that moves. So if a financial institution is worried about the deposits, there are still times when they need to move money outside the organization. And there are two pressures that I think that summarize the conversation so far, which is competition introduces new pressure and forces incumbents to innovate around everything. That's the Robin Hood example and many others. I think we'll see that, but also, when they do, they can take advantage of some of those benefits and use this new technology. So let's hope they do. And with that weird little summary. I'm just going to push us to the ad break because we could probably chat about this one forever. So I do want to move on to part two. And before we do, got to thank our sponsors, and we're happy to remind you that this podcast is brought to you by Visa. This episode, if it's not obvious, is brought to you by our friends at visa, a global leader in payments. Visa's tokenized assets platform vtap uses smart contracts and cryptography to help banks bring fiat currencies on chain. Vtap allows financial institutions to issue Fiat back tokens, improving financial efficiency and enabling programmable finance. You can check out the links in this episode's description to express your interest in vtap. This episode is sponsored by stripe. Stable coins are building blocks for borderless financial services, making money move around the world as easily as data. With stripe, you can use stable coins to reach untapped customers, reduce cross border fees and settle payments in minutes instead of days. Best of all, it works the same way other stripe products do by API or in the stripe dashboard, meaning you don't have to worry about the intricacies of which blockchain, which wallet will you custody from Shopify to vercel. Global businesses, trust stripes, complete crypto solutions to unlock new markets and reach more customers. Borderless finance built on stripe. Learn more@stripe.com forward slash crypto tokenized is also sponsored by fireblocks. Fireblocks is the stablecoin infrastructure of choice for global businesses, from visa to world pay to bridge to Revolut with over $100 billion in monthly stable coin volume, fire blocks powers stable coin strategies at scale with infrastructure that enables PSPs, fintechs, remitters and banks to issue, move, hold and manage stable coins. 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Sy Taylor  36:07  

thank you very much to all of our sponsors, just finishing off on some of the regulatory stuff. I don't know if both of you guys saw this, but an FCC staff statement said that defi interfaces and wallets that are self custodial are not registered broker dealers, and so this covers not just crypto native tokens, but also tokenized versions of equities and debt securities. Effective immediately, Commissioner Hester Peirce issued a separate statement, arguing that the law already makes this clear, and calling for formal rule making to go further. Nico, your thoughts on this one, and, of course, the case of Roman storm and many other bits. I mean,

Speaker 1  36:48  

this is absolutely essential. It's just like, not even a question, right? I think both in terms of, how do you KYC defi users who are using uniswap, it's just like, not possible, right? But I think the second piece of it is also, let's rewind the clock to 2004 or 1995 or 1997 and there's like a young Mark Zuckerberg or Larry Page and Sergey, right? And if you tell them, hey, you can build Facebook, but the rules are not clear, and you might go to jail, and we're not sure yet, but you might go to jail. It's just like, No, no founder is going to go build and it would is already like a really scary, intense, likely to fail journey. And I think this is just one more step in the regulatory clarity that's like absolutely needed to to make the industry flourish in the United States. Because I think the thing to understand, and I think the thing which is really great to see, you know, politics aside, but in seeing the the current administration, realize this, that crypto is not going to die if we slow it down in the United States, it's just going to be built outside the United States. We're going to lose that competitive advantage. And I think that's that's like, really essential to

Sy Taylor  37:54  

understand, speaking of which, I just saw as well, that the UK has passed its new stable coin regime or not past it, sorry. Is given a further update on it, and this is one that really concerns me for exactly that reason, as a resident and citizen of the UK, in that it certainly appears to be less progressive on a number of those fronts. And the UK is the home of foreign exchange. It's the largest foreign exchange hub in the world, bar none. It is the place where money moves around the world, and so to lose that would be, would

Speaker 1  38:24  

be an awful shame you're not realizing you're in the UK saying all the pro America stuff.

Sy Taylor  38:30  

Well, I don't know if I'm necessarily pro America, but I'm pro stable coins, and yay, UK will still be a thing. I'm not, not pro American. Let's just be absolutely clear, just just pro British, like loving it, but very, very disappointed by our approach to stable coins so far, and and whatnot. Alex, and any thoughts on this story from the SEC? Yeah, I

Alex Johnson  38:54  

mean, defi. It's funny. We were talking about the yield debates like I if I were banks, I would be much more focused on defi, because defi is just fundamentally very different. You know, when we're talking about Coinbase, you know, competing with banks, we're really talking about one type of a bank competing with a different type of a bank. Like, literally, Coinbase is becoming a bank, right? And so I think defi, to nikhil's point, like, it works fundamentally differently from a technology perspective, and so I think there are some really difficult questions you have to ask, right? KYC can't work the same way with defi. It just can't like, and that's not to say that we shouldn't have solutions that we're working on to stop the bad things that KY exists to stop, but we can't apply it the same way in defi that we do in other places, I will say, as it relates to, like, these things aren't securities, and kind of the SEC weighing in on some of this stuff, I am a little bit concerned about that from a consumer protection standpoint, just from the perspective of as defi sort of eats into equities and we have tokenized versions of. Box, and we have lots of different things. There are, like, investor protections that exist to sort of stop bad things from happening to retail. And when we sort of say, Oh, this thing that has been clearly under this set of rules that exist to protect consumers for a very long time doesn't apply simply because the interface is now a self custody wallet. That's fine if we want to say that, but we're going to have to accept that there are going to be consumers that don't make necessarily all of these distinctions in their own brains, using these things that they may think of more as a traditional sort of brokerage interface, but then don't have the same protections, or maybe working with parties that don't fall into the same sort of regulatory requirements. And again, if we want to do that, that's fine, but we should know that we're making that choice explicitly. And one thing I've learned in FinTech as we've added more infrastructure and technology into Fintech is we can make changes on the back end and go, Okay, well, that's FDIC insured, and that's not FDIC insured, but that doesn't mean that consumers are going to understand that. And as it relates to defi, that's probably the thing I worry about the most, is defi is great if you know what you're doing and you're happy to take the risks associated with interacting with these different services and managing your own keys and managing your own money and code is law, and sort of living with the consequences of that. But I don't think that's how most consumers sort of interact with financial services on a regular basis. And as we make defi more sort of accessible and more sort of consumer friendly in terms of its user interface and its design, when we make it easier, we will bring people into that ecosystem that maybe don't have that level of rigor and how they manage their financial decisions, and who they work with in terms of counterparties. So I do see the potential for some consumer harm here, but it may have to be a thing where we let the market do what it does, we see some examples of consumer harm, and then we come in and write rules to address those harms. That might be the way the market has to evolve here,

Sy Taylor  42:01  

I would agree with that. I shared those concerns. Alex, I think the important thing that I just want to emphasize on this is like the value in the technology is self custody. Makes the programmability really work. It makes the technology really happen. So the rule making from the SEC is allowing you to potentially have a wallet that is controlled by an AI agent or a bit of software, but still have a lot of auditability about how it's buying and selling all of those tokens kind of around it. So you get into this programmable world of tokens and equity and all that kind of good stuff. So I think this is a positive development overall from the SEC, but defi broadly as a category like, essentially, how many consumers are buying private credit funds today? The private credit funds and the asset managers would really like that to happen, but you know, there's maybe, arguably, a little bit of distress happening in that space. So maybe that you're like, you have to worry when they're saying, well, we should dump it on retail. Is that a good thing, or is that exit liquidity? So I worry about the same things too. Good friend of the show M zeros founder Luca Prosperi wrote on his dirt road sub stack a full economic analysis. It was super nerdy. I'll admit I need a Claude to help me understand it. But essentially arguing that a lot of the yields in defi are mispriced because of token reward incentives. They're generating tokens, and it's skewing the risk profile of those things. So I agree with you, Alex. I think defi is potentially fascinating technology that will meaningfully, in the long term, really impact how everybody does lending. And I'm already aware of a few banks looking to change how it transforms their balance sheet based lending. So banks can benefit from this too, when they have regulatory clarity. But out there right now, there are some things that might be tomorrow's tomorrow's disaster. Nicola, your final thoughts on this one, and then then I have to move us on. Yeah. So a

Speaker 1  44:00  

couple of thoughts. So the first one, I need to be a little careful, because we work with a lot of these large banks, so none of this is a specific institution. But broad strokes, there's a few steps that kind of virtually all large financial institutions are thinking about as they go into crypto. The first one is, just let their customers get exposure to crypto in some way, shape or form, sometimes through a derivative. The second one is, let their customers custody hold actual assets, so I can store my bitcoin at Fidelity or JP Morgan or whatever. And then third one, kind of like universally, is give customers access to defi. And you know, Alex, to your point there, I think there will be two very different defi experiences. There will be defi as we know it today, and that's like, you know, the internet equivalent of people SSH, ing into computers and using terminals and this kind of stuff. But the defi most people will will experience won't be called defi. They won't even know it's crypto. It will be, I'm getting a higher yield, or I'm giving out a loan. It'll be wrapped in terms that they know today, and it'll be kind of have these, like, safeguards and protections of whatever the institution wants to put on there. I will say that, like, I probably have a slightly contrarian view on the consumer protections. I think the accredited investor act is, like, one of the most unfair things. It says, yes, they're risky investments, but to get into high growth technology companies like open AI or anthropic, you have to have at least a million dollars, otherwise you're not going to be allowed to invest, right? And it's kind of like the rich get richer here. So I think at the end of the day, nothing is risk free, and I think the risk management should actually be on the part of the institutions and companies that offer these services to their customers, rather than, like a government blank

Sy Taylor  45:43  

rule on this. Yeah, the risk management by institutions is probably going to be where we go. I suspect, Alex, as you say, that's going to come down to we'll have a blow up, and then regulation is what happens when something must be done. Look conscious of the time. We do have one more story to just briefly cover, and this is Deutsche boss have bought a $200 million stake in crypto giant Kraken payward. They announced this partnership back in December 2025 but this investment actually deepens their partnership. And of course, Kraken, in March 2026 became the first crypto firm to secure a Federal Reserve skinny master account so they can access payments. But Deutsche boss, being one of the European equivalents to the DTCC, really interesting. See these crypto native players start to collaborate more with some of the biggest, more regulated financial market infrastructure companies, Nikhil, sort of lightning comments on this one. Yeah, I think it's great.

Speaker 1  46:41  

I think, you know, Coinbase gets a lot of attention United States, very well, justly deserved. Brian, you know, amazing entrepreneur. I think Kraken is also an incredible business. They've been a great partner and a customer of ours. And I think, without revealing anything secret, they they have a lot of exciting plans for the future and expansion. And I think this is a good hey guys like Kraken is a legit business, and you're gonna see a lot of exciting

Sy Taylor  47:03  

things for there, Alex, any thoughts when you see news like this? Well, I think

Alex Johnson  47:07  

it's interesting timing in that Kraken also just acquired a skinny master account from the Federal Reserve, which is the first one of those that we've done. So to nikhil's point, like they're kind of moving forward on all fronts and not terribly surprised by this news. Indeed, indeed.

Sy Taylor  47:23  

Well, there were a couple of other stories that we didn't get time for this week, so I'm just gonna Rat them off for everybody. Unicredit, very interesting, bank that doesn't get enough attention has invested 4 million euros in its tokenization. Firm block invest, South Korea is gonna pilot blockchain based deposit tokens for government spending. Government pilot would be interesting. Tether launched a self custodial wallet supporting usdt Bitcoin and tokenized gold. People forget how just dominant that brand is in many parts of the world. So they do have brand permission to do a wallet for sure. And Paxos Labs, which of course incubated by Paxos, raised $12 million and launched an amplify platform for on chain financial products. That's all the stories we had this week. I want to thank everybody for listening and watching. If people want to get in touch with Alex and find out more about FinTech takes, where do they go? Do that, sir,

Alex Johnson  48:17  

go to FinTech takes.com. You can subscribe to the newsletter, podcast, and then I'm also on LinkedIn and Twitter.

Sy Taylor  48:24  

I appreciate you and Nico, you and alchemy,

Speaker 1  48:27  

alchemy.com or follow me on Twitter, or x, just my first name, n, i, k, i, o, Oh, wow.

Sy Taylor  48:33  

You did. Well, there you go. You got one of the early handles. You'll find me at sy Tai lar, on all of the socials, screaming into the void@fintechbrainfood.com and, of course, at tempo dot XYZ. And if you haven't already do the thing where you like and subscribe to all of the buttons in all of your available applications and spam all of your friends to find this show too, I think you'll agree we take a bit of a different approach to this industry than the others. It really helps. Thank you very much, and We'll catch you next time.