The Era of 24/7 Money

Sy Taylor  0:10  

Welcome to Tokenized. My name is Simon Taylor. I'm your host for today, author at FinTech Brain Food and head of market there at Tempo. And joining me, we are reunited. It's the one and only Kai Sheffield, head of crypto at Visa. How you doing, Kai Sheffield?

Cuy Sheffield  0:23  

I'm great. Feels like it's every other show. We we got to get like a consistent streak of a few weeks together, but this is gonna be good. But

Sy Taylor  0:30  

well, I'm coming out to the Bay, man. We'll we'll do some IRL stuff. We'll make it happen. But I'm I'm excited for our guest this week. Joining us, making a debut, is Natalya Telka, who is founder and CEO at Nova. Natalya, how you doing?

Natalya Thakur  0:41  

Doing great. So glad to see familiar faces, and excited for today's chat.

Sy Taylor  0:45  

Yeah, long overdue. Been in the industry, known each other for a long while, and making a debut as well is V, who is the general counsel of Veda. How you doing, V?

TuongVy Le  0:55  

Good. Thanks for having me.

Sy Taylor  0:57  

Oh, really excited to have you too. We have a lot of stories we need to get into, but just before we do, I'm going to remind viewers and listeners that views and opinions of our contributors today are their own and might not reflect those of companies they represent. Please don't take anything we say as tax, legal, or financial advice. And I'm also happy to remind you that this episode is brought to you by Modern Treasury. This episode is sponsored by Modern Treasury. Stablecoins are here, and so are checks and ACH. They're not going away. RTP and Fed now and new types of payments rails are emerging all the time. The challenge now is integrating all of these without slowing down. Modern Treasury offers one single API for fiat and stablecoins, helping teams launch payments products in days, enter new markets, and serve more customers. Trusted by companies like Procore and Navan and Morse, and backed by over $600 billion in payments history, learn how to adapt to changing payments rails with scale and confidence At moderntreasury.com. Okay, first up this week, Western Union and Rain launched their stable card, and the USDPT wallet and Visa card is now live in 37 markets. So customers can receive a Western Union transfer straight into that wallet. Hold the balance. Spend it anywhere Visa is accepted, and add the card to Apple Pay or Google Pay. They're targeting 60 or more markets by the end of the year. And the CEO said the product combines the stability of $1-backed digital asset with the scale of Western Union's global network, and whilst I feel rude to my guests, I have to come to Kai first on this because it does say the word Visa a lot. So, first word on it. So, what do you think of this story?

Cuy Sheffield  2:52  

I think this is a huge deal. I mean, it's what we've talked about on the show for a long time that the established remittance companies are recognizing that stablecoins are as much, if not more, an opportunity than they are a threat, and that they have this massive footprint. And I've been really impressed with how they've been able to integrate stablecoin wallets, be able to connect cards to it. We've got great partners like Rain enabling it. So I think we're we're just at the beginning of stablecoin link cards graduating from only like new next generation stablecoin neobanks to some of the largest, most established fintechs in the world that are starting to issue these products and and roll them out. And there's just there's no sign of of slowing down. It's you know every week new stablecoin link card programs are going live, and we're just incredibly excited to see it, and we think they're going to be great products for consumers in the market.

Sy Taylor  3:44  

V, your thoughts?

TuongVy Le  3:46  

So, not surprisingly, my first thought when I saw this was, once someone's holding a stablecoin balance on a platform, like why is that balance just sitting there instead of earning something? So, I think we're going to see the same pull towards yield-bearing balances show up in remittance and card products soon, and anytime I see an idle balance, I start to look at it as a vault. Probably you start to feel

Sy Taylor  4:09  

twitchy. You're like that could be in a

TuongVy Le  4:10  

vault. No, it's a sickness. But the other thing I wanted to ask you guys about was, I was thinking about like there's a mismatch here that is worth thinking about, which is that putting a Visa card on a stablecoin balance it bridges to finality models that I think might be incompatible, right? So card transactions carry things like chargeback rights, and stablecoin settlement is irreversible the moment it happens, right? And somebody, you know, usually it's like Visa or program partner has to eat that gap, like either contractually, sometimes by law, as these things scale. And so, the moment that someone adds yield on these idle balances, which I, like I said, I think is inevitable, it stops being a payments product, and it potentially becomes like a securities law. Question right, which is something that like we've been hearing a lot with respect to vaults recently, and so the question is like, is that yield coming from the issuer's own balance sheet activity, which starts to look more like a deposit or a note, or from like a transparent non-custodial allocation, right, which is the typical vault model where the holder or the customer keeps beneficial ownership, right? So I think I was sort of thinking ahead for these kinds of products as they evolve, and I really think like whoever ships that product first really needs to get the structuring right, or else it'll probably invite the same scrutiny as a you know what Commissioner Hester Peirce of the SEC just flagged for vaults.

Sy Taylor  5:44  

Yeah, we we had Stephen Sykes on the show last week, the COO of Public.com, and he was talking a lot about how the self custodial model is really attractive, partially in in the first instance for the internationalization when a beneficiary has direct custody over it, even if it's embedded in a brand they already know in somebody else's mobile app. Technically, they are the custodian of that, and then in a decentralized model, the own sort of comes off the back of that. But Nataly, I want to bring you in on this, like your thoughts on this story generally, and and some of those regulatory questions that a remittance company is sort of wrestling into that V raised.

Natalya Thakur  6:23  

Yeah, I mean, so I think V hit on it. Like, why does this matter, right? Remittances can now land as stablecoins, right, and get spent immediately without anyone having like the cash pickup step. And so, I remember talking to Western Union years ago. I feel like they needed the rails for something like this for decades, and they haven't had it. I think what was really interesting to me, actually, is sort of the business model change in there. If you think about Western Union's business overall, it's like hundreds of billions of dollars across like 200 countries. I think people forget how global it is, but really, the business model is based entirely on like the sender pays model, right? But then when you have the wallet plus the card, then you're letting them earn on the receiving side as well, right? Through interchange. So every time like the balance gets spent instead of getting cashed out, I feel like that's incremental. Maybe small at the beginning, but incremental revenue on volume that they already control, and so I'm interested to see how that actually transfers to other Western Union type companies that choose to actually do this play. I also think that you know, and Simon, you've written about this a lot in the past, but the card is just an interface that people already trust and merchants already accept right. The stablecoin is sort of the invisible sediment layer underneath, and so this, I think, stable card product really follows that logic, right? Don't ask users to change their behavior, change what's actually happening underneath the swipe, and like they don't even need to be filled in on that. And I actually think you know, with like card networks having lost real market share earlier this year when it was you know as a stablecoin narrative has been building, I feel like launches like this and even some of the work that Visa is doing is just evidence against like the stablecoins kill card story. I think like there's a really good like intersect for both of them, and then how this kind of like passes on onto like the regulatory side, I feel like not maybe like the biggest expert in the room for that, but I mean definitely some of the points that have been brought up on previous shows here on Tokenize and what V just said like definitely makes sense. And also like who's in charge of thinking through those problems and owning the decisions for that is a completely other question.

Cuy Sheffield  8:41  

Yeah, I I will say I haven't heard the stablecoins are going to kill cards narrative like nearly much at all in the past six months. Like a year ago, I used to get that question all all the time, and I think it's it's so encouraging and exciting to me to see more and more people start to realize stablecoins could end up being one of the biggest opportunities that we've ever seen at Visa to scale our network and products across emerging markets, and I think that's kind of the race that's on right now. Is like you mentioned, monetizing the receive side for these remittance platforms. Like you have a lot of people all over the world that are receiving remittances that want dollar-denominated products that want to receive and hold those dollars, and then want to spend those dollars. And so, the opportunity to offer dollar-denominated spend products in dozens of countries that have never had them before at a much lower cost with better user interface than any financial product they've ever had. Like it's incredible. So that's why, like, we're just excited every single day to see how many new cards can go into market into places that they weren't there before. And so it's fun that that narrative has shifted, and every program that launches, I think, continues to reinforce it.

TuongVy Le  10:00  

I feel like it's just a another version of the stablecoins will kill bank deposits argument, right? That the banks keep making, and I always say, like the banks that actually realize the opportunity here are going to be the winners, and it's it's unfortunate that they seem to be fighting it instead of embracing

Sy Taylor  10:18  

it. Well, because everything looks like deposit flight. Two things. One of just stepping back for a second. In your face, Citrini research. Like, if anybody remembers that report, they said stablecoins would kill cards, and they were at the front of it. So I was just taking a victory lap on on Kai's behalf there. But to the point you're making, the I really do think that the the story and the narrative from some of the sort of policy groups around financial institutions has been very deposit flight heavy, but the evidence just hasn't been there. Meanwhile, the evidence for stablecoin linked cards is phenomenal. My producer has a tweet ready to go. I think we can just pull it up, which is flows into stablecoin neobanks crossed a billion dollars in July for the first time ever, with our record high of 748 million in spend. That's up 19% month on month. Now this is a rounding error in the 16 trillion annual that Visa does, but its growth rate really, really matters, and it was on episode 93 just a couple of ago. We we titled the episode "Stablecoin Linked Cards Are in Hyper Growth Mode, and the demand here is really real. And you see Redop Pay and Cast and Plasma One really driving a lot of this volume. And where are they driving it? It's precisely in the markets where it was almost impossible to get access to Netflix or Claude or ChatGPT or any of those types of services that we take for granted because they don't accept the payment methods that are in those markets or cash, but they do accept Visa cards, and I think that story is one that you know sometimes gets lost in the oh the remittance companies are able to monetize a new user. I think Natalya is is one part of it, but also the user is getting real value here. And V, just to pull it back to your point, and what will they have next? Will they have earn earn as well? So thank you, Petrie, for for bringing that up.

TuongVy Le  12:14  

Yeah, I think a lot of what we are seeing on our end is that a lot of this stuff, once it's tokenized, right? For example, in the form of a stablecoin, it allows parts of the financial system that were previously very fragmented to start integrating. And when you do that, you can make people's money like a lot more productive, right? So, like one of the neobanks you just put on the the that are in the chart just now is Etherify. We think I think we do like 10 vaults for Etherify now, and of course they also have their credit card, right? And so they're a neobank with a credit card that's also earning yield passively in the background, right? And we just launched Money Account, our earn product with MetaMask, and that allows MetaMask users to deposit their funds in a non-custodial vault, but they can spend from that vault with MetaMask credit card, and so you see all of these products that were previously in silos-they're becoming increasingly integrated, and it just allows the users to make their money very productive, like a lot more productive than they previously could. I just think it's really interesting how it's all kind of merging.

Sy Taylor  13:19  

That composability is something Kai and I have been talking about since what 2018 or something along those lines. Permissionless, programmable, composable-like that was the PPC. You know, this this was something that we were trying to make a thing nearly a decade ago. God, I feel old now. And that composability was always like a question mark. You know, will will it ever fit together? But you also think about Robinhood launching their stablecoin and chain, but allowing you to use your tokenized stocks as collateral to borrow against. Now, was that available to consumers before? No, that wasn't. And so, these new products, the ability to go more global, the ability to add new products and the ability to remix them all, I think is fascinating for a product innovation side. Bavi, if you forgive me, I'm going to move us to the next story because you did mention banks and financial institutions, and we got a we got a big big name bank here. You might have heard of them. They're called Wells Fargo. They're going to launch tokenized deposits for their corporate and commercial clients this fall, and it's going to be for a select group of them initially, and it's going to be dollar and GBP sterling with a broader rollout through 27. The tokens run on their own internal permissioned blockchain, and the goal is to settle 24/7, 365 through their existing banking interfaces. The CFO said tokenized deposits will let corporate and commercial clients move money between accounts 24/7. This is the I think fifth GSE to ship tokenized deposits after J.P. Morgan City, HSBC, and BNY Natalya. It's also coming after the Swift Ledger announcement. I know this is your world. What are your thoughts on this announcement and the approach to tokenized deposits generally?

Natalya Thakur  15:06  

Oh, love this question so much. So we know, like, whoever runs the rail keeps the liquidity, the relationship, and definitely sees the flow data. That's the entire logic for building versus renting, right? And you have examples like the KB Kookmins of the world chose to rent Conexus instead, and maybe that's a legitimate strategy too. It's different where they get the speed to market, but they're going to give up the big data. They're going to give up the client relationship on that rail to J.P. Morgan. It's hard, right? Like I think banks made decisions about closed loop rails with like the Hyperledger bases of the world, and now if we pull that into like the tokenized deposit versus stablecoin argument, we can definitively say like, okay, tokenized deposits are sort of closed loop in this case, right? The money stays inside the walls of Wells Fargo and all Wells Fargo branches, and this is precisely why it can carry some of those FDIC eligibility and like normal deposit protections that consumers would still expect to have, and then on the flip side, we talk about stablecoins being open loop by design, and like they can leave the bank, move to any compatible wallet, any country, any time instantly. And I think Wells Fargo here is explicitly not trying to build open loop thing here, right? This is a defensive position. It's how do I defend my deposit base, and how do I do it with better plumbing, and also start to prepare for adjacent use cases in the bucket of like what I like to call programmable collateral and interfacing with tokenized securities, right? So things like automated margin response, or collateral substitution, collateral optimization, internal and ranging, so that you don't have like pre-funding lag. There's all of these tokenized security use cases that have to touch deposits in some form or fashion. And you know, we've actually we were just on the DTCC industry working group called this morning because we're doing some work with them and some of like the main members that are trying to say how do we adopt these tokenization services before the you know the big launch in October, and when you look at some of the live testing that's been done with like BlackRock or JPMorgan or nearly 40 of these other firms, it's all heading in the same direction, right? It's also the same thing that what you probably see in the UK with how they're trying to build Digit and the repo market around it. This deposit X tokenized security overlap is going to be huge, and I think that like Wells and other banks can tokenize the deposits, but now it's going to be how do their corporate clients and their commercial clients actually manage this on their end, right? So if it's the case that, like we talked about in our previous question, like that the interface stays the same and they don't know it's tokenized deposits and it's all fine, like totally fine. But when you start to enable tokenized deposits, overlap X tokenized securities for these corporates, now they're actually going to have to be thinking about well, how do I manage across these different types of accounts and these different types of assets that touch a bunch of different systems, right? And so that's also something where we're starting to see that question come up more and more with some of our banking clients, of like, okay, well, if the bank issues these securities, at some point these securities are going to touch other tokenized securities. How do we help these institutions prepare for the operating layer and the usability of these across all these different systems, not only for themselves but for these corporate clients as well, right? They're going to need to be able to plug in.

Sy Taylor  18:44  

Oh no! And what does that corporate client user journey look like when they've got five banks and they're operating in multiple jurisdictions? Exactly. There, I have my J.P. Morgan login and Conexus, and how am I going to move Wells Fargo deposits to buy a security in the United Kingdom, using there's a fundamental like I can build my own blockchain and inside my own world I can do so much. And Swift Ledger might be infrastructure that could even get between the tokenized deposits, but there's a UX problem coming here of like what does the corporate treasury look like?

Natalya Thakur  19:17  

Exactly, and it's those rails like you can create as many interoperable ledgers and endpoints for those ledgers, but that's not really the real problem. The real problem actually comes for the post tokenization operations. The ledgers can talk to each other, but like all those systems, how they talk to your internal system, how you reconcile across all of these different systems, accounts, jurisdictions. To your point, it becomes a little bit of like a messy spaghetti project, if that makes sense.

Sy Taylor  19:47  

It does. It does. V, your thoughts on this story and financial institutions' position on tokenized deposits?

TuongVy Le  19:54  

Yeah, I mean, I think zooming out, that's exactly the thing worth watching. Is. This question of interoperability, right? So, J.P. Morgan, Citi, HSBC, BNY, and now Wells Fargo-they're each building their own walled garden permission chain. That just it really risks recreating the exact fragmentation that tokenization and blockchain was supposed to fix, right? Well,

Sy Taylor  20:19  

and potentially exacerbating that fragmentation to some extent.

TuongVy Le  20:24  

Yeah, and so I, I think what you probably will see is, you know, there's going to be a real role for the Fed or the OCC or some global body to encourage or or create a baseline interoperability standard before, and you know, and I hope this happens before this hardens into like permanent infrastructure that's hard to roll back. Like I think that's that's work that needs to be done right now.

Sy Taylor  20:50  

I think this is what TCH is trying to do with chips. If I was to read the tea leaves, right, the the clearinghouse, and because that chips is where a lot of this interbank clearing is happening domestically in the U.S. already. I think this is what Swift Ledger is trying to be: is that interoperability layer. But my worry is like, okay, but what about everything else? Like, there's only so many top-down closed loops you can build, and you end up recreating the maze. I mean, we've done this before with all the technology. We built CLS. We built TCH. We we know how to build networks between banks and make them really efficient. We're just using a new technology for that. It happens to be 24/7 and programmable. That's really really good, and it happens to carry FDIC insurance. That's really really good. These are great features, but the rest of the world is building with stablecoins, and how does interoperability between that universe and the tokenized deposit universe come together? And I think a lot of the fear from this came from like, well, where's that floating yield going to come from if I've lost my deposits? And Kai, I wonder if that's a pre-open USD worldview where actually there there weren't a lot of options. Like stablecoins were competing for the yield you can get, and maybe that's changing a bit.

Cuy Sheffield  22:06  

Yeah, I guess my my view on tokenized deposits in excitement towards them, I think, has evolved, and like I, I am more interested in tokenized deposits now than I've ever been, and I I think like in a very simple way, we're entering an era of 24/7 money, and I think everyone realizes there's there's no going back. And I think stablecoins were very much responsible for that. Now they were the first implementation of money that people could see that just worked 24/7, proving that it's possible. And like you know, it resets the entire market expectation, and now you have a whole new wave of companies that are building on top of that infrastructure, and it's just becoming a default that oh, of course, money should move you 24/7. Then, if you ask like if you look at all the banks in the world today, and you ask the question, what percentage of those banks enable 24/7 money movement just between their own customers, like just on us inside the bank, and I would bet that that is single digit or lower in terms of how many banks can effectively do that right now. And I think increasingly over time, that's just going to become less and less acceptable for particularly corporate and business customers in 2030. If you can't move money between your accounts at the same bank, you're probably not going to be banking there anymore. Like it's just, I think it's there going to be so many options, and so I think it's a very logical, rational approach for banks. It even put like interoperability is super important, but like before you even get there just to move towards a 24/7 intra bank system, I think should be an urgent priority because it's going to take years to happen for pretty much every bank. Now I think the big question is where's the line between a modern core ledger and a permission blockchain? I think public blockchains. It's it's it's just hard for a fully public blockchain to be the base ledger for a bank's deposits, and so there's going to have to be some privacy component to it. But I think it's going to start with that. Just very simple: let your customers move between accounts of their own bank, like 24/7, and build the infrastructure to do that, then figure out how that can interoperate with stablecoins and other payment rails when they want to move outside of the bank. And I think it's gonna be a long time before there is a perfect tokenized deposits clearing system that just like works automatically when you want to move between banks. But it's a pretty tangible thing to say. Why don't we just make this work inside the bank, and then I think there's a role for stablecoins to play when you're leaving the bank to have that as a a payment mechanism between them. So be really interesting to see how it plays out.

Natalya Thakur  24:51  

And just to comment on that really quick, TCH I think is actually trying to work towards that, right? Like they are going to put. The first cohort of banks into their tokenized deposit real payments production by Q1 of next year. There is an initial cohort of banks. They're adding some of the institutions who are non-US domiciled, but you know major users of chips. And so, I think we will kind of see incremental moves towards that. And then I think on your other point, just with like banks like Citi, I think they are starting to do that, right? Like Citi built CDAP on Bezu. CDAP is being used internally by the bank to really help between different branches of Citi, different businesses of Citi. They've really operationalized it and made it so that there's revenue upside associated with what they've built internally, even though they know that Citicoin is not being used externally by any other bank or provider, that would be maybe their next step. I don't know when that actually comes to fruition and how that's going to happen, but but yeah, just two industry examples from you know recent conversations we've had.

Sy Taylor  25:56  

Just as you mentioned, Citibank, we had Ryan Rugg from Citi on a recent episode, yeah, she's amazing, and so you can get that episode wherever you get your tokenized: YouTube, Spotify, or Apple Podcasts, and can strongly recommend it because she articulates exactly that Natalya and Kai that you were just talking about. 24/7 money is the default just between their own banks to start there because that's what they control. They can't control interoperability and how the market's going to shake out. And also, stablecoins. We haven't had the full rulemaking yet. And if I'm a tier one GSIB and the full rulemaking hasn't landed from the federal regulators, I'm not going to rush at that necessarily. They they can afford to take their time. I think a little bit. It's going to be interesting to watch this one develop, V.

TuongVy Le  26:41  

Yeah, I actually think this is an area where we do need to slow down. Like I echo all of Kai's points about 24/7 and programmable deposits being a real game changer. But but you know because I'm a lawyer and it's my job to think about the things that can go wrong. And I also used to be the GC of a federally regulated bank before Veda, the one thing that came to mind for me is that once you make deposits 24/7 and programmable and like be able to move as quickly as they can, that actually it introduces safety and soundness concerns that I we need to think carefully about. Right, so I'm thinking about like a bank run and how something like that could really be exacerbated if your money can just move that much more quickly, and so you know that might change how we think about a bank's capital and liquidity requirements. Like I, I think that there are things we need to think about if deposits move to tokenized form, and so

Sy Taylor  27:43  

on that basis, V. It's funny you mention that. You'd notice in all of these headlines, they talk about it's available to corporate and commercial customers. They so this is what we're talking about in is wholesale deposits, not retail deposits, because to your point about safety and soundness and liquidity coverage ratios, and all of that stuff that regulators worry about. Like fundamentally, have you got enough assets bank to cover a deposit run on the bank scenario? Generally, you get a lot more benefit from having consumer sticky retail deposits than you do wholesale deposits. Their wholesale deposits are hotter money generally. We saw this happen with Silicon Valley Bank when that went down. They were really exposed to large corporate customers that weren't FDIC insured, and when that moves, that can go very very quickly. But like a PNC, a fifth third, and the FMVO, that second tier of bank, Huntington, they are really built on those consumer franchises. Even Chase and City have large consumer franchises, makes up a big piece of what they do. Funny how that 24/7 capability isn't available to that franchise. So I imagine your regulatory calculation around safety and soundness is a big part of why they're thinking that way because you know I don't want that money to get any hotter and less sticky. It's really really important that I can hold on to those deposits so that I can face into my regulator with some confidence. And at Tempo, we just released a report on off hours cash focusing on wholesale deposits, and we looked at and and did an estimate of what would be the impact on your LCR ratio of offering 24/7 settlement via stablecoins over a weekend for institutional clients that wanted that capability to go outside of the bank's walls, and we said, well, you would limit how much was available. You would probably have some deposit flight. That means it's going to have some balance sheet impact. But you can offset that by charging fees for people to make payments over a weekend that they couldn't before. And I think this is something that gets lost: is that for every net in. Interest margin, every loss of deposits on the balance sheet. There's a fee that you can charge for the payments. And if you look at Citi, and if you look at J.P. Morgan, what are the bits of the banks that are really winning? It's the franchises around transaction banking. It's the fees businesses that are really succeeding. So I really enjoyed that you went there, V, because it's not often I get to really nerd out about liquidity coverage ratios. But that was one of the favorite things I've done in my day job in quite some time. I am going to pause us here while we take a quick break to hear from our sponsors, and we'll be right back. Stablecoin operations usually mean a wallet from one vendor and on-ramp from another, and then controls stitched together across all of them. Visa's stablecoin platform fixes this fundamentally. You can mint, move, and manage stablecoins across OpenUSD, and you remain your own custodian all in one single environment. Then, stablecoin-linked cards let you spend balances anywhere Visa is accepted. That's Visa, the global leader in payments, and of course, sponsor of this show. You can find out more at Visa.com/crypto. This episode is sponsored by Stripe. Internet commerce is evolving pretty rapidly, and agents are now becoming economic actors. They're managing spend and transacting autonomously, and stablecoins are becoming the default for them to do so, thanks to their programmable, instant, global, and low-cost nature. With Stripe, your business is ready for this new agentic economy. Accept stablecoin payments from agents, equip your agents with wallets, and issue stablecoin-backed cards so they can spend, all through a single integration from Shopify to RAM businesses, trust Stripe to get ready for agentic commerce. Learn more at stripe.com/crypto. Tokenized is also sponsored by Fireblocks. Fireblocks is the stablecoin infrastructure of choice for global businesses from Visa to WalPay to Bridge to Revolut, with over $100 billion in monthly stablecoin volume. Fireblocks powers stablecoin strategies at scale with infrastructure that enables PSPs, fintechs, remitters, and banks to issue, move, hold, and manage stablecoins. It's all done securely at scale with secure built-in compliance.

Sy Taylor  32:45  

With Fireblocks, you get complete control to build your own stablecoin orchestration layer, create payment accounts, manage liquidity, and access on and off ramps in over 60 currencies. Makes it easier for you to build and scale and expand your business globally. Learn more at firebox.com. All right, thank you to our sponsors. Cloudflare have launched programmable wallets, so AI agents can buy APIs and content with stablecoins. Talk about a conversational left turn, Kai. I know you are so knee deep in this whole world. I'm assuming people know who Cloudflare is, but if you're not, they see about 20% of the internet's traffic. They provide DNS services, so they resolve website names into the underlying address. They also block bots on the internet, and they have a product called Monetization Gateway, which is designed to allow anyone to stop a bot from coming into content unless it issues some sort of payment. So, Kai, what say you about this launch? Have you signed up for your Cloudflare wallet? Have you have you gone and got one?

Cuy Sheffield  33:57  

Yes, I am pumped about this. I think this is super cool, and have a lot of respect for just how quickly Cloudflare is is shipping in the space. I think there's just there are big existential questions around future business models for the internet and for any publisher that's used to making money on on ads and how that's going to evolve and change in a world where agents are kind of outpacing the the traffic of of humans. And so it's been interesting to see Cloudflare starting more on the merchant publisher side, giving publishers tools to be able to block bots, and then being able to choose to let bots access their sites for a fee. And I think that's where x4 two is interesting. If you can put up basically a payment gate and say, yeah, sure, you can crawl my site, but I'm going to charge you one cent or two cents, you know, for doing that because I'm no longer going to expect to be able to show the ads on that site that I would have ordinarily monetized before, and so I think they've been early and still very, very early stage, but giving the tools to offer publishers an option. To try and not just block all bots that no bots ever come to the site, but to give a path for bots to pay to come to the site to be able to monetize, and so I think that's super interesting. Then the question is, okay, well, how do you give your agent a wallet to pay those publishers, and what is it going to look like on the buy side versus just where's the the money going to come from, and now it's going to an actual what I consider like a consumer facing product to have this agentic wallet, which I think is really well designed based upon the the initial blog post and shout out to Will Paper and and team, but this idea of having an account wallet, you can then spin up individual virtual wallets that you give to agents. Those agents can then go out and crawl the internet, and when they hit a site that's blocked, being able to use that that wallet to pay. And so it feels like Cloudflare is just starting to put together some of this like next generation infrastructure that I think is going to enable a lot of different possibilities and agentic payments and commerce, and I live this every day. It doesn't exist. It is so small and immaterial volume. Like it's just like it is not happening at any scale. But the groundwork is being laid that I think a year from now, two years from now, three years from now, like we'll look back and we'll see. Okay, these were like the first seeds of new business models and new infrastructure for this to grow, and so that that gets me excited. But curious, yeah, via Natalia, how how deep you've gone down this part of we go from tokenized deposits to like agentic micro payments, and like you know, it's it's a whole different world.

Natalya Thakur  36:36  

I was just gonna say, like we know this is Cloudflare is it's not their first move. They also kind of launched, I think, net dollar back in September, and so I think of this like wallet and launch as sort of like a distribution layer and strategy. I think what they've done really well is they've solved for like the fraud and accountability problem that agentic commerce in general, I think, has been tripping over. So this like web bot tie-in to me is the actual innovation, right? Cloudflare already runs the identity layer, and the bots use that to say like who am I to whatever you know server they're pinging. But when you bolt the payment credential to that identity, now you can kind of do the check that you were talking about, Kai. Which is who does the agent work for before I release the funds or I release the content? You had mentioned like Cloudflare is you know really like being really swift and quick about this. You you think about like Circles and NanoPay, x4 or two. I think like everyone's sort of vying for like who's going to be the default rail for agents. The other thing that really comes out of this, I think, wallet announcement is the shift around treasury movement, right? So treasury movement going from after the facilitation, right? Treasury as a concept to actually like treasury for pre-authorized programmable limits. So I think it becomes a governance feature, then, right? Not like a payments feature, right? How do you provide delegated, capped, like a revocable spend before the transaction, not expensed after the fact? And I think it's going to be a you know this is the very first and sort of this machine native treasury that we're going to see, which is like identity plus wallet plus stablecoin, and soon, you know, today you're to your point, volumes are very very low. Like this is not a huge market yet, but with the foundation being laid, you can imagine that in the future you have 1000s of agents buying API calls, data, content, and interfacing and interference in real time-you have to have treasury. That sort of happens treasury management and governance controls that happen before the payment is made versus after, because post-transaction treasury management, I think, is just going to be too slow in the way that we know it today.

Sy Taylor  39:03  

I think that ability to keep up with the speed of machines is just the whole ball game here. To Kai's point, laying the groundwork, laying the foundations. I definitely like Kai signed up and got my my handle. It's a waiting list, but what we don't know is is this related to their stablecoin, the Net Dollar? I'm assuming this is going to be using x4 or two, and so I can have a wallet, and they say also I can give my agent a wallet, and I can set controls over that. How's that all going to work? And what happens if I don't set those controls really well? Are there any kind of protections for me? You know, I think on the surface, building a payments network sounds really, really easy. It's like the internet, and it's like moving emails. But so much of it is about the things that go wrong, and kind of what you can do about those. I don't know, V. Have you looked at this? Have you given it any thought?

TuongVy Le  39:55  

Yeah, I mean, I as a lawyer, right? Like I said, it's my job to think about all. Things that could go wrong, and so whenever we talk about agents, I think we we really need to focus on. At the end of the day, the law, like, has always governed human actors, right? And so, what if you give the AI all these powers, right? How does liability and how does the law apply in that situation? I think actually you can apply a lot of the same legal principles, right? So you look and you see, well, where was there a human decision somewhere in the chain? So if you look at a product like what Cloudflare has here, that comes down to well, what were the constraints that were designed into the product, right? So here, the interesting design choice they've made here, right? It's not just that they gave the agents-they're giving agents wallets. It's that the constraints are are enforced by like the actual infrastructure. There's you know a spending cap and an allow list that's scoped to an API key. So that means the agent can act freely within that mandate, but structurally it can't act outside of it, right? And so the the reason that might become relevant is because a regulator or a court will ask things like, you know, what permissions was the AI given? Was the environment sufficiently isolated? What sorts of structural or technical guardrails were there, was someone monitoring it, right? So just because it's an AI doesn't mean that you can't trace some of its actions back to human decisions, and I think that's that's the right way to think about you know if something goes wrong, who's liable? So I I always think about that with respect to agents.

Natalya Thakur  41:42  

I was just going to say, in that respect, like blockchain AI in this case, like exactly what we're talking about. Like, if the data or the inputs are bad going into the system, the outputs will be bad, right? In the same thing of like whoever's setting the controls, if they're bad controls or they're bad authorizations, whatever it might be going in, probably what's going to come out on the other side is not going to be great. And to your point, like who has liability for that? Yeah,

TuongVy Le  42:10  

and the challenge is always like you know when you're designing these constraints and you're doing the prompts, it's not always foreseeable, right? As a human actor, it's not always foreseeable how that will cause the AI to act. Now we've seen all of these examples where the prompt and the constraints were very well intentioned, but the AI carries it out in a way that actually causes harm. So I think that's going to be the big challenge, no matter how much you try to constrain it, and no matter how well that's designed.

Sy Taylor  42:39  

Well, and there's a lot of hyperbole and hype at the moment around the recent Hugging Face attacks from OpenAI and some of the issues around Mythos. But whether you buy into that hype or not, it certainly does appear that AI has reached a level of capability where its blast radius is not yet fundamentally known. And when you're moving money, that's quite an important thing to be able to understand in a liability framework around it. One more story this week. We're going to sneak one in, which is BlackRock launched their tokenized money market funds for stablecoin reserve management, available on Solana, Ethereum, and Tempo, while investing entirely in cash and short-term U.S. treasuries, they're targeting institutional investors with those tokenized treasury funds as they continue to grow. And what's new about this is it's going to be available to European investors for the first time after unveiling two newest-based tokenized money market products yesterday, issuing new share classes in six existing USITS funds in its BlackRock institutional cash series using dollars, euros, and sterling, and they're using JPMorgan for tokenization. I think this rise of tokenization as the new normal, Natali, is really interesting. Did did did you catch this story?

Natalya Thakur  44:02  

I did. And as a former BlackRock alum, I just love love what they've been doing. I worked on the original like Bitcoin ETF perspectives like over a decade ago, and so just to see how far BlackRock's come from like the initial global steering committee to now like the team that Robby Mitchnick runs out of New York has just been incredible. A few things here. One, BlackRock is an asset manager, right? So their goal is like as many you know cash management funds and as many ETF tokenized ETF funds that they want to keep issuing into the market to gather AUM, right? Because like that's how they make their revenue, right? It's a management fee at the end of the day, and I think all of the distribution that we're seeing is not that they launch these funds on one chain, but how can I make it increasingly more accessible across many many chains? Now, whether or not those institutions who are their clients are actually buying these funds on all of these other chains, we're not sure if that's. Marketing, or if that's actually real distribution that's being taken advantage of. The other thing I'll say is what I think is different about the launch of these new tokenized money market funds, besides you know to your point, the European access, is the fact that before when we thought about Biddle, Biddle was garnering all of these assets into the fund, but institutional clients then, if they wanted to actually use the asset in that in those funds for something else, they had to offboard from Biddle back into stable, back into cash, right? And I think even though the fund itself had a high AUM, the usability of the cash that people were parking into Biddle still, I think, wasn't meeting full market requirements for what these institutions were trying to do. Now, you know, a few years later, the market is a lot more robust. I think people have a much better understanding of like what types of investments and what types of transactions they want to do within digital assets, so I think these two new funds really make it so that there's not as many hops, skips, and jumps to actually use the money that you're parking in these funds, and I think that is the big unlock right now. If I'm an it's a huge

Sy Taylor  46:15  

unlock,

Natalya Thakur  46:16  

yeah. If I'm an institutional investor and my money's parked here, and I actively want to push that into something else. I don't have to wait two or three days to do that. And I think that is something that you see in these funds that when Biddle was originally launched, people didn't have that.

Cuy Sheffield  46:34  

Yeah, I think the the intersection between tokenized money market funds and stablecoins is really interesting to me, and I think that they're going to come together more and more. And really, just like the the north star, if stablecoins are going to really scale, it feels like the reserves backing stablecoins should be on chain as well. And traditionally, you have stablecoins as like you have an on chain version of cash, you know, version of money as a medium of exchange that then is backed by off-chain treasuries, deposits, repos, and then you have this gap. If you want to be able to mint and burn the stablecoin, you have to wait and kind of go back to the existing system. I'm excited to see potential in the future where you could have stablecoins where they're backed by tokenized treasuries and tokenized money market funds and tokenized deposits, and you could have more of a seamless 24/7 mint and burn. Being able to have a corporate, like you said, hold a tokenized treasury up until the moment that they want to make a payment, and then convert into a stablecoin to make that payment. So I'm really interested to just see how these different tokenized forms of money and assets start to move between each other and be used as reserves, but V, how do you think about this from the legal perspective? Is that is that what are all the barriers from being able to have better convertibility between those products?

TuongVy Le  47:52  

Yeah, I mean on on that point specifically, and what stablecoin reserves can be comprised of, I think there there probably will be some limitations once Genius is fully implemented, right? Like Genius limits what you can hold as reserves, but I agree with the more general point, and I hope that that's the direction we move eventually. Is that there's just less friction between all of these different products, and I, you know, I think as things natively get born on chain, like I think that'll start to happen more and more. That will naturally reduce a lot of the friction. Like I think you guys had a you had Theo Golden from Bailey Gifford on a while ago, and I I feel like this did not get as much attention as it should. 100% Yeah, it because it's actually such a revolutionary concept, and what they launched was a native fund, like a fund that is native to the blockchain, and that actually solves so many operational and administrative inefficiencies that exist now because you have to convert constantly between different forms and on-chain versus off-chain. But I think that that is where we are headed, right? And that will sort of realize like the dream of having things on chain, but we're not there yet. And you know, like I said, we'll think genius will limit the extent to which we can do things with stablecoins.

Sy Taylor  49:17  

I came out of my chair when you said that because exactly the same thing. People have heard of Franklin Temple Turn and Wisdom Tree, and people have been doing things, but Bailey Gifford just doesn't get the same headlines, and it's it's a fund that went all the way on chain. And they've been I've known Theo for many years. He's been working on that for like seven, eight years to try, and he just went straight there, and he's been at it consistently. And you talk about you know all kind of all of these issues with tokenized stocks and what do I really hold? Is it an SBV and is it a trans? Who's the transfer agent and what are what are my ownership rights? And then the DTC is coming in and they're making digital twins. This is the fund, and the fund itself is on chain, and I think that's. I just wanted to underline. Thank you for pointing that out because I think so many people missed it. If anybody's interested, it was on episode 89 of the podcast where we had Theo on. Strongly recommend checking that out. V, thank you for bringing it up. There's one last point I want to leave us with, which is: could you just do cross-margining as well with these tokenized money market funds, because we know that MMFs and treasuries they are collateral in financial markets. That is what I park at the DTC. It's what I park with CLS. It's what it's the default collateral. But the problem is that collateral was getting stuck, and it was staying there over a weekend. It was staying there overnight, but if this is instantly redeemable and it can be swapped for something else, can I just move it as my position changes at the DTC? Can I move it to Euroclear? Can I move it somewhere else as well? So I think there's a capital markets use case there that could be really interesting. Bunch of stories we didn't have time for this week. Mastercard closed its 1.8 billion dollar acquisition of BVNK, so shout out to those guys. In a completely unrelated story, Visa announced a stablecoin pre-funding and payouts partnership with ZeroHash. You can check out our exclusive sit down with the CEO and founder on the tokenized YouTube. Shout out to Kai for running that interview there, and that's why you should check us out on YouTube. We slightly have a lot more content going out there than you would realize. And of course, Denari launched their tokenized S and p5 100 stocks for U S self custody wallets using USDC, and we'll have the the CEO and founder of Denari coming on the show soon. So tokenization is coming. Tokenization is inevitable, and this is why we called the show tokenized. Thank you so much, everybody, for watching and listening. Thank you so much, Natalia, for being on the show. Felt like this was long overdue. If people want to learn more about you or Nova, where do they go to do that?

Natalya Thakur  51:56  

You can find us at Nova Finance, our website, and for me, I'm on LinkedIn and Twitter.

Sy Taylor  52:03  

Represent LinkedIn. I'm V. How about you and Veda?

TuongVy Le  52:07  

Veda's at Veda Tech, and I'm the GC. You can also find me on X and LinkedIn.

Sy Taylor  52:14  

And Kai Sheffield

Cuy Sheffield  52:15  

on X Kai Sheffield visa.com/crypto.

Sy Taylor  52:19  

Find me on all of the socials at sytailor screaming into the void at fintechbrainfood.com, and of course at tempo.xyz, where you can check out some of the research reports we're doing, which is most of what I enjoy in my day job. I'd love it if you did, and you'll find a lot more of this show if you subscribe, if you leave a review. Please leave us that five-star review; it helps us massively. And please tell all your friends to check us out if they're into that tokenization kind of thing. Thank you very much, and we'll catch you next time.