How Stablecoins Became a Powerful Force in Crypto

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:16)

So Tracy, here's the thing that I've been thinking about a lot with respect to crypto. In the early days, when it was just Bitcoin, maybe a few other coins, seemed like there was this sort of pirate mentality, cypherpunk. The Silk Road was one of the first apps where people actually used crypto.

But it feels like as the industry's grown up, the effort to avoid or evade the existing regulatory system has really fallen into the background.

Tracy Alloway (0:41)

Yeah, I think that's right. I mean, I guess stable coins would be the prime example of this, right? And one thing about stable coins that makes them really interesting to me is that they're basically the way in which crypto or a big chunk of crypto actually interacts with the traditional financial system. So a lot of them have financial assets that are backing them. So they kind of interact with banks through their reserve funds.

And then the other question I have is if you're going to create a stable coin that has a bank charter and that invests a lot in traditional financial assets like T-bills or commercial paper, then what is the benefit versus going into something like a money market fund or just a bank deposit?

Joe Weisenthal (1:28)

Right, if you're going to interact with regulated institutions, which you implicitly are, if you buy a stable coin and the stable coin issuer holds money in a regulated bank, then there are going to be all kinds of rules. If you're going to interface, therefore, with a regulated finance, my question is, what is the point of crypto?

Tracy Alloway (1:45)

Yeah, exactly, that's exactly it. And the other thing I would say is, there's been a lot of talk about stable coins this year because we had the big crypto crash and whenever that happens, we tend to see some disruptions, I guess, in the pegs of a lot of stable coins. And of course, the famous example this year, well, there were two, but we had the algorithmic stable coin, Terra slash Luna, which basically crashed and died, but we also had Tether. And there are lots of questions swirling around Tether, whether or not it can hold its peg.

But of course, those are only two stable coins within a very vast ecosystem of stable coins. And today we're gonna be talking about another one.

Joe Weisenthal (2:27)

Yep, we are. And so, Tether is the biggest stable coin that's out there, but close on its heels, and maybe even more important in the world of DeFi is the USD coin, USDC, which is issued by the company Circle. And it's extremely powerful. It's really big. It's growing in influence. It may surpass Tether very soon or very plausibly at some point.

So I'm very excited to say that we have the founder, the co-founder and CEO of Circle on the podcast as our guest, Jeremy Allaire. Thank you so much for joining us.

Jeremy Allaire (3:04)

Thank you guys. Super excited to be here.

Joe Weisenthal (3:06)

I'm really excited about this conversation because I just have like, there's so many questions, so much interest in stable coins. But to start off, what is Circle and how does Circle make money?

Jeremy Allaire (3:17)

Yeah, so first of all, just very quick backdrop. We started Circle. I co-founded Circle nine years ago.

And the basic idea was, and my background before Circle was starting internet, software platform companies, software infrastructure companies working in areas like delivering software on the internet, delivering media on the internet, delivering communications on the internet. Always interested in how public internet infrastructure could change the way certain things happen. Like now you guys do this podcast instead of just writing. So I was really drawn into crypto technology and what this was 10 years ago, and then crystallized the ideas behind Circle nine years ago. And it was actually interesting hearing your introductory remarks, because when we started, it was actually right when the federal government said, hey, if you want to interact between the banking system and these virtual assets, you got to be regulated as a money transmission company. And that was the first regulation actually was then. And that's when Silk Road was taken down. But we were coming into this with this idea, which at the time we called a hybrid model of digital currency.

And the idea was, how could we take what we think of as traditional money, i.e. government debt money, and sort of represent that as a digital currency, but operate it on these new public protocols, on these new public internet infrastructures? Because I had sort of seen these public infrastructures enable free global communications and seamless distribution of software to any internet connected device. And all these transformations have happened in data, software, and media communications. And I thought, wow, if you had public infrastructure that's all built on open source and anyone can run the nodes, and you could have a way to provably represent something and transact it directly between nodes on the internet, that would be really powerful. So we got this idea of a hybrid model that connected the traditional banking system to these new public blockchain rails and infrastructure. And so we were always pursuing that.