Interview with Circle CEO by Fortune What role does stablecoin play in the cryptocurrency market?

Circle CEO interviewed by Fortune on the role of stablecoin in the crypto market.

Original Title: Circle’s CEO on the future of crypto regulation after the crypto winter and FTX’s failure in 2022

Translator: Qianwen, ChainCatcher

In the latest episode of Fortune’s Leadership Next podcast, co-hosts Alan Murray, reporter Michal Lev-Ram, and Circle CEO Jeremy Allaire discuss the differences between the crypto crash of 2022 and the late 1990s dot-com bubble, the value of cryptocurrencies beyond speculative assets, the future of crypto regulation, and how Circle’s collaboration with the United Nations empowers Ukrainian refugees through USDC.

Michal Lev-Ram: We’ve all heard about the crypto crash of 2022, with $2 trillion evaporating overnight. The FTX collapse triggered a series of headlines and other collapse events. In June 2022, the price of Bitcoin plummeted to $18,000, just a year after reaching its all-time high of $69,000. So, what do we have left after the crash?

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Murray: I think we have a perfect guest to discuss this topic, and that’s the CEO of Circle. Last year, he also suffered from this disaster as trading volume on the Circle platform dropped by half. Unlike more speculative tokens, the stablecoin operated by the company, called USDC, is pegged to the value of the US dollar, and he believes it is an important part of the industry’s future.

Lev-Ram: Yes, Jeremy has been in the tech industry for decades. He mentioned that in his view, this is somewhat similar to what happened in the early days of the internet when internet traffic was relatively low but valuations were high. With the bursting of the dot-com bubble, there was a significant collapse in the early stages of development.

There’s an interesting thing worth mentioning about Jeremy. He has been advocating for cryptocurrency market regulation since the early days of his company, 10 years ago. At that time, many peers in the market scoffed at his approach. But after the crash, it seems that more and more people are standing on his side.

Lev-Ram: Yes, just like the early internet, more regulation can bring about a broader and more sustainable market. Clearly, larger companies will also join in, and we are starting to see that happening now, as Jeremy also mentioned. We also have the opportunity to talk to him about his predictions for the future of the industry and some very interesting applications. For some people, cryptocurrencies and digital payments are still seen as something evil. He will also talk about how Circle collaborates with the United Nations and non-governmental organizations to provide digital payment support to Ukrainian refugees through their stablecoin.

Murray: Overall, last year was a disaster for cryptocurrencies. You saw about $2 trillion of wealth evaporate, and after the FTX collapse, your company Circle, although performing better than most, still lost about half of its value. So, after all this, tell us what is left for cryptocurrencies? What will the crypto that emerges from the wreckage look like?

Circle CEO Jeremy Allaire: I believe that as someone who has been working in the field of internet technology for nearly 30 years, you have to examine all the cycles, that’s just their nature. You see, in each cycle, you go through a phase where capital and people flood into the investment sector, with many unrealized expectations. Then, when you combine these investment cycles with tightening financial conditions, especially when you are trying to solve technical issues related to financial assets, you eventually end up in a situation where you are basically facing a very bad situation.

We saw this in the rise and fall of the internet in the late 1990s and early 2000s. Taking history as a lesson, where are we in our current development? We see a lot of value disappearing by half or 80%. But you also see the other side of things, such as those companies with sustainable development capabilities retaining their strength, and governments, regulatory agencies, and other aspects reacting. I think this is very constructive and positive. And then, we also see the output of technological investments.

If you only look at cryptocurrencies, for example, 2017 was a bullish market, 2018 was the crypto winter, and 2019 was a complete slump. But in reality, in 2017, a lot of technological investments were made, and in 2018, new things started to emerge, which are catalysts for growth in the next era.

Murray: Yes, let’s talk about the first part and then discuss the regulatory issues. I understand what you mean, it’s a stimulus for investment. But what we have learned in this process is that cryptocurrencies are very suitable for speculation. Besides being a speculative asset, how much do we know about its other potential value?

Circle CEO Jeremy Allaire: I think there are a few things. First is how to deal with traditional currency. In other words, how can government debt be represented in the form of digital currency and how can people operate traditional currency (not some newly invented currency or new tokens tied to someone’s invention) on the internet? Despite the impact of factors such as interest rates, people still have the intention to save money in banks, but we have also seen a significant reduction of nearly $900 million in bank deposits and a significant increase in the number of people depositing money into high-yield money market funds.

In terms of stablecoins, we also see similar dynamics. What we see is more and more developers, companies, fintech firms, and remittance companies using this infrastructure to build more and more things. Therefore, for us, the benefit is fast, global, and interoperable USD settlements, and you know that the USD is a strong currency.

On the other hand, the demand in emerging markets with weak currencies remains strong. Companies like SAP are integrating USDC settlements into their corporate payment methods and integrating them into some of the world’s leading remittance companies, making them core settlement services like MoneyGram. Some large companies are also taking action, such as Visa and Mastercard announcing the use of USDC as a settlement measure. This technology has made significant progress.

Since we held a large-scale event in September last year, this has been our mantra, which is to bring real value to the real world with technology. We advocate that we must move from the speculative value stage of cryptocurrency to the practical value stage. And the practical value stage must be rooted in real currency and real technological usability. I think this sets us apart from many other companies that have been focused on speculative investments, creating trading exchanges, and trying to get people to buy the latest tokens.

Lev-Ram: Can you tell us more about USDC? Also, besides USDC, we also have other stablecoins. Can you talk about the deployment and application of stablecoins?

Circle CEO Jeremy Allaire: The fundamental vision behind USDC can be traced back to when we founded the company 10 years ago, when our idea was that you can represent what we consider traditional currency, which is government debt currency, in the form of digital currency. People can use them on the public Internet through open protocols, just as we establish protocols for email, web information exchange, or voice calls, where any device can connect to these protocols to enable the flow of information and communication.

Therefore, about five years ago, we launched USDC. It is essentially a protocol set for the US dollar on the Internet. Technically, this was not possible ten years ago, and it only became truly possible five years ago. First, we had already become one of the most regulated companies in the industry at that time, working with payment and state banking regulatory agencies throughout the United States to obtain licenses for electronic currency services. Similarly, in the European Union and the United Kingdom, we can also issue products considered to be stored value electronic currencies. Just like using LianGuaiyLianGuail, Cash App, or traditional remittance products like Western Union, basically, these electronic currency units are regulated.

Many people’s first misunderstanding is that these products are not regulated. In fact, we have been regulated for a long time, and it is through collaboration with regulatory agencies that we have been able to launch this product, rather than being tied to specific companies or wallets. As a medium of transaction on the Internet, we have completed over $11 trillion in transactions. What I want to say is that we are still in the early stages of development, and the future is full of possibilities, just like talking about how big the internet traffic was in 2002 and then imagining how big the internet traffic will be in 20 years. In my opinion, this is still a very early technology. But it is entering what I call the broadband moment, and many things have contributed to the arrival of this moment.

Murray: Since the COVID-19 pandemic, our views on work, workplace, working hours, and working methods have been constantly changing. Is this a problem for companies? Or is it a huge opportunity for companies?

Girzadas: This is a huge opportunity. Although I don’t think the answer is clear. What is certain is that it will bring a series of profound challenges. But ultimately, it may also shape a brand new workplace, especially in the face of longer-term systemic talent, labor constraints, and limitations, it can enable people to maximize their workforce potential, allow people to be truly themselves in their work, improve productivity, and experience everything they do. But I think these patterns are not clear. We have seen many attempts, such as around hybrid models, around how much remote work is truly implemented. This also has the effect of technology embedded in the workplace, enabling employees and work teams to feel supported and helped, and involves cultural elements such as diversity, fairness, and inclusiveness, how to make people feel supported so that they can be truly themselves at work.

The company will innovate around these factors and find novel ways to combine them, thereby attracting talent and achieving differentiation through workplace and workflow innovation.

Lev-Ram: Circle has always believed that companies and markets need regulation, which is not necessarily a popular view in the cryptocurrency community. So, can you give us a deeper insight into why you think the US legislation will specifically regulate stablecoins and the specific work you have been promoting?

Circle CEO Jeremy Allaire: This goes back to 10 years ago when the US government actually started regulating this. The Treasury Department issued regulations, stating that if you want to play a certain role between the banking system and these virtual currency technologies, you must be regulated as a financial institution. You must be responsible for knowing your customers, regulating transactions, dealing with terrorism risks, sanctions, tax evasion, and all these things. This was the law 10 years ago, which set a series of requirements for any company that wants to play a role between the banking system, blockchain, and digital assets. This is the starting point for the regulation of currency transmission and currency service. This is a big issue and laid the foundation for the eventual launch of USDC because it falls within that regulatory framework.

In the past few years, stablecoins have developed rapidly. Global regulatory agencies are paying attention to stablecoins and the cryptocurrency market. You can think of them as two different things. The best representatives of these trading markets are finance, specifically Coinbase and trading websites. Stablecoins are also an example, it is an innovation in payment systems and currency. A few years ago, global regulatory agencies began to worry that these things would grow and be widely used, and closely integrated with the existing financial system. Therefore, there is a strong demand for regulatory requirements, which was actually led by the United States.

The United States has been pushing for regulation through the Group of Seven and subsequently the Group of Twenty (there is an organization called the Financial Stability Board, which is responsible for supervising or formulating all G20 financial regulatory policies). The US government told Congress that we must do this, it is urgent, and Janet Yellen (US Treasury Secretary) said that, in essence, Congress taking action and enacting regulations is urgently needed, otherwise there may be a run on stablecoins, resulting in substantial losses.

In fact, we have already discovered significant problems and the risks have been confirmed. For example, the collapse of Terra and frequent Ponzi schemes. But efforts to promote legislation still exist, and since these proposals were made, what we are seeing now is that almost all major members of the G20 have either enacted or are in the process of enacting regulations related to stablecoins, including Japan, the United Kingdom, the European Union, Singapore, Hong Kong, the United Arab Emirates, and the United States. The US Congress may also enact a law specifically targeting the payment and stablecoin issuer community. So, there has been significant progress in this regard.

Murray: Last month, you mentioned that the United States must make a choice, whether to make the US dollar the foundation of Internet currency or to let other countries take the lead. Why is this point so important? Why should we care about it?

Circle CEO Jeremy Allaire: The prominent role of the US dollar has greatly benefited the United States. The US dollar provides low-cost borrowing for families and businesses. For the government, the US dollar creates a favorable environment for US global trade. It has created a mechanism of soft power worldwide. This dollar hegemony has existed for quite a long time.

However, this hegemony is now facing significant threats. We often hear about new alliances being formed to create alternative payment systems. Currency competition is turning into a technology competition. The question is, what do people want the currency of the Internet to be? Do people want it to be a digital dollar? Or do people want it to be a different currency, such as digital euro or digital renminbi? For the United States, it needs to both respond to this proactive threat and embrace the opportunity – in a regulated free market system, promote the vigorous development of electronic currency through good regulation and free market competition, and unleash the technological power of market capitalism globally, allowing the digital dollar to sweep the world through this technological revolution and become the foundation of the world’s next generation of business and finance.

Murray: What does the United States need to do to seize this opportunity? What are the requirements?

Circle CEO Jeremy Allaire: Specifically, the United States needs to establish a federal regulatory system for stablecoin payments (that is, digital dollars issued by private sector companies). These private companies ensure the security and stability of stablecoins by holding one-to-one assets similar to banks, while banks re-pledge the currency and bear currency risk. Therefore, it requires the creation of a fully reserved digital dollar system that can operate on this evolving Internet infrastructure. This is happening. Therefore, it is about establishing a strong federal regulatory standard, which the Federal Reserve can formulate, so that everyone in the world who uses these standards, whether it’s Circle, LianGuaiyLianGuail, or the next company that wants to do this, understands what these standards are. They are like cash on a balance sheet, the cash of an individual in corporate activities. Then, people can release the funds.

Lev-Ram: While progress is expected to be made in regulation, we also see more and more traditional financial players joining this field. What are your thoughts on this? Do you think companies like Circle are better positioned to lead the way? Obviously, traditional financial institutions have a large customer base and great influence. How do you view their role now?

Circle CEO Jeremy Allaire: Yes, I think this brings us back to the topic we were just discussing. Not long ago, a stablecoin bill was passed by the House of Representatives. In fact, Congress and the White House are currently negotiating some details. This sends a signal that regulation is happening. Therefore, as the situation becomes clear, major companies will start to join in, which is a positive development. This is also what the US government hopes for, that big companies will participate.

For us, it’s obvious that we are no longer a startup company. We have a 10-year history and our business scale is quite substantial now. But we also hope to have competitors entering the market and industry guidelines becoming clearer. My expectation is that this situation of financial institutions entering the market is not only happening in the US, but also elsewhere. For example, Japan has introduced new stablecoin laws. In the market, large internet companies, fintech companies, and banks are all trying to launch stablecoins. The European Union also has a model for launching stablecoins.

We believe that having a trusted, neutral market infrastructure is very important. That is our positioning, that we are building protocols, application interfaces, and trusted neutral components. We are not biased towards a particular blockchain, a particular exchange, or the payment business we operate. We want everyone to be able to use these things.

Lev-Ram: An interesting use case we encountered for stablecoins is your collaboration with non-governmental organizations and the United Nations to enable Ukrainian refugees to use USDC. Can you explain how this work is being done?

Circle CEO Jeremy Allaire: Fundamentally, the promise of this project is that anyone in the world with a mobile phone can receive, send, and transact with secure digital currency at the speed and cost efficiency of internet data movement, which is almost zero cost. This can drive true inclusive finance and reduce remittance costs, which is a special tax for those who need money the most, and it can actually open up better forms of humanitarian aid.

Therefore, we have an overall plan called “Circle ImLianGuaict”, a large part of which involves collaborating with global non-governmental organizations to make it easier for these organizations to distribute digital cash to the most financially needy people. For this purpose, we are working with multiple United Nations agencies, including the United Nations High Commissioner for Refugees, and we are also collaborating with many other top international non-governmental organizations, essentially enabling them to directly pay digital cash to people with mobile phones. These people are Ukrainian refugees, Afghan women, Venezuelan doctors, Syrian and Turkish earthquake victims. I mean, these are very important things.

I think global aid agencies are very excited about this because cash can easily lead to corruption and theft, so a lot of funds cannot reach the people who need them. And this payment method provides them with a way to achieve this goal. In addition, we also collaborate with global cash out providers such as MoneyGram, so no matter where you are, you can convert digital cash into local currency and cash.

Murray: You mentioned before that perhaps this type of transaction only accounts for 5% of the US dollar market or other markets. But what will the world be like in ten years? Will the world be better because of your actions today? Can you describe the social value of your project?

Circle CEO Jeremy Allaire: First of all, many of our views on the flow of funds will change, and it will basically be more like the development of the Internet – we no longer consider long-distance calls, we no longer consider sending letters, because we can access all the knowledge in the world without cost, and we can video call others directly. The same thing will happen with funds, the idea of cross-border payments sounds as absurd as the idea of cross-border emails today. In other words, funds will flow at the speed of the Internet, basically without any cost. Any device, any software, any hardware can be used. I think the impact on society will be enormous. I believe that if we can make funds flow in the same way, the speed of fund flow will also grow exponentially. And when you have a high-speed currency circulation, it will clearly lead to increased economic activities and economic opportunities.

Murray: A quick follow-up question, I live in Greenwich, Connecticut, surrounded by many luxury homes owned by those who charge fees/tolls in financial transactions. If your vision is correct, then these charges should be reduced, and these houses in Greenwich should be smaller. Is this our ultimate expectation?

Circle CEO Jeremy Allaire: I don’t know if the houses in Greenwich will become smaller, because that should be something the community needs to consider. But I think yes, the fee structure will change. The unit economy of media, communication, publishing, and retail will all change, and the quality of products will increase tenfold. Moreover, the net output of global economic payment activities will increase. Therefore, it will actually bring about the law of large numbers (ChainCatcher Note: In the repeated occurrence of a large number of random events, there is often an almost certain law, which is the law of large numbers), and some very important large-scale enterprises will emerge in this process.

I think there is a very critical part of the financial system, which is to expand credit, or what I call the time value of money, involving people who need money but don’t have it now, and people who have money but don’t need it now. I believe that this high-speed digital currency, combined with programmable things like smart contracts on the blockchain, will also give rise to powerful new means, allowing credit to be delivered to those in need, to the companies and households that need it, on a global scale.

Murray: Your views are inspiring. Now let’s step out of the crypto winter and into the crypto spring!

Lev-Ram, Murray: Maybe it’s the crypto summer.

Circle CEO Jeremy Allaire: When cryptocurrencies become popular, people will no longer call them cryptocurrencies. We rarely say “the Internet” anymore. We are just talking about the Internet or the main technology we are using. So I think the day it quietly enters our lives is the day it succeeds.

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