Dialogue with Circle CEO How can USDC recover the market lost due to SVB’s bankruptcy?

How can USDC regain market share lost due to SVB's bankruptcy?

Host: Laura Shin, Unchained host and journalist

Guest: Jeremy Allaire, Circle founder and CEO

Translation: Qianwen, ChainCatcher

In this interview, Laura Shin and Jeremy Allaire discuss topics such as Coinbase’s investment in Circle, the regional adoption of USDC, the lessons Circle learned from Silicon Valley Bank’s bankruptcy, how to deal with the stablecoin launched by LianGuaiyLianGuail, the regulation of stablecoins in the United States, Circle’s tenth anniversary, and the upcoming launch of the CBDC in China.

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Laura Shin: Circle has recently been in the spotlight. You disbanded the Center Consortium, which governed USDC, and Coinbase invested in Circle. What is the reason behind this decision?

Jeremy Allaire: First of all, many years ago, we invented USDC, which made its debut in the world over five years ago. When we created USDC, we had a vision for a protocol for fiat currencies. At that time, they were not widely known as stablecoins, but they could operate on the blockchain, allowing for an interoperable value exchange on these open networks. Therefore, we had a series of ideas, and we believed that these protocols would benefit from the standards developed around them. At the beginning, it was important for us to be able to collaborate with other industry leaders to establish these standards, which would enable us and other industry leaders to share in the success of protocols like USDC.

In 2018, we were fortunate to form a partnership with Coinbase. This was a very important strategic partnership for both companies to drive the growth of USDC in the market. In this context, Circle issues USDC and we are a regulated electronic money transfer company.

But most importantly, at that time, there were regulations concerning remittances and how companies like Circle should operate. However, many aspects of stablecoins did not have true regulations to govern them, such as how to hold reserves, how to manage network security, and all the necessary governance and enforcement issues.

Therefore, we established the Center Consortium with the aim of self-management and governance of stablecoins, and we released more and more relevant policies. A lot has happened in the past five years. First, USDC has become one of the most important digital currencies and digital assets in the world, and our company has grown from a small company to a billion-dollar enterprise.

But the most crucial thing is that the laws have changed in the past few years. Governments around the world have expressed their intention to regulate stablecoins, such as considering stablecoins as part of a prudential regulatory framework, which is the regulatory framework of the central bank and the main regulatory agencies of the payment system. So, I think the essence of this change is that the governance model has shifted from self-governance to government governance.

Therefore, we are collaborating with Coinbase to research how Circle can continue to build and innovate, and do what we need to do as an issuer or operator, while complying with the emerging global regulations on stablecoins and stablecoin issuance, ensuring that we can follow these guidelines. In addition, we can continue to provide strong economic incentives to make this work as successful as possible.

Therefore, our move is to ensure that Circle has complete autonomy in the development and operation of USDC, while ensuring that we can respond to the emerging new stablecoin regulations around the world.

Laura Shin: My understanding is that the consortium model is a very crypto model, which is more suitable when USDC has not yet developed. But now, there has been a significant change in the conversation, with regulators and legislators paying attention to this issue, so there is a need to shift to a model that can adapt to existing regulations. The news about this arrangement has sparked speculation, with some believing that Circle is preparing to be acquired by Coinbase. What is your focus as CEO? Is it going public? Or being acquired by a company?

Jeremy Allaire: There is no doubt that we are moving forward on an independent path. Over the years, we have received help from many strategic investors. For example, recently, BlackRock invested in us. Owning shares in the company ensures consistency in products and value. I hope that Coinbase can play a role in our long-term success in addition to generating revenue through USDC. I think it is a win-win situation.

This year is our company’s 10th anniversary, so it is an interesting year for us. But when we founded the company 10 years ago, I made it clear to my investors and employees that it would take decades to achieve the company’s vision. Now there are over 100 billion stablecoins in circulation, with a large number of transactions taking place, but they are just beginning to penetrate the financial system. So there will be a huge market in the future, not just about currency circulation, but representing and storing currency in this form. There are $25 trillion in electronic tokens in the world, in various formats.

As for the utility of programmable currency and the utility of frictionless exchange media, we are just beginning to see their value. So, I want to say to everyone that although our revenue and profits are substantial, we are still an early-stage company. When I think about what I am working hard on and the company we are building, I envision a strategy of decades.

Laura Shin: You recently announced that Mercado Libre, the largest e-commerce and payment company in Latin America, will adopt USDC. What impact do you think this will have on Circle?

Jeremy Allaire: Mercado Libre is a great company that has paved the way for modern commerce. In Latin America, they also play a very important role in the payment field. This also reflects the growing demand for global digital currencies in regions where the local currency is not performing well. The first phase of this project will be launched in specific countries in Latin America, and then it will be promoted on a larger scale.

When we talk about the adoption indicators of stablecoins, we often say that they are only used for DeFi trading, arbitrage trading, or speculation. But our vision is that stablecoins are fundamentally a means of providing a dollar-denominated store of value for those in need, and an efficient cross-border payment mechanism for those in need. This is why partnerships with mainstream companies like Mercado Libre are important. Mercado Libre has around 200 million users, which is a huge number. Therefore, what we are considering is how to increase the number of wallets that can transact in USDC. This partnership is significant, for example, Coinbase has over 100 million wallets that can transact in USDC, and MetaMask has 30 million users.

For more and more wallets, traditional fintech companies, commercial companies, digital wallet companies, as well as the next generation of account abstractions and smart account wallets that people are creating and building, this will be a killer application, making all these things accessible and providing more and more avenues for people to use USDC.

Laura Shin: I want to ask about the use of USDC by Mercado Libre. For example, if I’m in Chile and I buy something on Mercado Libre, the price is displayed in Chilean pesos, but is it also displayed in USDC? Are users aware of or recognize this?

Jeremy Allaire: I don’t know the specific details of the user experience. What I do know is that their customers have a great demand for holding and transacting in dollars. Therefore, this is indeed a very powerful way to transfer more of their customers’ value storage into digital dollars. And stablecoins, or more specifically USDC, come into play. What makes them interesting is that they have broad coverage and interoperability.

I imagine living in a world where I have a digital wallet, I’m in the Philippines, but I know someone in Brazil, or someone anywhere else, and we have an open network where we can directly transact peer-to-peer. That’s where the real power lies, and I think partnering with Circle will ultimately unlock tremendous potential.

Laura Shin: You mentioned on Twitter that 70% of USDC usage comes from outside the United States. What do you think are the driving factors behind this? Do people want to store value outside the dollar-dominated currency system, or are there other considerations?

Jeremy Allaire: First of all, the entire blockchain ecosystem is highly globalized, with a lot of activity in the market. If you need a trusted and redeemable digital dollar, USDC is a good choice, and it also aligns with the overall growth of the international market. Of course, we also see a significant increase in demand for storing value in dollars from emerging markets such as Latin America, Africa, and Southeast Asia. In these places, we see many startups launching new products and establishing partnerships with these large global companies.

Why does the US government care about stablecoins? Because, in fact, it makes digital dollars once again a powerful export product of the United States, enhances the country’s soft power, and strengthens the economic interests of families, businesses, and the government itself. Therefore, the continuous adoption of stablecoins (especially when they are well-regulated, compliant with laws, and supervised) aligns strategic interests between national economic interests and foreign policy interests. Of course, this is controversial in the eyes of some, but it is a fact.

Laura Shin: Circle has just released a new programmable wallet, please give us a detailed introduction.

Jeremy Allaire: USDC itself is a protocol, it exists as a dollar protocol, and any developer can develop and add plugins on top of it. This has already happened, all DeFi wallets, custodians, and various different products and services can integrate into the protocol, they know that I can securely store, trade, and settle dollars for my users. Therefore, the success of USDC is largely built on cooperation with developers, working with developers who are trying to create value, because they need a trusted stablecoin. As a company, we can do more.

Last year, we spent hundreds of millions of dollars to acquire a company that we believe has excellent technology in blockchain deployment, smart contract management, wallet processing, and wallet security. To give an example, Amazon built its own e-commerce infrastructure and then said, we will take the infrastructure behind it and developers can develop on top of it. This way, web developers can easily create online applications, and thus Amazon Web Services was born.

If you are a startup or a large company looking to build an application integrated on the blockchain, you would definitely want to not worry about managing infrastructure, security, operations, and compliance, which are all very tricky issues. You just want to focus on providing a delightful user experience, and that’s a big demand, it comes up a lot in discussions about developers and the developer ecosystem on the blockchain, and it’s really important.

Most importantly, how many developers can easily build an application that integrates the blockchain and allows their users to securely hold (whether it’s NFT tokens or stablecoins) and make payments? Today, there are very few developers who can do this. There are about 100 million developers in the world who can write software, and only about one-fifth of them can develop on the blockchain. We have to dramatically change the ease with which these developers can build, operate, and run such applications and services.

So for us, this is a tremendous opportunity that aligns very well with our work in stablecoins, whether it’s for business applications, financial applications, or consumer applications, whatever it may be, all these applications need to use currency, they need to transfer currency. We can make this experience seamless and leverage blockchain infrastructure, EVM, and other abstract technologies. We can make it so simple that it increases the number of useful applications. If we can increase the number of useful applications and integrate them into our protocol (like USDC), we can increase the utility of the network. If we can do that, we can create a lot of value.

Therefore, this is a new source of income, with a very affordable price, and users can directly enter and use it. And this is a true self-service. So, it actually brings me back to my original intention, although many people don’t know that my career started with building developer platforms, programming languages, and some of the most popular web development tools in history. It was back in the days of Web 1.0 and Web 2.0, so I really like this kind of product. I think this is a very important moment.

This also means a shift for Circle, from focusing on stablecoins to wanting to become a platform-oriented enterprise.

Laura Shin: Circle is going to issue on six new blockchains. Is this demand-driven, like you see developers or DeFi builders having this demand, and how do you make these decisions?

Jeremy Allaire: First of all, there are obviously hundreds of blockchains in the ecosystem, and it is impossible for us to launch native USDC on hundreds of blockchains, not to mention that there are many dead blockchains in reality. At the same time, there is a lot of innovation happening in L1 and L2 right now. Given the actual number of applications I just described, and the actual number of users of these applications, we are still in the mature early stages.

But it is very likely that in the next few years, you will see adoption follow a power law curve. You will see that maybe there will be five different layers, and L1 and L2 will occupy 80% of the market share. The innovation and competition are very fierce, with new architecture emerging constantly, but there are still many challenges to be solved in terms of privacy, security, scalability, and so on. We hope to be able to participate in this. We will continue to experiment on the chain. Meanwhile, the other products we are developing are to help users develop a multi-chain application. Therefore, our web3 services and smart contract platforms will all be multi-chain oriented.

In addition, we are also working hard to solve the interoperability problem, which is a huge problem. Now, there are multiple Layer 1 and Layer 2 solutions, and we already have a bad way of transferring assets, which is cross-chain bridges. The process is like this: after locking the USDC, wrap the USDC, and the wrapped version of USDC moves on these bridges. This method is slow and exposed to hackers, so many high-profile hacker attacks happen on cross-chain bridges.

In fact, USDC is the most used asset with cross-chain bridges. Therefore, we have built and launched a USDC cross-chain transfer protocol called CCTP, which allows users or developers to build applications to remotely transfer USDC from one chain to another without the need for bridging. No locking action is required, and no additional fees need to be paid, such as paying liquidity providers for token transfers.

We can do this because we are the issuer of USDC. This means that if I have USDC on Arbitrum and I want to send USDC to a wallet on, for example, Optimism or Ethereum, I can do it directly: the USDC on one side of the blockchain will be burned, while the USDC on the other side will be minted. This is faster, safer, and more efficient, so it is an important way to provide secure and interoperable digital currencies.

If I am a end user, I have a wallet, and I really don’t want to care about the first layer, the second layer. I just hope that the process of sending and receiving USDC is secure. As protocol developers, we are building new protocols to make it safer and more convenient for people to use digital currency on these networks. Not long ago, we launched these new blockchains and added more routes for CCTP. All of this is to make it the most useful and secure digital currency on the blockchain network.

Laura Shin: Circle recently faced a life-or-death moment when it had $3.3 billion in reserves locked in a Silicon Valley bank, which later collapsed. Since then, USDC has been losing market share to Tether. What strategies have you taken to recover from the loss?

Jeremy Allaire: I think it is important to understand how our infrastructure works. One thing we are proud of is that we have the most transparent market infrastructure information disclosure. We disclose all the banks we work with, as well as detailed information about every bond and treasury bill we hold, down to the serial number and date. In fact, we now have about 94% of our reserves deposited in a Circle Reserve Fund managed by BlackRock. If you search for the stock code usdxx, you can see all the information every day. So, you can have a precise understanding of its security. This is a compliant registered infrastructure, and no company in the market can do this. Therefore, we have a high level of security and transparency.

The second part is to think about what happened. I think the industry is bound to experience some very dramatic things. Of course, our experience is also very unique because our specific risk exposure comes from a bank, a large listed bank with $170 billion in assets, which experienced an unusual run on the bank in 48 hours. But this has nothing to do with cryptocurrencies. When the run happened, it was disclosed that their balance sheet had suffered huge losses. Goldman Sachs’ financing for them also failed. It was an impact on the entire U.S. financial system, and there are still banks collapsing because of similar reasons, but until the day before SVB Bank collapsed, they were still highly rated financial institutions, which was a huge shock for most people (except for certain hedge funds that shorted them).

We have been working hard to improve the infrastructure development under USDC, which means more and more banks allowing USDC transactions. For example, in this crisis, three banks collapsed in just 10 days. Two of them were important banking infrastructure for almost all companies in the industry, so almost overnight, the needs of more than 5,000 companies around the world were affected. Therefore, regulatory pressure on banks is increasing. These companies include cryptocurrency and digital asset companies, e-signature companies, etc., they just disappeared.

Before that, we created the Circle Reserve Fund and established a strategic partnership with BlackRock. By the first quarter of this year, we have transferred over 80% of our reserves to this fund. Therefore, for the first time in the stablecoin field, you have a secure, regulated structure that includes all protective measures, maintains transparency every day, and ensures safety. We will also continue to maintain about 20% of cash so that we can meet the highest level of daily liquidity needs at any time.

In the digital asset industry or the cryptocurrency industry, you can’t open an account like going to a bank. It is very difficult to get support from a bank. Circle has no choice. If we were Microsoft, we could decide which bank to place our cash assets in, but this freedom does not exist for us. However, we have made great progress and are able to promote the use of GSIB (Global Systemically Important Bank) as the infrastructure behind USDC. In fact, we just started promoting this business a week or two before SVB collapsed.

So we are very lucky that despite these events, we are able to put everything in the safest place in the world. All cash is in the world’s safest and most important cash dollar cash custody system and trusted reserve fund structure. Therefore, from another perspective, we have the safest and most transparent digital token on the Internet today, which is unprecedented. We are just continuing to do what we have been doing, improving market infrastructure, transparency, and so on.

Another thing I want to say is that the entire industry is becoming debanked, and its impact continues. As you may have heard from many people, this has become a major issue. What we have been doing is that we have invested heavily in establishing a global liquidity and settlement network for USDC. We are establishing online banking partnerships with high-quality banks in major regions around the world, which will create and exchange USDC liquidity in local markets. So you don’t need to rely on banks.

I think this is like market infrastructure, investment. We are able to do these things, and the only reason banks are willing to work with us is that we are a compliant, transparent risk management company, not a black box like some of our competitors.

I think we have been influenced by a concept, which is partly due to the multiple banking crises in the United States and the SEC’s security lawsuits against major US cryptocurrency companies, which occurred in about 8 weeks. Therefore, the reaction of other countries in the world is that it is unsafe to be exposed to the United States, it is unsafe to keep money in institutions associated with the US banking system, and it is unsafe to cooperate with companies supervised by US regulatory agencies. What we see is a behavior of avoiding security. In fact, other companies would say that we will not touch the United States, but in the long run, this is not sustainable.

If you closely follow these issues, you will find that significant progress has already been made. The Federal Reserve is introducing regulatory frameworks for banks dealing with cryptocurrencies, regulations for stablecoins, and major financial institutions are deepening their involvement in this area. Therefore, the ultimate situation is quite the opposite. I believe that the ultimate situation will lean towards security.

There is also a very important point, which is that our business is cyclical. When interest rates are zero, a large amount of capital flows everywhere, including funds flowing into cryptocurrencies. If you have capital, you can make various investments and other activities in the blockchain ecosystem, achieving significant growth in stablecoins. Conversely, now that interest rates are rising at a pace unseen in decades, if you have $1 of electronic assets and know that you can earn a 5.25% interest rate somewhere, you would definitely choose to access the US banking system (tradefi) system. The supply of stablecoins is inversely proportional to interest rates.

In fact, we are in an interesting situation where Coinbase and Circle have good banking operations. We actually provide a way to exchange one-to-one with banks for free, and we have the tradefi layer. This is one of the reasons why people like USDC and one of the reasons they trust this product. And withdrawals are also easy. It is difficult to withdraw from certain other products, but it is easy to withdraw through USDC. But I think the broader impact is the macro-cyclical impact, namely that we generate a lot of income in a high interest rate environment. We just disclosed our revenue and earnings for the first half of last year, which can be said to be very substantial. Therefore, although we have issues with circulation, we still see very high annual growth and cash flow, but this is fundamentally a macro-cyclical issue. Therefore, I think I am thinking about this from a long-term perspective, that is, building the best infrastructure, building the most compliant and regulated infrastructure, building the best banking infrastructure, doing things in the most transparent way, and making it serve any company, any fintech company, and developers to create great things, and other things will follow.

There will also be macro-cyclical factors. As interest rates decrease, you will enter a neutral interest rate environment, and people will start to shift their use of the US dollar. It is worth noting that since interest rates started to rise in April of last year, banks have lost $1 trillion in deposits, with $800 billion flowing into money market funds.

Laura Shin: LianGuaiyLianGuail recently launched a stablecoin. They are giants in the payment field. How does Circle plan to compete with them?

Jeremy Allaire: First of all, on the day they launched, I congratulated LianGuaiyLianGuail and LianGuaixos because it was a great collaboration for LianGuaixos. It is very exciting for us to see a major mainstream payment company embrace a USD stablecoin.

I believe this is a very clear signal that regulation on stablecoins in the world has become relatively clear, and large companies are entering this market. With the implementation of regulation, this is the world we hope for – an open, free market of competition. With regulation in place, the market will also have a safety bottom line that everyone can rely on.

Now, as far as our competition is concerned, my final concern is competitors, and more attention is paid to what we believe is truly valuable, important, and relied upon by people. The reason why USDC is so successful is partly because we are a neutral infrastructure company in the market. We do not compete with merchants or retail users. We don’t have consumer wallets. USDC plays a dollar utility on the Internet, and we hope to work with a large number of different companies to build on this. I think this makes us unique. I think LianGuaiyLianGuail also has many good partners. They have licenses to charge merchants for credit card usage fees, and they also have licenses for end users.

Many people may think this is competition, but it is not. We have established good cooperative relationships with many companies, which may compete with each other in different ways and rely on and use USDC differently. But we hold a neutral position in the market. What excites me is that we have made a lot of progress, such as 12 months ago, the number of mainstream companies we worked with was much smaller than it is now. We are also continuing to increase influential and important partners, which is the most important.

Our strategy is also unique, such as building a developer platform, building infrastructure platforms, and building protocol layers. This is the way we want to develop. Therefore, we are confident in our positioning. We believe that we can continue to play an important role in certain markets, but we also welcome competition.

Laura Shin: Let’s talk about regulation. In late July, a highly anticipated stablecoin bill, which was believed to have bipartisan support, was rejected in the House Committee and only received support from the Republican Party. At that time, you made some remarks in the House Financial Services Committee about what improvements you think should be made to the bill. Before we discuss your specific suggestions, please tell us what aspects of the bill you liked?

Jeremy Allaire: I think there are two points. First, the bill was indeed pushed forward with bipartisan support, and it definitely has support from both parties, but it did not have the support of the committee chair. There were five Democrats and Republicans who voted in favor. I think the bill accomplishes a lot, and this legislation is what the public wants. The Federal Reserve, the Treasury Department, Congress, and the White House all want it – this is a top priority set by the government – we need stablecoin regulations in the United States.

Therefore, this is the top priority of the country. People are working hard to accomplish this task. The United States is just taking the lead globally, going to the G20 and saying that everyone needs stablecoin regulation, and everyone agrees and wants to implement it. For example, Hong Kong is doing it, Singapore, Japan, and the European Union have already started, and the UK is about to legislate. The legislative process in the United States is relatively lengthy, but everyone wants to enact legislation. So the possibility of establishing relevant legislation is very high, but I don’t think the specific bill passed by the committee will be signed into law at this time because there are still some important key issues to be resolved for the government and the federal government.

So this largely depends on what else the FED can do besides setting standards? What else can it do? The responsibility of the Federal Reserve is to set a bottom line and establish all requirements. But I think there are some debates on the details, such as whether the FED can veto who gets a license? Or does the FED have any specific supervisory role? Does the FED have any joint or dual supervision role? This is a bit like academic discussion, but in fact, it is very important, as it relates to the relationship between state power and federal power, as well as the balance of power.

Returning to your question, overall, one thing I like about it is that it creates a clear path for the issuance of stablecoins by banks and non-banks. It creates a role for states and the federal government, setting very clear and high standards in terms of prudent regulation and supervision requirements. It has very specific requirements for reserves, transparency, risk management, and so on. It effectively creates legal certainty, meaning that stablecoins are part of the global financial system and part of the US dollar financial system, which means accountants know how to handle them, whether you are a listed company or a private company, financial institutions will be able to hold them just like cash or collateral.

It will unleash a large number of mainstream use cases. Therefore, it has many advantages. We look forward to seeing how the bill will progress in both houses. But we remain optimistic that the United States will eventually do the right thing and protect the interests of the US dollar on the Internet. As I have said many times before, the future of currency competition is technological competition, and Internet technology is the driving force behind this competition. This is fundamentally a question of whether you want to unleash the potential of an open network, free market competition, and the innovation and technological innovation of the private sector. And this is the competition method that the United States has chosen throughout its history, and it is also the reason why the United States is so powerful in the Internet and technology field. They have to make a choice, whether they want to compete in this way or follow the old path of authoritarian regimes and try to establish a monopoly system through money.

Laura Shin: In your proposal, what particularly interests me is your suggestion to modify the bill to allow stablecoin issuers to use Federal Reserve accounts. I guess your experience with SVB provides a basis for this request. How receptive are people to this idea?

Jeremy Allaire: In fact, even before the recent banking crisis, our company had a fundamental premise that when we founded the company 10 years ago, we believed we needed to move towards a full reserve banking system.

I have always been enthusiastic about the concept of a full reserve banking system, and similar economic ideas have emerged after the Great Depression. During the Great Depression, when banks across America were collapsing, there was a big discussion on how to deal with these failed banks. Two proposals were mentioned multiple times.

One is the Chicago Plan, which argues that we need to separate the payment, use, and lending of money. We need full reserve money, which is still sovereign money, meaning it still falls within the government’s purview. But it is fully reserved, and banks cannot create money themselves. They cannot use partial reserves. Banks can make loans, but only using fully reserved funds. This would lead to a safer financial system, reducing systemic risks and avoiding economic depressions.

The other view is actually the view of the banks, hoping to implement a fractional reserve system, but with the establishment of an insurance pool. If one of us fails, we can use their insurance funds to pay for the losses from the failure. However, we need to bear the risks, and that’s how the Federal Deposit Insurance Corporation (FDIC) came into being.

Then, after the savings and loan crisis in the 1980s, and after the financial crisis, after 2008, this issue has been discussed multiple times. That’s when I became really interested. All of this sparked my interest in cryptocurrencies. How does the fractional reserve banking system actually work? How do central banks make money? How can we improve it? I was interested in all of this even before I knew about Bitcoin.

I have always hoped for a model of a fully reserved US dollar. If we have the incredible technological capabilities of blockchain on the Internet, and if this amazing programmable currency can move at the speed, velocity, and efficiency of the Internet, then the ideal foundation for all of this should be a fully reserved currency. It should be the government’s debt currency, held in cash or short-term government debt (such as Treasury) by the Federal Reserve. Then everyone knows that this is the safest thing, and they will be willing to use it widely as a medium of exchange. This is the direction we are striving for. We are very close to this goal now. The only problem is that we have to keep cash in commercial banks. I have always been nervous about this, and the results have proven that our concerns are valid.

Now almost all of our cash is stored in one of the world’s safest systemically important banks, backed by the government. We still have a very secure place, but I do believe that by properly designing digital dollars and electronic tokens in the private sector, which is what we call digital dollars here, we can take full advantage of some of the benefits of central bank mechanisms.

Laura Shin: Do the people on Capitol Hill think it’s a good idea to include this step in the bill?

Jeremy Allaire: I don’t think we will see this in the bill because the banking lobby is strongly opposed to it. I think our reserve requirements in terms of assets have played a big role in ensuring the security of reserve assets, and you can achieve 98% security. This may be a point I will strive for in the future.

Laura Shin: Another suggestion you made is to define legitimate stablecoins and what you call counterfeit coins in the bill. Honestly, some of your previous comments made it seem like you were vilifying Tether (although you didn’t name names). When you talk about these “counterfeit” and “legitimate” coins, what is your definition?

Jeremy Allaire: Quoting Federal Reserve Chairman Powell, his view is that stablecoins are the creation of US dollar currency. It is the responsibility of the federal government to define what is the legitimate creation of US dollar currency and what is the true US dollar tool in the global financial system.

If from an accounting perspective, from the perspective of the balance sheet, everyone agrees that it is cash, then we should have a very high standard for it. If you claim to be a US dollar, but you do not meet the legal standards and requirements to become a digital dollar, you should not advertise yourself as such.

My personal view is that legal stablecoins around the world need to have consistent prudential standards. Basically, all central banks in these G20 major jurisdictions do this, and the laws in all these places are basically similar. Therefore, I think over time, we will definitely enter such a world: if you issue a legal digital currency, you must accept this strong regulatory regime, otherwise you will not be able to be used. I think this is the direction of development now, although it will take another two to three years, the situation is already very clear.

Laura Shin: As you mentioned in the previous conversation, these discussions are taking place all over the world. One country that is worth noting is China, and they have already launched a central bank digital currency (CBDC). I just want to know what your thoughts are and how you see the treatment of stablecoins and CBDCs between these two governments?

Jeremy Allaire: I don’t think China has specific regulations for stablecoins. As far as I know, they have not yet established specific new rules for the issuance of stablecoins in China. However, I would not be surprised if relevant laws are enacted. I think, given the current situation, the immediate priority for most national governments is to quickly introduce regulations for stablecoins.

European stablecoin regulations are becoming a model, but it is difficult to say when Europe will determine the issuance of CBDC. Japan’s stablecoin regulations have been in effect since June this year, but it is not clear whether there will be CBDC in Japan.

I believe the Federal Reserve has made it clear that they do not intend to issue CBDC at the moment. The priority is private sector digital currency initiatives. We need safeguards and rules, and we need a market that competes fairly with technology, innovators, banks, non-banks, and others. This is the priority. As every major jurisdiction in the world supervises private sector innovation in this area, I believe China has no choice but to unleash its creativity, technology, and competitiveness. Now, for global companies and others, privately issued RMB stablecoins may be more attractive than CBDC. For example, would large companies engaged in cross-border transactions with China want the government’s system to enter their own technology environment? Probably not.

Private intermediaries can be supported by CBDC, and I think this will also happen in the United States in the long run. We will see a comprehensive upgrade of the central bank’s core technological infrastructure. Then, private intermediaries will also be integrated. But fundamentally, it is still stablecoins, and the rapid and continuous innovation cycle brought about by open infrastructure and technological innovation. Then it touches on so-called retail investors, directly contacting companies and end users. I think a similar situation may also arise in China in the future.

Laura Shin: Do you think in the United States, these developments will happen quickly enough for the US dollar to maintain its global reserve currency status?

Jeremy Allaire: I think the United States needs to take proactive action now, and releasing competitive digital money on the Internet is one of the best things the United States can do now. I certainly raised this point in my testimony, and I personally proposed this point to many people in Washington. It is a very clear thing that can be done because it means fighting for global users, companies, families, and other people who use mobile devices.

I believe the US dollar is still the most flexible and attractive reserve currency in the world. It is still the safest asset in the world. I believe that if the United States is willing to support the changes needed for the security of the US dollar, this situation will definitely continue.

Laura Shin: In addition to the suggestions you have previously made regarding stablecoins, do you think there are other jurisdictions where stablecoin regulations can serve as a reference for US legislation?

Jeremy Allaire: Some places are proposing that stablecoin issuers directly use the central bank’s clearing facilities, and I have also proposed this to the US government. I think this would be a positive step. Also, for example, some regulations in Japan are effectively dealing with various forms of reciprocity between stablecoins issued abroad. I think this is also very important, that is, we can obtain equal treatment of USDC in various jurisdictions. In this way, if I am a company or I operate in the capital markets in Japan, Japanese regulators will recognize the status of tools similar to USDC in their market. As long as there is regulatory equivalence in various safeguards. I think this is a preliminary idea that we see in other jurisdictions, but currently, stablecoin legislation in the United States is not explicitly resolved.

This is a tricky question, but it will be iterated around this issue. Ultimately, because these are all digital assets that can be moved on the Internet, the problems are very simple, such as where to store the private key and who holds it. I think cross-jurisdiction is a must-consider issue. I hope the United States can consider this issue more.

Laura Shin: You tweeted that you believe cryptocurrencies can unlock better KYC tools to address issues such as anti-money laundering. Can you explain in detail?

Jeremy Allaire: In the FTX bankruptcy case and the BlockFi bankruptcy case, customer information related to them was leaked. Why does this kind of thing happen? If you are a financial institution, the operation of AML and KYC rules is that if you are interacting with another financial institution, you must exchange personal information of your customers with it, and you must exchange this information with all these different financial institutions, whether they are a startup financial technology company, a giant bank, or a broker or any market participant. Like this, your personal information is widely disseminated. Of course, there are numerous interface standards, security standards, and protection standards. But ultimately, your personal information is spread everywhere.

Crypto has many meanings, one of which is cryptography, and cryptographic innovations are constantly happening, allowing proofs to be made without sharing information. Zero-knowledge proof is the most commonly used method. There are also other types of cryptographic proofs that can issue verifiable certificates, which can be presented to one party. For example, they can say that you have a KYC certificate, and this certificate is issued by a legitimate company that complies with strict standards and knows who their users are. I can trust this certificate without you providing information about all users.

Therefore, using cryptographic proofs, using digital credentials, these cryptographic credentials allow people to interact more securely without leaking private information. It also allows for selective disclosure of information. The most common example is, if my daughter walks into a bar, why does she have to provide her address and name to the bartender? Why can’t we prove that we are adults? Why can’t we show a credential in a digital wallet to prove that I am of legal age? And prove that I am the holder through biometric authentication? So all of this is closely related to cryptography. Zero-knowledge proof is becoming mainstream or potentially mainstream. We can better prove our identity without sacrificing privacy.

We can even let financial institutions exchange proofs without causing these vulnerabilities we have now. This requires, for example, the US Department of the Treasury to establish rules for any money laundering policies of financial institutions, or global institutions such as the Financial Action Task Force (FATF) to establish their standards to decide that we want to conduct more secure, more private, and more reliable identity verification. In this way, we can use encryption to solve these problems.

Laura Shin: The last question. You have raised many points throughout the program. Is there any specific message you would like to convey to regulators and lawmakers?

Jeremy Allaire: I think there are a few things. On the issue of stablecoins, I may sound a bit cliché, but I believe we are at a point where there is competition in terms of the competitiveness of the US dollar, national competitiveness, industry and market competitiveness. Although it is easy for us to have fraudsters, companies implementing Ponzi schemes, and then say that it is worthless, the reality is not so. I believe we are in a very strong framework that will have a huge impact on the competitiveness of our US dollar industry.

Another thing I want to say is that there is a trend, not only in the United States but also worldwide, that blockchain technology is always seen as a financial technology. I think decision-makers must understand that we are talking about general internet infrastructure, general internet computing, infrastructure, data, infrastructure, which is a very important general infrastructure. This is important for many industries and categories. Therefore, when dealing with this infrastructure, we need to realize that it is not just a financial regulatory issue, but about the next level of the internet, and we need to treat it correctly.

Policy makers sometimes include everything from their perspective of financial regulation when formulating policies. This is not a good position. I think it is inaccurate. Therefore, I think there is indeed a need for more and more understanding. So, I hope that policy makers and their staff can have a better understanding of the computer science behind this network technology, because that is where the real value lies.

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