Shinobi – 00:00:00:
Hello everybody. This is definitely one of those topics that’s kind of divisive depending on who you’re talking to, but really glad to have this cast of characters here to discuss it. We have Paolo from Bitfinex and Tether, Nicolas from Galoy, and then Sam from I’m sorry, I’m kind of blank on the name of Hoseki. They work on a proof of reserves kind of application framework to make sure that people don’t fall in FTX, like just happened. But yeah, I guess stablecoins is one of those dirty things that just got built out of pure necessity in this space in the very beginning, because it was incredibly difficult for a lot of the exchanges and businesses to really have consistent access to fiat services, which is obviously something you need. Unless we get to that magical place where everybody’s just buying and selling in a circular economy with Bitcoin. So I guess to start, I kind of want to just get your guys thoughts on what are the risks in terms of incentive distortion in your minds of a platform that a stablecoin is issued on. Like we saw with the transition in Ethereum to proof of stake that USDC kind of just said we’re only going to support the proof of stake fork, we’re not going to honor or issue anything on the proof of work split during that event. What do you guys see as the risks present to a platform like Bitcoin if stablecoins were to be directly issued on the Bitcoin blockchain? And what are kind of the risks there versus the positives? If anybody just wants to jump in, I’ll leave you guys to anarchy.
Paolo Ardoino – 00:02:05:
I can start. Well, a little bit of history actually Tether, the first stablecoin was born in 2014 and actually used Omni Layer, that is a Colored Coin layer on top of Bitcoin. So after a few years was end of 2017, there was the ICO boom and then the bubble exploded. There was more and more demand to move stablecoins towards a blockchain that would have lower gas fees or lower costs and faster settlement times. And that’s not in a certain sense, you can see this thing in two ways, right? Of course, Bitcoin is the most secure blockchain ever built, right? So there is no doubt about that. On the other side, you have anyway a stablecoin that is centralized money, right? So don’t think that just because stablecoins are running at least the biggest, bigger stablecoins are running on a decentralized transport layer, they are decentralized stablecoins like Tether, like USDC are centralized anyway, right? So in a certain sense, in the worst case scenario, if there are issues, everyone will come back to the issuer, to the central issuer, to ask for help, to freeze, unfreeze, or recover funds and whatever. So in a certain sense, it’s not that bad if we don’t pollute the Bitcoin main chain with transactions that are carrying something that anyways, in your innerly centralized.
Nicolas Burtley – 00:04:15:
Yeah, I think the path first to dollarization some just mandatory for many countries. I can give two examples. The first one is El Salvador. Now, El Salvador is on a Bitcoin standard and on a USD standard. It’s joint standard for now. But if you think about the history of El Salvador, 20 years ago the country gave up their own currency and they went to use the US dollar to have more stability, right? 20 years ago there was no Tether, there was no stablecoin. And so it’s like plugging to the traditional financial system. But you can see how even a country that really added Bitcoin, maybe they’ll first go to a stablecoin using the US dollar because it’s probably less disruptive in the short term than go full on Bitcoin. And what other countries that have adopted Bitcoin, like El Salvador, it’s a joint currency, it’s not Bitcoin only. So I was discussing with a friend yesterday from Lebanon that is here, and he was also explaining how there is super high inflation or almost hyperinflation in Lebanon. And you see probably on this video on Twitter where people are going to the bank and asking their money and the money doesn’t want to give them. So it’s a very bad situation. And my friend was telling me in Lebanon, like businesses, they don’t accept local currency anymore. Like they are asking to have dollar and basically they’re forcing the dollar, the currency is just collecting. They cannot leave anymore with their own currency. The only way for survival to them is to ask for either cash or USDT. This is the two ways that they want to get paid. I think whether it’s good for Bitcoin to have a stable currency on top of Bitcoin, I don’t know. But one thing I’m for sure is that most countries or organizations that will eventually add Bitcoin, they probably go to a stage where they need to have something that is better than their own currency. And it probably starts with something like USDT today. Not to answer your question about the incentives, and as Paolo said, stablecoin today are centralized. So what are the incentives to use Bitcoin? It’s a good question. From my perspective. I think there is some super utility to think about having USD over Lightning, some form of USD over Lightning, because we want this payment system that Lightning is, that is instant, can move money around at the speed of light. And eventually whenever the money is being received, we might want to convert it into a form of dollar because maybe an organization want to use this payment system, Lightning, but they don’t necessarily want to be using Bitcoin or assets at the beginning. They don’t want the relativity, they want the insurance of the fact that Lightning is an instant settlement. But if the price drop and they have their expense in dollar, it’s an issue for them. So I think there is a need to think about how to have a dollar equivalent system that is backed by Lightning.
Sam Abbassi – 00:07:44:
The incentives for me are more, I mean, I think about it more financial and cultural incentives. As you indicated, Paolo, we’ve been able to issue assets on Bitcoin for a while, but it hasn’t gained the same sort of critical mass that other blockchains have, like Ethereum and Solana. In 2017, I remember one of these conferences, Giacomo said that the benefit of not having and he was presenting RGB at the time, the benefits of not having sort of like token issuance on Bitcoin is that in 2017 we could say look, all this shit is happening and we actually have nothing to do with it. It’s happening somewhere else. And I think a lot of that is because of well, some of it’s like the devtooling. The devtooling isn’t nearly as easy on Bitcoin as it is on Ethereum for example. Maybe Taro changes that. And then some of this like the cultural financial stuff, I think, as well. The way I understand Ethereum and sort of token issuance in development on Ethereum and other blockchains, but Ethereum specifically is that a lot of people made a lot of money in the presale. Those people then made their own tokens on Ethereum on an ICO and it’s basically just this money sort of slushing around. And FTX is a good example of this sort of financial success pool. I think it’s more difficult to do that on Bitcoin. This isn’t like a moralistic claim, it’s just a little bit more financially honest or just has been historically. So I think it’s the cultural element. We haven’t had a good shitcoin culture or just a good token development culture. And there’s the financial aspect as well, where it may not really make as much sense as it would in other blockchains because it’s not as corrupt.
Shinobi – 00:09:22:
I kind of want to call back to a little historical example like looking at what Nicolas was saying. There is this need in a lot of people’s lives to have something that is kind of offering the utility of Bitcoin but without the inherent price volatility just because of how their local currency is not doing the best, it’s hyperinflating getting to that situation. But I think on the topic of stablecoins, a lot of people, particularly those not really familiar with the financial markets and just how trading different assets works, I don’t think we would be here where we are today in terms of the Bitcoin market without stablecoins. Like Tether was created because of how difficult it was to move fiat between different exchanges through the banking systems for people to actually trade Bitcoin the asset. And without that mechanism or that rail to be able to do that, the market in pricing Bitcoin itself would have been completely chaotic. And so I think what we’re kind of seeing in terms of this desire to use things like Tether or USDC more directly in commerce or as a financial tool. It’s kind of just the next extension of that dynamic. It’s just hard to interface and get access to tools in the financial system. So we’re building kind of the middle ground between Bitcoin and the legacy financial system and just trying to extend that.
Paolo Ardoino – 00:11:04:
So this is a really good point. Right? So in 2014, when Tether was created, I’m not sure how many of you guys remember or were into Bitcoin that time, but in the end of 2013, if I’m not wrong, was the first time Bitcoin reached $1,000 and there were not many exchanges running around, right? There was Okcoin, there was Bitfinex, there was Bitstamp, and Coinbase and Kraken. And the problem is that all these exchanges were geographically distributed and in order to send money, one of the key activities of a trader is arbitrage. So it means that you have to sell Bitcoin on the exchange where the price is higher and buy back on the exchange where the price is lower. So in this way you shrink the spreads because for any mature market you cannot have a platform, a trading platform where the price is $1,000 and other platform where the price is $1.2 thousand and so on. So in order to keep the spreads close, you have to have arbitrages but if you have to wait for five days for an international wire, I mean your entire strategy as a trader falls apart. So that’s why the really simple but brilliant idea with Tether was why we don’t use the same technology, brilliant technology, that the Bitcoin is using, blockchain in order to move dollars. So Tether is a dollar on a blockchain. So I think that every one of us, I think many of us would love to see, soon, hyperbitcoinization. It means that we are stopping to leave in the fiat standard and we start leading a Bitcoin standard where all the services are priced in Bitcoin. The problem is that this is something that cannot happen from one day to another. So this is a journey rather than a rush, right? So you have to slowly make the case and showcase to the people throughout also the worst and catastrophic events that can happen in the financial system, but also with geopolitics and so on, that Bitcoin is the only thing that throughout all these events will keep striving. Right? So I think that stablecoins are a way to bring people into more digital money with less intermediaries. Right, because money is already digital since a long time. But the problem is that although it is digital, the current financial system is full of intermediaries. So stablecoins are a step towards showing to people that not all the intermediaries are necessary. Right? So we start with that and the more people know it’s about education, like they can move more towards and understand more Bitcoin.
Nicolas Burtley – 00:14:15:
Yeah. In terms of infrastructure, something we are developing at Galoy is called Stablesats. The idea of Stablesats is that basically Stablesats is a result of feedback that we got operating in El Salvador with a Bitcoin BitWallet where people love the use of Lightning. But it was launched two years ago, but it gained fraction last year. But as we know, the price of Bitcoin was going down. A lot of businesses were hesitant to start accepting Bitcoin because if they have to pay their expense annuity, but they are wasting money in BTC there is a mismatch in currency and that’s quite an issue for them because then if they cannot pay the bill, they will not want to accept Bitcoin. Right? And so Stablesats say okay, can we basically think about okay, your checking account should be maybe your dollar account and your BTC account should be your saving account and how can we create a USD account? And the way we operate today is that we are using the virtual market and we create short position to basically be dead to unneutral. And it’s still a centralized solution, so it’s not like there is a centralized exchange in the middle. But one of the benefits of this maybe if we compare with USDT that we can use exchanges that doesn’t necessarily have to have USD payment rail or traditional payment trail. And so it’s a way to create some securities that are independent of traditional banking system, which is maybe one way to be a bit more webOS in terms of being censorship resistant and being independent and having an independent stack. If we want to use Bitcoin and Lightning, the result of the development is really the feedback from the market that’s in El Salvador, but probably any other developing country that is starting to touch about this Bitcoin technology. They want to have the possibility to remove the volatility and this is really what Stablesats is about. Interestingly, there is no kind of Stablesats, it’s just you have a USDA equivalents balance in your wallet. But we don’t want to basically think about, okay, how Atrium has been maybe captured by USDC in some aspects as we see with a move with proof of stake. The fact that there is no token here makes it I guess for us better overall. So it’s something that we like.
Sam Abbassi – 00:17:08:
Yeah, if the question was about sort of demand for dollars, it’s clear everyone wants dollars globally. Lebanon is a great example. I think the coolest thing about stablecoin and stablecoin issuers are this like free banking era that Yakes talks about that we’re sort of well that has been going on for a while, you guys have issued Tether in 2014. But generally I think it’s really interesting. I think we have this new renaissance of free banking where individual entities can issue assets and I’m sure we’ll have our own self regulatory requirements around that as we mature. I’m honestly most curious about, are you guys seeing demand for other fiat stablecoins or is it just dollars demand part? Do people want yen? Do people want ruble stablecoins? Do people care?
Paolo Ardoino – 00:17:53:
So we have different flavors. We have Tether Euro as well and Tether Mexican Pesos and Tether Gold. Right? So the goldbacked stablecoin is the second most popular after Tether USDT. I think the goldbacked stablecoin has though a really different use case from the others. So I talked to many bitcoiners and I’m one of them and I think that there is some sort of discrepancy on what people think about the gold and the actual meaning of what we are doing with Tether Gold. So with Tether Gold, I think what we want to provide is a way to not compete with Bitcoin. So Bitcoin has already won against gold, right, for transportability and so on. But we are seeing more and more people that are thinking okay, dollar is better than the Turkish lira, dollar is better than the Argentina pesos, but what is better than the dollar that is not yet Bitcoin? Because for example, for trading pairs or for like risk diversification, people want something else. So we’re seeing more and more people interested to Tether gold. So that is basically the other winner that we have among our stablecoins. But actually no one cares about Tether Euro I can say. Right, so that’s it, right? Because really the euro has the same problems in terms of inflation, money printing that the dollar has, but it’s much more fragmented. Right? So the truth is that European Union, although it’s a union, is more fragmented than what is the United States, right? So there is that fear of fragmentation is priced into the euro and the fact that the US always push for the dollarization award, of course they have a first mover advantage on that. So really no other currency apart that are gold and USDT are actually succeeding and I don’t see that changing anytime soon.
Sam Abbassi – 00:20:09:
So on this path for hyperbitcoinization, is a dollar going to win basically? My biggest thing that I can’t figure out honestly is whether hyperbitcoinization comes at the expense of dollar hegemony. I think the answer is yes, but I’m not, might be missing something.
Shinobi – 00:20:26:
You literally read my mind, Sam. This is exactly where I wanted to push the last kind of ten minutes. What do you guys think about the potential that Bitcoin and the synergy with Dollar Stablecoins effectively follows this pattern where, as you see local currencies local economies across the world that aren’t doing so well, imploding, and Bitcoin coming in kind of as the spearhead either actively exacerbating or just following the implosion of other currencies. Has the dollar piggyback on top of that. And instead of seeing hyperbitcoinization we effectively have a lot of people call the dollar milkshake theory where the dollar rides in on the back of Bitcoin. And while Bitcoin does become present and a huge part of use or the economy, the dollar benefits from that as well. With that synergy if you have Bitcoin as something you can speculate on, potentially saving in the long term. But when the local currency implodes, people also want dollars to use for short term economic activity, to have something more stable. And so is there the potential that stablecoins actually delay or potentially prevent the possibility of something like hyperbitcoinization? And you just wind up in that dual system world where you have the dollar and Bitcoin and maybe a few other strong currencies like the yen, the yuan. What are your thoughts on things playing out that way?
Nicolas Burtley – 00:22:14:
I think the past year using dollar is inevitable. But now the question is will people stop here or will they go to Bitcoin, will they make their pass? And of course our job should be making it as easy as possible. When you’re using some stablecoin like you want to use Bitcoin because you understand the value property of Bitcoin, you can self custody it. Like there’s a lot of things with Bitcoin that stablecoin doesn’t have. I’m also curious about how the US will for now, the US, they like stablecoin, right? They like the fact that they can export the dollar and continue to give the hegemony to the dollar for the time being. I’m also curious whether at some point if everybody start using the dollar around the world, like would they be happy with stablecoin or would they want to introduce some form of the CBDC? And I think that could be one way to think about, right? I’m not sure how they think about it, but I saw a tweet today that says hey, we’re among Bank New York, we’re experimenting with this G Suite payment system, sounds like a CBDC format and maybe CBDC is being used more and more. Maybe the streams moving from this to Bitcoin will be harder, maybe the government will want people being kept in this environment. I’m not sure, but I just see this as a risk. I don’t know what necessarily the solution is beyond trying to provide the best tool for people to understand what Bitcoin is and when they are on this Stablesats USD dollarized economy, that they have an incentive to try to move to Bitcoin as fast as with education, right? I think it starts here.
Paolo Ardoino – 00:24:15:
So my feeling after many discussions also with US and so on, I think that there is, so something like Tether actually is helping the hyperdollarization of the world, right? So I think that the US doesn’t like too much stablecoins in their own country. So for that they would prefer CBDC. But from outside it’s to me at least a little bit unrealistic that US CBDC could be used outside of the US. Right? So for that, privately issued stablecoins are a good ally for this hyperdollarization. So of course, myself being a Bitcoinner, you have to live this dual life where from one side you are providing a good service to all the emerging markets that are seeing their national currency being destroyed by day, right? So Turkish lira lost 80% one year to the other, and people are using USDT not because they want to speculate it’s a lifeline, and they’re still a little bit scared of the volatility of Bitcoin. So Bitcoin went through from the all time highs down to, lost around 60%-70%. And these people have basic needs, right? So they don’t have a lot of money. They need to save for their children, they need to send their children study abroad. So their primary necessity is trying to preserve the wealth that they accumulated working hard. There is also the need for Bitcoin to become a bit more stable, to be used more and more in the day to day life of people. So that requires time. Bitcoin is 14 years old, so we should give it time. So, of course we are all in a rush to make sure that that will happen as soon as possible, but I think it will be kind of absurd to think that it can happen in the next ten years. So I think there could be a period where the dollarization of the world will increase. But keep in mind that geopolitical events can happen to bring that really quickly down and people at that point might all go through something that is extremely hard, completely or globally recognized, like Bitcoin. So Bitcoin needs to be established in the next ten years as the most solid currency in the world, right? The technology currency, the currency for the worst case scenario. So that’s what I like about Bitcoin, right? So whatever happens, you have your Bitcoins. So then, of course, no one is rooting for something bad to happen, but the history teach us that something eventually bad will happen. And so Bitcoin is the ultimate solution for that.
Sam Abbassi – 00:27:25:
I take sort of a Hal Finney approach to these things. I don’t think most people are going to be using Bitcoin in the future, day to day. I think we’re going to have a free banking system on top of Bitcoin that’s backed by Bitcoin reserves, with some performance stablecoins and some assets issued against it. So I don’t think it comes at the expense of hyperbitcoinization. I think stablecoins are just part of the journey, part of our journey, or path. So there’s that bit. So I don’t think it hurts in any way. But I think, and this is more geopolitical, there’s demand for dollars now. I just wonder if that continues. I guess there isn’t a real reason why it wouldn’t continue. The main thing really is if we keep sanctioning foreign reserves, I mean, those countries are going to do something about that. They’re going to have their own currency system, whatever they may do. It may not be effective, it may just be like two sort of systems in one earth, but I think that’s an important point to keep in mind. I don’t really think it’s a given, necessarily. I think there’s a lot of geopolitical factors that are involved, but I don’t think the stablecoins hurt Bitcoin or sort of like, keep us from getting to this hyperbitcoinized world, that this Bitcoin ideology that we all dream of.
Shinobi – 00:28:37:
All right, I guess we’re kind of running down on the wire, but you guys have maybe a last 20, 30 second thought on the whole topic. Try to boil down everything we’ve been talking about. No? Nothing. Well, I guess I could stand up and be a smartass. Everybody Tether don’t verify, just trust. They are one of the greatest stablecoin issuers on the planet. It’s worked smoothly for many years, even with the US government looking at every way they possibly can to screw with them. So, Tether. Everybody.