Episode 138 of the Public Key podcast is here! Two-thirds (⅔) of every crypto transaction is conducted using stablecoins and there is no doubt the future of digital dollars is happening today. In this episode, we speak with Chris Harmse (Co-founder, Chief Business Officer of BVNK), whose company just released an industry leading report, The Decade of Digital Dollars. Chris discusses the key findings from the report and explains the rapid developments in cryptocurrency, the stablecoin market and the evolution of financial systems in South Africa, LATAM and other emerging markets.
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Public Key Episode 138: The Rise of Digital Dollars: Unlocking Global Payments with Stablecoins
“Lack of faith in local economic policies, it’s political instability, it’s depreciating currency, it’s runaway inflation. So it’s all these economic factors that play into a person not willing to hold their local currency and would much rather hold this digital dollar.” – Chris Harmse
Two-thirds (⅔) of every crypto transaction is conducted using stablecoins and there is no doubt the future of digital dollars is happening today.
In this episode, Ian Andrews (CMO, Chainalysis) speaks with Chris Harmse, the Co-founder and Chief Business Officer of BVNK, whose company just released an industry leading report, The Decade of Digital Dollars.
Chris shares insights on the rapid developments in cryptocurrency, the stablecoin market, and how BVNK is facilitating smoother transactions across traditional and digital financial systems, while acknowledging the regulatory challenges and the ongoing wars between Layer 1 and Layer 2 blockchains.
He discusses the evolution of financial systems in South Africa, LATAM and other emerging markets, where stablecoins meet the demand for accessible cross-border payments and solve for the instability of local currencies.
Quote of the episode
“So I think it really is that it’s lack of faith in local economic policies, it’s political instability, it’s depreciating currency, it’s runaway inflation. So it’s all these economic factors that play into a person not willing to hold their local currency and would much rather hold this digital dollar.” – Chris Harmse (Co-founder, Chief Business Officer, BVNK)
Minute-by-minute episode breakdown
2 | How Chris got into crypto working at an FX desk in an investment firm
4 | BVNK’s Journey from South African crypto pioneers to global innovators
7 | Bridging traditional and blockchain payments with stablecoin solutions integrating with SWIFT
9 | Introduction of PayPal’s stablecoin, PYUSD into the BVNK stablecoin infrastructure
11 | Stablecoin listing process and Solana leading Layer 1 payments race
13 | MiCA regulations and stablecoin opportunities in Europe
16 | Key findings from the BVNK’s Stablecoin Report on the Decade of Digital Dollars
18 | The cost of holding a local fiat currency that is losing value over time
22 | Case Study: Visa’s blockchain integration for faster stablecoin settlements
25 | The rise of non-USD stablecoins in global trade and CBDC popularity
28 | The future of payments: Blockchain, stablecoins, and global expansion
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Episode 132: How Tether is Building Resilient and Decentralized Financial Systems
When we think about the crypto company that has cracked the real world adoption problem and given access to people internationally who want access to the US dollar and foreign currency, we have to describe Tether as being that company. In this episode we talk to the CEO of Tether and CTO of Bitfinex, Paolo Ardoino about what the future of decentralization looks like for finance, communication and the exchange of value.
Speakers on today’s episode
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Transcript
Ian:
Hey, everyone. Welcome to another special episode of Public Key. This is your host, Ian Andrews. Today I’m joined by Chris Harmse, who is co-founder and chief business officer at BVNK.
Chris, welcome to the podcast.
Chris:
Hi, Ian. It’s really good to be here. Excited for this conversation.
Ian:
Well, for those that are listening audio only, they’re not going to be able to see what I see. But over your shoulder, I can see the skyline of Dubai. Appreciate you joining us from the other side of the world today. Excited to talk about BVNK’s business, and in particular this stablecoin report that you published earlier this year. I think there’s some fantastic information there, all about what’s happening across the crypto ecosystem with stablecoins.
But maybe let’s start with a little bit of your background. How did you find yourself in the world of crypto? I think you started in traditional finance. Where did you first encounter crypto?
Chris:
No, I did exactly that. I actually spent a bunch of time in investment banking, on sales and trading desks at banks. I guess when it first came across the screen was really on a Bloomberg pop-up being on an FX desk. You would see this magic internet coming up, popping up. All their fixed traders trying to figure out how should buy it.
When I actually pulled the trigger on that is I actually left banking at the back end of 2016, and set up a hedge fund with my ex business partner.
Effectively, that was my entrance. We very much approached crypto, leading into 2017, as this new asset class to invest in. Crucially, that was my also my real introduction with stablecoins. Which was we were using stablecoins to move money between different crypto platforms to execute some arbitrage trading strategies. Coming from the banking world, where you all the Swift and a few other payment systems, running dollars on a blockchain just made so much sense in the ease of use. It was really like I came to crypto as an investor, and stayed for the payments, basically. You can think about it that way.
Ian:
You saw the problem space firsthand and said, “Hey, there’s a solution that can be built here to help the world.”
Chris:
Exactly.
Ian:
What was the crypto experience like in 2016 in South Africa? I know today, in some ways, that market is leading the world in terms of traditional finance and option of crypto. I think the four largest banks in South Africa are all in various latter stages of applying for custody licenses, and actually planning to hold crypto. Or partnering closely with some of the leading crypto natives in the market.
Take us back to 2016 when you first encountered this. Was this a niche segment? Or was there pretty widespread popularity early?
Chris:
It’s a very valid question. The experience of South Africa, I think, is not super unique to South Africa, but actually permeates through a couple of other emerging market countries.
I think early on, there was an appreciation for what crypto was from the end user level, so the actual citizen in that market. For various reasons. Some are depreciating currency. It’s access to dollars. Some of those points that we mention in our report. I think that user base just automatically said, “Okay, how do I get access to this new form of currency?” Which I think was underappreciated by the West. In terms of you don’t really need a digital dollar when you’ve got a Venmo account and ACH that works really well in the US.
Ian:
Yeah.
Chris:
When you’re in South Africa and it takes two days for a bank to bank payment in the same country, different story. When I started on the trading desk, the dollar:rand was 10:1. It peaked at 20:1 last year. That’s a 100% depreciation of the value of the rand.
I think there was a period back then, where banks were like, “Okay, cool. Let’s open up a lot of this.” 2017 happened, and lots of things blew up, and then everyone got cautious and actually de-platformed a lot of the early crypto companies. Then this came back around, where they just saw user adoption keep going up, South Africans demanding their piece of the action. Therefore, I think you’ve seen this come around.
The regulators played a good role there, where they took quite a pragmatic view. It took a while, with consultation papers, to get input from the industry. This fledgling industry took that on board, and came out with a pretty pragmatic regulatory framework over the last 18 months. They’ve been issue CASP licenses to South African crypto asset businesses. That’s obviously allowed the banks to think, “Okay. Well, look, the regulator has given them a license. I can now bank with these customers.” I think that’s really the change you’re seeing and a bit of the journey that South Africa has specifically been on with crypto.
Ian:
Yeah. It’s so exciting to see that happening. I was talking to one of my colleagues that supports our customers in that market just yesterday. The conversation was, “How can we bring that success, and try and project that into some of the other markets?” Like where I live in the United States, where we’re so clearly behind, in terms of acceptance and that pragmatic regulatory approach.
Take us through the story then, from that first experience with crypto to the founding of BVNK. How did that come about? Then maybe, lead us into the story of what BVNK does.
Chris:
Sure. While I was busy with the hedge fund, and introduction to stablecoins, moving money between these platforms, my co-founders Jesse and Don had already actually started. They were one of the early pioneers. They’re both serial entrepreneurs in their own right. They were one of the first batch of crypto companies in 2016, 2017, actually in South Africa. They set up a crypto brokerage business out in South Africa, and was doing that through the 2017 bull market, obviously looked great. Then into the 2018 bear market, not so great. But really, had built that first layer of infrastructure, which was really the start of BVNK.
I, through my ex business partner, actually got introduced to Jesse and Don. Coming with the payments background, and coming into it, Jesse had spotted a bit of an opportunity with the payment side of things. Like, “Look, you can actually do cross-border payments using stablecoins.” Ian:
Yeah.
Chris:
There were only a few people building in crypto, so we ended up linking up together. And started building out BVNK, and expanding that original platform that they had built into what it is today.
Parlaying that into what BVNK is today. Today, we really are a global payments platform. Set at the intersection of bank payments and blockchain payments. That really means that we enable three core use cases. One is a pay-ins use case, so that allows merchants or PSPs to accept crypto or stablecoin payments. They can either be settled in fiat. We then have a pay-outs with use case, which is a global gig economy platform or a payroll platform looking to pay out a contractor, particularly an emerging market or something like that. We do a lot of these payments for Deel, the global payroll platform. We do their pay-outs into Argentina for their Argentinian contractors. Then we have what we call stablecoin settlements, which is more of the B2B use case, whereas the other two involve a consumer somewhere in the flow.
That B2B use case is really fintechs, payment companies starting in money service businesses, whatever you want to call them, in and around the world, starting to adopt stablecoins as another means to either settle each other, settle merchants, receive payments. Think of it just becoming part of their treasury. I think we’ve really been pioneering in that B2B stablecoin side for quite some time.
The newer use cases which we’re really excited about are these pay-outs use cases that we’ve really seen come into their own in 2024.
That’s really us. A global payments platform set at the intersection of realtime fiat payments, as well as blockchain payments, and really bringing those three payments use cases to life.
Ian:
One of the things I noticed looking at your blog was talking about the relationship with Swift, and that you’ve not connected into the Swift network. Which, for people that don’t follow banking, is this bank-to-bank, highly secure payments infrastructure.
Talk a little bit about how that actually works, if you don’t mind, the Swift to BVNK connection.
Chris:
Yeah. I think as much as all of us that are down the crypto rabbit hole would love crypto to replace traditional finance as quick as possible, that’s not really the reality. I think we really feel that stablecoins and blockchain rails is the next infrastructure upgrade for payments. We’re really trying to accelerate that upgrade. Or what we like to say, “Accelerate the global movement of money,” by sitting at this intersection of the old payment systems, think the realtime payment systems in each market, and then also Swift. Which today, is the only way to really connect all of those payment systems together.
What we found is a blockchain and stablecoins is a much better way to connect a bunch of local payment systems together. But that’s not a wholesale replacement of the existing system. Swift is enterprise-grade, bell tested over multiple different years. We really do need to coexist and enable all of these, for lack of a better term, entry points in and out of the BVNK payments network, so to speak. You can use Swift. You can use Faster Payments in the UK. You can use SEPA for euros across the EU. You can use ACH in the US. And you can use Swift to get in and out of this. But then, you can also opt in to use this much faster, better payments technology, being a blockchain and a stable coin.
It’s really about that core ethos of bridging or bringing bank payments and blockchain payments together.
Ian:
It sounds incredibly powerful. And I think the pragmatic adoption strategy, it makes me wonder, is there any risk for you, as the operator? Because I would assume that you’re carrying some of the risk of … Sorry. Let me rephrase that. In a crypto payment, it transacts almost instantaneously between two wallets. But when you’re having to bridge that into Swift, I would imagine that you lose that instantaneous transfer, and that guaranteed transaction in some way.
Chris:
Yeah.
Ian:
Are you carrying that risk on behalf of your customers, of payment completion and the time delay there? How does that business work around that?
Chris:
Short answer, no.
Ian:
Okay.
Chris:
The way we use Swift today, maybe this is a better way.
Ian:
Yeah.
Chris:
The way we use Swift today is think about a customer trying to access stablecoin payment rails. The only way they can do that is to send a Swift payment, let’s say send $1 Swift payment, get stablecoins, and now they’re free to move value at internet speed. We’re just providing that on-ramp, for lack of a better term. Using Swift rail into stablecoins, and then vice versa. Once they’ve used and moved value around at internet speed, or received value from somebody else, they want to get back into their traditional financial system. How they do that is they out of those stablecoins back into Swift, and we settle that Swift payment.
Ian:
Yeah.
Chris:
The payment, we don’t really take any of that risk. The payment needs to complete before we get into the system. Once they’re in the system, you obviously get the full benefits of crypto payments being instant settlement.
Ian:
Got it. One of the other things I noticed is an announcement that you now support the PYUSD, or PayPal token. I’m curious, as you look across the landscape of stablecoins, there’s the two giants with Tether and Circle. They’re well-known, primary tokens. But then, there’s a long tail of other people that are trying to drive innovation here. How do you think about that landscape? Do you support every stablecoin? Or are you picking winners there?
Chris:
It’s a good question. Given we’ve been in the space for quite some time, five or six years really building in the stablecoin space, when we started stablecoin market cap and there was basically one game in town.
Ian:
Yeah.
Chris:
There’s now 170 billion, as you say, to really market leaders, and then a host of others coming to market. I think 2024, it really feels like every other week, there’s a new stablecoin issuer launching somewhere. We very much took a deliberate strategy to be a multi-stablecoin platform.
We really let two things guide us. Firstly, customer or end user demand. Then secondly, liquidity. Naturally, you needed liquidity to be able to complete hundreds of millions of dollars in payments. Obviously, early on, USDT was the only game in town. USTC started coming into the fold. We really, I guess, added them into the platform that way. Being a highly regulated crypto business, we have to have a token vetting policy based on the regulations, so we run all of them through that. It’s very much about, “Look, what are customers demanding?”
Same for the chains that we support. Again, we don’t go off and try to pick a winner in the layer one, or layer two wars, it’s really about, “Hey, what are enabling the best payments use cases?” Obviously, Solana is coming into its own. USTC and Solana is a big one this year. That was enabled quite quickly because you could see the demand for the payments use cases.
It’s really, at our core, a multi-stablecoin platform. We multi-rail, that’s across different blockchain as well as different fiat rails. We really want to give choice, firstly to end users and merchants. But secondly, also to make sure that the liquidity is there for that specific stablecoin so that you can actually do payments at scale.
Ian:
Yeah. It’s powerful. It sparks another question on the layer one versus layer two. Obviously, layer twos, generally much less expensive in terms of transaction fees. But there’s, I think for most layer twos, the on-ramping, off-ramping problem of their own. The easy to get into, a little bit harder to get out of a layer two back to a layer one network.
How do you all think about that? Are you supporting layer two networks today? Or are you primarily on layer ones, like Solana? And Ethereum, I guess.
Chris:
Yeah. We do, definitely. For the trade-offs that a layer two does for speed, that obviously getting the security module really from the layer one. There’s a host of trade-offs that they have to make when they build. Today we do support Polygon, and have our eye on other layer twos. Like Base, and that sort of thing, from Coinbase.
But I think you really do need, if you look at scaled payment systems today, the Visa network can do 25,000 TPS. You need a system that can get close to that if you really want to scale payments. Unfortunately, that’s not Bitcoin. That’s definitely not Ethereum. Even with some of the layer two scaling solutions, you probably still don’t get to that level of performance.
Ian:
Yeah.
Chris:
I think for payments use cases, it does feel like all roads are leading to Solana at the moment. I’m sure, for a fact, just like we’re a multi-stablecoin platform, we will live in a multi chain world. Certain chains will win out for certain use cases. I would argue Solana is probably leading the payments race today, with a whole host of other awesome things that they’re building there. But I just think you need that level of performance in a payment system to actually tap into the longterm benefits of a new payments infrastructure.
Ian:
Great. Shifting gears a little bit, regulatory situation is evolving. We touched on a bit of what’s going on in South Africa. But I think the other big emerging thing, particularly related to stablecoins, has been the MiCA regulations in Europe.
I’m curious how you think about those, particularly since, at least from my perspective, they’re driving euro denominated stablecoins. Which, to this point, haven’t really enjoyed anything comparable to the popularity of dollar based stablecoins. How are you looking at the European market and the regulatory situation there?
Chris:
Yeah. Given we’re a London headquarters business, and have offices in Spain, as well as Bulgaria. Most of the team is based in Europe. Our licensing is based in Europe. Obviously, MiCA’s a very topical thing within the business.
We’re quite unique in the sense that we’re stablecoin, or VASP, CASP, whatever you want to call it term. We’ve got those registrations, and we’re going to convert that VASP registration which we have in Spain, into a CASP registration with the Central Bank of Spain. But given, again, we sat at that intersection of bank and blockchain payments, we went off and got two EMI licenses, which are fiat payment licenses. One in the UK, and one in the EU.
If you look at the MiCA legislation, they break it down into stablecoin issuers who need an EMI license, IE a fiat license, to issue those stablecoins. As well as a CASP, or a crypto asset service provider. It could be an exchange, a broker, a payments company like ourselves, who need permissions to do certain activities. The fact that we have both puts us in quite a unique position. We were already a regulated e-money institution. They’ve taken a lot of that regulation from the E-Money Directive.
I think we were well-prepared for MiCA. I think it’s, again, a pragmatic piece of legislation. It’s come down from the EU, and then each member state can implement in a slightly different, nuanced way, and then on a slightly different timeline. I think that’s creating a bit of uncertainty in the market. Is your specific regulator going to be ready on the deadline, or are they going to extend their specific deadline? I think there’s a lot of moving parts still in the market. But overall, I think it’s a great step forward in unifying payments and crypto payments, and just crypto regulation more broadly.
I think there’s some, I guess, outspoken critics of the stablecoin issuer side, specifically as it relates to how you would manage reserves. Is an EU issued stablecoin fungible with a non-MiCA stablecoin? I think there’s a few things that needs to be ironed out there. But I think it’s one of those pieces of legislation where, once people start operating, there’s going to be probably amendments and updates to that legislation just to accommodate actual business, and use cases, and that sort of things. Versus it’s quite easy to write the regulation, it’s a little bit different to implement that regulation.
But overall, we’re positive on it, we’ve been prepared for it given where we sit. It’s been a couple of interesting months, interacting with different stakeholders within the ecosystem, whether that’s issuers, exchangers, market makers, some of our customers. It’s quite an exciting time for Europe, I think.
Ian:
Yeah. I agree. Again, it seems like an area where the EU is leading the world a bit here and getting it mostly right.
Chris:
Yeah.
Ian:
Which is, in my opinion, always good for governments. Mostly right a win.
Chris:
Mostly right is all you need. Exactly.
Ian:
Now, earlier this year, BVNK released a great piece of research called The Decade of Digital Dollars, focused on the stablecoin market and ecosystem.
Maybe we can just start, if you want to take us through some of the key findings of the research.
Chris:
Yeah. We thought it was quite important. That’s why we called The Decade of Digital Dollars. Basically, 2024 was the 10-year anniversary of TiVA.
Ian:
Yeah.
Chris:
We thought it was quite a pertinent year. Then I also just feel like stablecoins, more broadly, came into its own in 2024.
We really looked at a couple of stablecoin use cases, and then how those stablecoins are unlocking economic value in the world. Obviously, you guys at Chainalysis do a great geography of crypto assets, showing flows between different markets. I think really, we took a little bit of inspiration from that report around, “Okay, cool, you guys have mapped out where these assets are moving.” But we were looking as to why these assets were moving. You mapped out where they’re moving to and from, and we wanted to take it, maybe just look at it one step further.
I think where we got to, the three core findings is really digital dollars are being used as a proxy to get access to dollars. Because in many markets around the world, you cannot get access to dollars. I’ll take Argentina as an example. An individual can only buy $200 worth of dollars per month. Even in South Africa, you can only buy $60,000 a year as an individual without whole hoops, jumping through tax clearance certificates, and all these sorts of things, to get access to more dollars. It was really that access point to dollars, really. Getting access to dollars that most people around the world can’t get access to. And most, I guess, Western economies or Western citizens might take for granted. That was the one piece.
The second piece was there’s this phenomenon within crypto, what we call the stablecoin premium. But it’s really those digital dollars that float around on the blockchain, they trade at a slight premium to fiat dollars in that market. Then again, what is driving that? It’s really, one of the key findings of that report is it’s actually the ease of … Think of it like an implicit premium to use this new payments technology that’s just way easier to move money around. They’re happy to pay sometimes 20 basis points, sometimes up to 1% like in South Africa, to get access to those digital dollars that move way freer than traditional fiat dollars in the bank account.
Firstly, it’s actually getting access to dollars. Secondly, it’s what premium are they willing to pay to move their dollars more freely and easily on the blockchain, versus traditional banking and payment systems. Then, how much economic activity does that unlock by effectively creating this faster velocity of money through the system. Those were some of the key findings that we looked at, and some of the use cases that we enabled.
Ian:
I’m curious on the premium conversation, and what you think is driving that, if we can dive in there a little bit. It seemed to me like that might be a reflection of the risk of holding whatever the local currency is, particularly in some of the really high inflationary countries that you were studying, like Argentina, or maybe Turkey.
Any sense for why the premium might be that high?
Chris:
Yeah. I think you’ve hit the nail on the head. When you do user interviews, and you try and understand why people are willing to pay that premium, it’s exactly that. If you look, like I mentioned earlier, I’m South African. I started and entered banking in 2012, the rand was at nine, 10:1. Now it’s at 20:1, so it’s lost 100% of it’s purchasing power in 12 years. That’s an orderly depreciation.
Then you look at Argentina, for example, which has lost 24X of its value over the last five years. That would make crypto volatility look eye-watering.
Ian:
Yeah.
Chris:
I think it really is that. It’s lack of faith in local economic policies. It’s political instability. It’s depreciating currency, it’s runaway inflation. It’s all these economic factors that play into a person not willing to hold their local currency and would much rather hold this digital dollar.
Then firstly, how do I get access to that digital dollar? Cool, I can use digital dollars on a blockchain, but I’m going to pay a slight premium.
Ian:
Yeah.
Chris:
I think that’s really the key factors that drive why people are willing to spend a bit more to get access to those digital dollars.
Ian:
Part of the analysis looked at longterm GDP losses in some of the emerging countries. Actually, the numbers here were staggering to me. Where very large economies, like Brazil, losing over 8% of GDP in a 30-year period. Some of the smaller markets, like Ghana and Nigeria, 20% or more. Even your native South Africa was north of 8%. Which in a scale of economies that we’re talking about here, 8% is hundreds of billions of dollars. It’s a massive, massive amount of loss.
I think when characterized like that, it certainly creates the evidence for why people would not want to hold the local currency. If possible, to use an alternative, like a digital dollar, right?
Chris:
No, exactly that. I think those numbers were huge, but they were taken over a 10-year period in most cases, sometimes a 20-year period. But when you add them up, for sure, the numbers are staggering. I think, again, when you see that impact on the real economy.
Sometimes how I like to frame it is if you think about the global currency markets that trade six trillion a day, or whatever the latest stat is, a lot of that is down to globalization and moving money between one place and another. But at the end of the day, the economic values in that currency’s currency, in that country’s currency. Then when it needs to trade externally, you put this other variable in, which is these floating exchange rates. If you’re caught on the wrong side of that as a business just doing business, you can have massive FX losses that move through your income statement, and then ultimately hit your balance sheet. There’s this entire industry that popped around how you hedge those FX risks. This is where investment banks and some of their biggest desks are FX desks. Where they’re doing structured products and options, all to hedge these trade flows, if you want to call them that.
I think it’s something that can sink a business if you’re on the wrong side of it. We’ve seen the premium that some people are willing to pay to get on the right side of it.
Ian:
Now, we have seen in a country like Nigeria, where the government has taken a hostile stance towards crypto, at least parts of the government. And are actually suggesting that the devaluation that their currency has seen over the last few years is a result of crypto. Which strikes me, on the face, as just lacking facts. It doesn’t track for me at all.
I’m curious, when you look at a market like that and the government’s position, what’s your reaction?
Chris:
Yeah. I think it’s definitely not grounded in reality or fact.
Ian:
Yeah.
Chris:
I can’t speak for the Nigerian government and their economic advisors. But effectively, they’ve looked at their market, made a series of bad economic calls, and are just effectively looking for scapegoats. Obviously, crypto was an easy scapegoat.
Ian:
Yeah.
Chris:
You’ve obviously seen what’s happened there with some of the [inaudible 00:28:59] executives out there, and they’ve followed through that, right or wrong.
No, I don’t know. I think it’s just an easy scapegoat for some. You’ve seen that, China in 2021, where crypto itself was not banned, but moving money in and out of China using crypto is somewhat frowned upon. I there’s, as you say, some governments have just taken a short-sighted view and have been quite protectionist. I think that’s probably going to come back to bite them longterm. Then others have taken that pragmatic view, like we’ve seen in the EU.
Arguably, the US is coming over. There’s that stablecoin ball that’s moving around. I think the powers that be are pushing it in the right direction, hopefully.
Ian:
Sorry, I lost you there for a second.
Chris:
Yeah.
Ian:
Your recording froze, but I think you’re back. Can you hear me okay?
Chris:
Yeah, all good.
Ian:
Yeah, okay. One of the case studies that’s included in the report is talking about Visa, and their efforts to launch a program that connects the Visa network to the Ethereum and Solana blockchains. Can you talk a little bit about what Visa is doing and how that factors into your business?
Chris:
Yeah. We’ve been in many conversations with Visa over the last couple of months. They’ve been quite forward-thinking in the space, and a couple of headlines you’ve seen out recently. But I think it struck us, at the back end of last year, where Visa really started pushing what they call their Stablecoin Settlements Pilot.
If you think about where BVNK plays, we’ve really been helping global PSPs and fintechs get access to stablecoins, and then settle their merchants. If you think about a global Visa payment flow, it starts with a card, where a user of a card spends. It goes to the issuer, the issuer sends it to Visa Treasury. This is the money flow. Visa Treasury sends it to the merchant acquirer, and the merchant acquirer settles the merchant. That’s the flow of funds that happens in this insanely big Visa Treasury where it is today.
What we’ve been doing for many years as BVNK is we’ve been helping merchant acquires, so on the right side of that flow if you want to think about it that way, settle merchants. Get stablecoins and settle merchants. What Visa have done now is they’ve said, “Cool. On the issuer side, we as Visa will allow the issuers, card issuers, to be able to settle us in stablecoin,” specifically USDC. Almost bringing that full, end-to-end settlement cycle on chain, which has got significant benefits.
One of the main ones is each card issuer needs to post collateral with Visa for whatever card program they’re running. It might be four or five days, to cover weekends and that sort of thing, to just make sure there’s enough money. That every time the card spends, that card payments don’t fail, in terms of hitting the authorization rates. Effectively, by opting for a faster realtime payments rail, like a blockchain, they are able to facilitate faster settlements, and bring that end-to-end settlement on chain.
I think that they’ve been pioneering in the space. They’re obviously a massive org and move slightly faster than some startups like us would like. But effectively, all credit to them, they’re doing the right things, and running the right pilots in a controlled environment, given the size of Visa and the importance of the payments landscape. We’ve just, continually in conversation with them, looking at how we can help their pilots and some of the priorities that they have, given we’re doing north of six-and-a-half, seven billion in payments volume and are one of the main players in stablecoin payments. It’s obviously interesting to them because we’re solving day-to-day use cases. They’re looking at it from, I guess, at one level up, at infrastructure level as well.
Ian:
Yeah. Amazing. Shifting topics here, we recently had Paolo Ardoino from Tether on the podcast. One of the topics that we chatted about was the Dirham-pegged stablecoin that they recently launched in the UAE.
I’m curious, since you’re in Dubai right now, what’s your perspective on a Dirham-based stablecoin? Is there demand out there in the market for that?
Chris:
Yeah. I think I’ll tackle the equation more as what is the demand for non-USD stablecoins?
Ian:
Yes, perfect. Yeah.
Chris:
If you think about stablecoins today, as you said earlier, 99% of those stablecoins are dollar based stablecoins. That makes perfect sense, because the dollar is the global reserve currency. But even that level of percentage doesn’t match global trade flows, which are 60 to 70 percent dollar based. And even, nation state currency reserves is also about the same.
For me, if you have a longterm view that non-USD stablecoins probably settle somewhere around 60, 70 percent of where global trade and reserves are today, there’s obviously a big bucket of new, non-USD stable coins going to pop. I think that race is heating up, basically. That’s where you’re seeing many, whether it’s at nation state level, or private stablecoin issuers. In Singapore, there’s a few that have issued SGD stablecoins. Indonesia, there’s a local company that issued IDR one. There’s one in Philippines. There’s the E-Naira, which was issued by Nigeria, which is obviously a bit of a fail. You’ve got the AED one that’s come to market. There’s one in Brazil. I think you’re seeing those non-USD stablecoins start to pop up.
For me, the most interesting thing about non-USD stablecoins existing at scale is you can start bringing, just like we were chatting about, bringing the full settlement cycle of a Visa card payment on chain. You can now bring global payments fully on chain because you can go USD to non-USD. You can USD stablecoin to a non-USD stablecoin. Because right now, you keep having to get in and out of that fiat, out of the fiat world into the stablecoin world, just like we explained earlier.
I think once you have natively issued stablecoins, like I say, either by a nation state or a private company, you start being able to enable really interesting use cases like a P2P remittance payment that runs fully on a blockchain, automatic, programmable. Then it gets quite exciting.
Ian:
Yeah.
Chris:
That world is probably, I don’t know, five to 10 years away, but things happen a lot faster than you think. I think it’s an interesting development. We’re watching it closely. Today obviously, 99% are still USD backed.
Ian:
Yeah.
Chris:
I think that remains true for the next couple of years. I am quite excited to see where payments can go if you have more currencies, at least G7, G20 type currencies on a blockchain, and what the FX markets start to look like in that world.
Ian:
It seems like it could totally change how FX trading is done, if it’s all on a blockchain. That would be pretty interesting.
Chris:
Instant settlement. Long gone are my days chasing MT103 messages on an FX desk at Faro to try and figure out where $10 million of client money is. Stuck in the pipe somewhere.
Ian:
I’m curious, because you brought up nation state issued stablecoins. I think a lot of people would refer to that as a CBDC, or central bank issued digital currency. It seems like we go in waves of popularity and pilot projects there. Are you seeing anywhere that those are actually getting traction, and some level of adoption and usage?
Chris:
I think you, again, hit the nail on the head there. You’ve got these waves. I think what really sparked the original version of nation states with CBDCs starting to make a bit of noise was on the back of the Libra/Diem project by Facebook. They looked at it and said, “If Facebook issues some sort of currency to three billion people, we’re probably at risk as nation states, so let’s probably pay attention.”
Ian:
Yeah.
Chris:
I think that really kicked those CBDC research reports, pilot projects, all of that sort of thing.
My view, and there’s many smarter people working on this, from PhDs in economics, and this sort of thing, all set a central banks. Again, I go to I let use case and adoption … What are they going to be used for? I’d let the use case drive me. Obviously, there’s a lot of theoretical things about why this would make a lot more sense. But if you just look at the function of a bank, and me as a user and how I use money today, I do not ever, just like we said earlier about governments getting most things mostly right, I don’t think central banks want to move into retail banking, which is effectively what this would do.
Ian:
Yeah.
Chris:
It would give an individual user an account at a central bank, which is really how banking works today. You’ve got a commercial bank that faces off against a central bank. Then that commercial bank is set up from a KYC, customer support, all of these sorts of levels to serve end users or retail customers. I very much don’t think that central banks want to get into the business of retail banking.
I do think they look at it, from some of the really interesting use cases that’s reversed back to COVID. I remember there was an issue when the US Government tried to get those stimulus checks to individual users, and many people couldn’t get them, they didn’t know how to cash them. Obviously, a stablecoin at that point makes a lot of sense, because you could just send them money instantly on a blockchain.
But I think those isolated use cases shouldn’t really, or are not really driving the innovation there. I think we’ll probably still see a lot of these theoretical, “This could be used for X, it could be used for Y.” I still haven’t seen the clear use case for a central bank stepping in, besides protecting their own currency in some instances.
But look, I’m more pragmatic and closer to the use cases versus the theory, so I might be wrong and there might be a lot of interesting stuff happening at that central bank, and in those research departments at central banks. I’ll let the market tell me whose right or wrong, in time.
Ian:
That’s right. Your perspective and mine are very much aligned on this point, so we can be non-experts who agree strongly.
Chris:
Nice.
Ian:
Last question for you, Chris. When you look forward over the next two to three years, what gets your really excited in this space? What should people listening keep an eye out for? Either coming from BVNK, in terms of innovation you all are driving directly, or market changing dynamics that we should be aware of.
Chris:
Yeah. At BVNK, we’ve really been on this mission to accelerate the global movement of money. The vision that we have of where we see this going is connecting realtime payment rail. Local payment systems, who are all innovating at their own pace, together using a blockchain, IE replacing Swift and upgrading payments infrastructure. We’ve obviously done that in Europe, with our access to SEPA. We’ve done that with Faster Payments in the UK. We’re doing that now. I’m most excited about our US expansion. We’ve been expanding in the US over the last 12 months. We have a US MSP registered in Delaware, multiple MTL licenses coming through, getting access to local payment rails.
For us, it’s about how do we use stablecoin and this new payments infrastructure, the blockchain at least for the payments use case, and connect all these realtime payment rails around the world, whether it’s Pix in Brazil, whether it’s ACH in the US, Faster Payments in the UK, Pay Now in Singapore, to a blockchain, and create this realtime payment instantly. I think that’s we’re all working towards. And what I’m most excited about, the future promise of stablecoins for payments. I think that 2024 has been a great year for stablecoins more broadly, but I think more payments professionals are starting to wake up and see, “Look, the last big innovation in payments infrastructure was probably when Visa came around and innovated around there.”
We are looking at a real cool upgrade to payments infrastructure that we haven’t seen. I think the first generation of fintechs very much put great UI on very shoddy infrastructure. Now we finally have a full infrastructure upgrade. Getting that more permeated into the market is really what we’re quite excited about, and are driving towards, and bringing to life at BVNK.
Ian:
Amazing. This has been a fantastic conversation, Chris. I learned so much. Thank you for joining us on Public Key.
Chris:
Ian, always great to chat. I look forward to hearing this on the airwaves.
