Keynote: Making Sense of Stablecoins by Liam Horne | Devcon SEA

[Music] all right can you guys hear me okay great um okay so um they asked me to talk about stable coins I've been talking to friends about stable coins uh a lot over the last little while and so I'm very excited to kind of share my my thoughts and where I think they're going and why I think it's important for ethereum so um I'm giving them a second to put the slide on because this is different slide you guys almost got it by the way I'm probably going to skip through some parts of it because I think we have 20 minutes and I put to go like a 30 minute presentation uh but I'll but I'll do my best to make sure I kind of like share what's what's interesting to me for [Music] all right I think we have a little technical issues on the most uh Tech conference uh but it's happen sometimes yeah so sorry about that I think we probably need a few minutes so Liam not sure if you're comfortable to share something about what's like about the talk today um yeah okay so I can I can share a little bit about it so some context why why am I even interested in stable coins at all like my background in this industry has been uh as an engineer like I've been predominantly focused on like Building scalability Solutions and on like doing hackathons and all the tech stuff but stable coins have always been sort of like outside of the realm of the technology they've been a lot more like around exchanges uh they've been sort of opaque and confusing and even when I talk to Folks at like dinners in this industry like there's not a kind of a coherent understanding of why are they relevant what is it about them that's special um and you know you can use phrases like people you know build stable coins on ethereum or is it is it the case that stable coins are enabled by ethereum or is it the case that um stable coins are just like a customer of ethereum it's unclear why they're so uh impactful and so what I wanted to do in this whole presentation in just the past several months of thinking about stable coins is kind of demystify it understand how they came to be and what is it about them that might be the thing that makes uh ultimately might be the biggest impact of cryptog into the future so so that's where I'm coming from with this all right let's do it so I already just jumped into a bit of it why do we want to make sense of stable coins um last year I took a bit of a step back U from being really hardcore in the tech of the space and I wanted to see where are are their Real World Adoption of crypto and one of the most like jarring things when you kind of talk to people and you look at the data is that the biggest use case of like payments in crypto shockingly is not even on ethereum at all it's on Tether on Tron and that led to like writing this blog post um earlier this year which kind of Dove deep into how that happened which I'm going to talk a little bit about in this presentation uh and I wanted to see well if we're building all of this decentralization infrastructure is it the case that the lasting impact might actually not even be on ethereum at all and and how does the industry maybe evolve in a way that we we we don't end up in that scenario where you know ethereum is just kind of this Niche Cipher Punk movement and doesn't actually end up mattering a lot in in the rest of the world so I wanted to kind of figure that out so uh I'm going to dive through what is it about stable coins that how product Market fit and then the history of how we got there and then I'm going to speculate a little bit about where I think we're going to go next so why is it that stable CS have product Market fit uh I want to start with just some mind-boggling stats uh nearly $180 billion now are in circulation of stable coins and this is a 400x in the past 5 years so you know and this is not even that long ago like this is still like after the Ico Mania area era we've still had a 400x in stable coin Supply uh and it's not just like resting there people are using it for um U moving money around and and they're using it not only just uh for speculation purposes but they're consistently using it month over month uh for uh all kinds of purposes and you can see volumes this is from visas onchain dashboard uh and transaction couns are just up and to the right and the cool thing about it is that it's not just Tethered to speculation you can see even as you know nft craziness happened Ico Mania the recent meme coin Mania um stable coin transacting addresses and also the transaction counts just keep going up and to the right month over month and if you're in crypto and you see something like this that's not a crazy you know bubble up and down this is like beautiful because it means there's like something here that you know is sustainable long lasting so so what what what exactly is going on um one of the best uh indications of why this is valuable I've seen is uh the simple use case of accessing the dollar and here's like a really clear chart of how you can understand why it's so valuable in Argentina as the purchasing power of the Argentinian peso has gone down uh I think like 82% in the past couple of years there's been a 10,000% increase in stable coin trading volumes in that area it's in in essence and you can go there and talk to the people their currency isn't working for them but stable coins are giving them a really easy way to kind of get access to us stable currency for their everyday basic financial needs it's not about crypto token trading it's about genuinely improving their lives and the financial access that they can get um and there's this really great survey that came out I think about a month ago month and a half by Castle Island Ventures uh brevan Howard digital they went around to these countries where you know there's charts just like the one I showed you and they asked people what are you doing with these stable coins and you know the biggest answer actually was not on this slide 50% was you know crypto trading nfts but it was just 50 and 47% is still saving in in dollars as well as pretty high percentages are just getting currency conversion benefits they're earning yield on their savings they want to move money internationally and so it's indicative that people are using stable coins not just for trading but also for real um important elements of their financial lives and there are businesses being built now that facilitate this bridge for example this is a screenshot from their documentation it's effectively giving uh all the uh movement of money um products that you might need to kind of benefit those use cases or to enact those use cases as an API and that's one of the reasons why they were so valuable um and those API are being used for products like uh remittances loyalty point conversion uh you know aish Board of financial use cases in Argentina with lemon stripe now supports payments and stable coins as well as payouts to people after you've accured that that capital and PayPal is entering the game with both like a payments product and a branded stable coin product and I showed the the bridge docks and if you don't know just uh I think a week and a half ago like not too long ago stripe acquired that company for $ 1.1 billion which is the largest acquisition in the history of the industry um so this is not just something that's kind of happening it's kind of rising this is already enormously valuable and big players are taking note um and if you don't know this fact hopefully you know at this point uh The Business of Being a stable is insane tether is I think the largest it's the the most profitable company by headcount in the world so far this year they've already earned nearly 8 billion doar in pure profit on the the yields from the treasury bills they buy with the stable coins that they uh they the cash they get from the stable coins they issue and this is on the level of nation states like Germany and Mexico are kind of in the same uh order of magnitude in terms of treasury bill purchases as as kind of combination of tether and circle so it just it's just wild I just kind of want to employ to you how how big this has gotten and it's not like this is some other things in crypto where it's very regulatorily challenging and confusing uh there's a huge uh group of people Lobby lobbying for regulation across the world and and Regulators especially Forward Thinking um governments um like the Singapore money Authority um and the Central Bank of the UAE they're already adapting to stable coins and writing policies to regulate issuance and make sure that it's done correctly so the world is adapting to this in a way that it's not has not as much done with say uh tokenization so you know what is about the product Market fit it's the fact that stable coins are programmable they're highly traceable they're fungible they're interoperable uh they settle instantly 247 they're Global it's a basically it's programmable money it's a better form of money uh that make them so useful so that's what's going on uh it's a pretty big deal uh I wanted to understand why is this happening though how like how did we actually end up in this world where there's this new form of money and how is it that it's all been kind of accepted uh and this is now the new norm and so I looked at the history and just it's it's very interesting how it all occurred it started uh in 2014 during a time when there was a lot of Bitcoin trading and new altcoins popping up and uh a new coin uh was created by Brock Pierce who actually was the guy from The Mighty Ducks movie um which is really cool uh and they announced real coin and real coin the pitch was basically today what you'd recognize as what's called a stable coin today it was get the advantage of the Bitcoin protocol to the dollar meaning uh anyone can access it without a trust to third party but it's backed one to one by a company's Reserve this was the first time this product was introduced um you know later they renamed that to to tether uh and and I want to show what is it about that product that ended up being so useful with a kind of a a very simple diagram here uh at the time there were a lot of these exchanges and the the supposed to be emojis in the bottom that were opening up around the world to facilitate Bitcoin trading people wanted to buy and and and sell digital assets uh altcoins Bitcoin and so on and they were trying to get banked uh with you know for example you know different banks around the world but a big problem in this era because of things like the Silk Road was that they would regularly get debanked you would have trouble making your exchange work uh because you couldn't get access to a US dollar bank account uh what tether realized is that that is a solvable problem by bundling the relationship to the banks and sort of going directly to the exchanges that wanted to facilitate that uh those exchange of digital assets and effectively use blockchains as The Ledger so tether could go to the banks the exchanges could leverage tether for on an off- ramping of of assets and there'd be a much more sort of decentralized way in which people got money in and out of exchanges so this helped exchanges all over the world start trading digital assets but the other really important thing that it did is it enabled because blockchains are open protocols they're not closed silos uh siloed Banks it enabled inter exchange Arbitrage uh which is really interesting and you can see how you know this is a bit later on as the trading volumes of crypto assets went up um so too did the supply of stable coins and the reason why is that when people wanted to trade digital assets that led to huge uh price differences in different markets which led to massive Arbitrage opportunities which means if you want to make money in an Arbitrage opportunity you want to flood liquidity into those exchanges uh and do the market Mak you have to do to kind of uh get the prices all in line and earn your profits from arbitraging and who is doing this um it's kind of interesting to see the history the biggest one by far was Alam research SPF um you know there's also Cumberland other market makers what they were doing effectively is going to tether giving dollars getting tether back going to exchanges and then putting liquidity across multiple exchanges to Arbitrage across them and that is what caused a huge spike in the supply of um and and ultimately drove huge numbers of transactions through the blockchains that were the things that tethered them together um and you know really interesting kind of uh Quirk of history is that it started out on the Omni Network which was back in the day when they launched tether pre ethereum was was mastercoin uh which is actually the product that falic almost uh joined before they kind of rejected him and he went and started ethereum um but then ethereum took over as the rc20 is became very popular um but because ethereum didn't scale Tron was able to kind of take a bit more of the market over time and now we're in this kind of equilibrium where it's kind of ethereum and Tron are the main places where uh stable coins end up living for this sort of inter exchange Arbitrage opportunity um another cool part of this was that binance played a really big role as more and more people were buying digital assets in all these different countries binance was really effective at getting huge numbers of users um on their platforms and when it came time to kind of move Assets in and out of binance they would end up using tether they'd end up using Tron because of what actually ended up becoming the default way to move tether in and out of binance uh was via Tron um I don't know exactly how that deal ended up being arranged but it kind of cemented Tron as kind of the place that you ended up using tether for a lot of places where people had binance accounts and that ended up now into the situation that we find ourselves in where there's huge amounts of supply concentrated than tether um binance is still the largest holder of tether uh and other exchanges uh you know just just you know pretty far beneath it actually and Supplies on uh ethereum and Tron so that's how we got here and so I looked at that and I was thinking okay what are the network effects that maybe we can observe occurred between those those companies and maybe are potentially uh going to be important going into the future and uh what I want to kind of pause it to everyone today is that there's three really interesting players in in here which are stable coin issuers blockchains and uh ramps and you can look at this diagram it's I'm not going to go through all the labels but you can see there's a lot of very naturally occurring Network effects between these three sort of entities um stable coins obviously earn huge amounts of yield that's reinvest for all kinds of purposes apps Drive transactions those are the things going and getting customers to put money into the system for whatever use case trading or whatever might be and chains ultimately are place places where transactions settle fees can ACR and it's also where liquidity Aggregates um and I want to say historically I think these three players were really U successful at kind of uh leveraging some of those Network effects uh and it's one of the reasons where they've kind of gotten themselves into that's a very dominant position in the market and similarly today if you look at what's going on with coinbase base and circle I think that they're replicating a lot of these benefits um but uh something interesting has happened in the past few years which uh I think is very exciting and it's worth everyone kind of being aware of which is that uh this is sort of changed and so I'm going to explain what's changed and why it's gotten easier um historically it's really hard to do any of these three things every time there's a new chain it's a new algorithm it's a new token it's a New Foundation it's a new you know new brand it's a new community it's it's a really complicated Endeavor um every time there was a new stable coin it's again very complicated you have to get all these banking Partnerships you have to build a brand for your stable coin uh it's a very big business you know these are these are companies that are getting started um and similarly with ramps or or exchanges whichever kind of term you want to use um these are very big businesses too you're going to Time Square Billboards driving people to want to buy and sell crypto assets um and so this has been very hard but in the past few years this has radically changed we've solved scaling for the most part we've made it very low fee and and very easy to launch a new blockchain uh similarly stable coin issuance has gotten a lot more normalized and you can can launch a stable coin through something like a paxos or a braille um and Sexes are being unbundled into apis what I showed with Bridge earlier their documentation is effectively something that people are leveraging exchanges for historically now as an API so it's kind of this like unbundling uh of of the of the things that those businesses did and being made available for people to build on their own so examples you can now launch a new blockchain like you launch a new server using conduit Alchemy uh or any Ras platform you can now launch a stable coin like you would work with any other vendor there are plenty of vendors that will help with the regulatory components and figure out how to pass the yield to you or your customers um and ramps are you know there's a huge industry of ramps and I've have a slide showing some of them uh later on that now are possible for you to integrate with uh for your business so the question I kind of pose is like okay in a world where we don't need different companies for each of these kind of three um kind of pillars of the industry what what things can get built what what fills in these circles um and what I'll pause it is that uh it's all about distribution uh this is what I've been really occupied with in the past a little while is how do we get more and more companies that have huge amounts of distribution like you know the top apps on the finance page in the App Store the revolutes uh this is this is America no revolute but the cash apps the robin hoods you know the venos PayPal how do we get them who have huge customer bases to want to integrate with ethereum because if we can bring hundreds of millions or more users effectively through their distribution that might be the fastest path for us as as the ethereum community to get uh this technology to the masses um and I I think there's three major kind of ways you can look at this in terms of how it'll evolve I think the apps are going to be a lot less speculative in this world where distribution is the most important part it'll be a lot less about how do you buy and sell crypto assets and more about how do you do payments cross border Commerce settlement uh how do you how do you kind of provide consumer fintech uh products the chains will be a lot less narratively driven personally I think it's a lot less exciting what the next ethereum color is they're very incremental it's going to be a lot more interoperability driven how do you make it so that your chain connects with sort of the city of ethereum um and you know how do you make it so that your chain is also going to benefit your customers I'll give an example about what world is doing with with World chain but if you have a world ID you're kind of privileged on world chain in a way which attracts you to that chain I think that's the kind of thing that'll differentiate chains into the future um and then Stables it'll be a lot less about sort of the Branded stable coin how do we get maximum liquidity and a lot more about this these short-term Journeys where money goes into a stable temporarily for the benefit of moving it and then uh comes back out later so that's kind of my thesis um and I'm hoping that we'll see a world that looks a bit more like this where PayPal through the combination of stable coin issuance and the combination of leveraging blockchain platforms will be able to kind of effectively take a lot of the values that we've kind of embedded into the technology of ethereum and bring it to uh to their customers so um that's where I think things might be going I think for ethereum to win there's three major areas that it needs to focus on like if I was CEO of ethereum is the kind of things I would like make sure like are really being nailed um one is access two is liquidity and thre is in our operability um pretty straightforward access basically means if you are someone that has a business in any one of these countries or anywhere else in the world where this huge you know very disperate Patchwork of banks how do we make it so that no matter where you are no matter where your money is you can get it into ethereum through some ramp providers some API some some through some means uh and this is you know ethereum has a huge Head Start it's been around for um nearly a decade we have tons of Integrations already and I think we can leverage also all of these companies that have been built in our ecosystem to get all of that um all those Integrations done um and if we do that it's going to make it incrementally easier for companies like a Dao which has building sort of uh an app on the App Store you download it if it's possible no matter where you are in the world to just get your money into this app all of a sudden we have sort of a universal venmo that just works for everyone um so it's the access is really really important the second one is liquidity ethereum is way ahead on this we're already by far the largest um aggregator of capital in this industry I think it's really important that we continue to double down in that and we don't lose sight of that and it's been great to see in the past you know year the ethereum foundation and etherum researchers have really focused on defi as a use case uh I think the fact that ethereum is kind of the New York of the you know the city on Mars which is what what Paradigm calls it is really really important and we have to continue to aggregate that liquidity because it's that liquidity aggregation which enables this kind of use case where because ethereum has it all in one place we can enable um really low fee FX conversions for example on chain in a way that competes with wise you can almost think of wise as like a blockchain in a sense that has a ton of integration Partners um that they've manually had to build up over the past decade but compared to the aggregate Manpower of the entire ethereum industry I don't think it can compete um similarly you can see more apps like stable which effectively is going out and saying hey the crypto economy has really good yields and so if you want to get access to the best highest dollar denominated yield that's you know obviously there's risk and so on but relatively risk-free comparatively um you know just one you know Jal app face idea and get and get and get that value so that's the liquidity and then the final piece is interoperability which is I want to describe in kind of two two different ways um one is super apps so if you're not familiar with super app is an application like this one which has tons of different um use cases all in one m one single app this is very popular especially throughout Asia um WeChat grab here and so on uh I think that super apps might be a type of application that ethereum can really accelerate the developments of um and I'll kind of give like a really fast pitch as to to how that is um if you think of a super app you start with some concept of identity so like WeChat you know has all WeChat users in China for example some integration with a payment system uh Integrations with other companies and products and then engagement uh with the application um I think the cool thing about ethereum is that it makes this step permissionless meaning instead of having you know if you want to build a super app going out and building hundreds of Partnerships to get them into your application ethereum mean uh ethereum lets you have permissionless Partnerships uh and I give the example of worldcoin which has about 15 million people now that sign that are signed up for an orb uh they are all effectively able to uh be uh uh using the world app they're able to kind of uh access different applications permissionless through something called minikit uh which is going to end up showing up on the world app using mini apps uh and the reason why it's possible is because of this kind of permissionless integration anyone can uh create a mini app um I'm going to skip over the Partnerships example but the tldr is maybe through ethereum we can enable Partnerships between brand BS in a way that they already kind of want to do but with ethereum it's a lot easier so those are the three things um in short I kind of went over them access liquidity and interoperability those are the three most important things I think that ethereum really needs to nail if we get these down then I don't think really any other ecosystem can compete all right Liam I think I need to cut you off because uh it has to be on time I'm so sorry do you want to say I got one more I got one more slide um Let me let me do one more side really fast if I can okay screw it I can I can do it okay I just want to share this one meme um I think that not this one I think that stable coins are basically the gateway drug to ethereum if we can get this use case really nailed uh I hope is that in the future we get kind of the technology of ethereum in the door into the hands of consumer fintech and it's by espousing our values and coding it into the into the technology uh and then selling it via stable coins that will'll get ethereum into the world so yeah thank you very much all right let's give him a big round of applause wow thank you and I think St cor is really taking the right now as you can see it's full house okay let's do Q&A uh do you think we should have spent more time thinking about transaction privacy for stable before the space grow to yeah this is a really fantastic question I think one way of thinking about ethereum is is kind of somewhat a bit torant in the sense that it's the alternative thing that you could use if uh if you didn't want to use whatever else aside gives you and I think that this is the kind of a feature that ethereum we we believe in right it's kind of part of the cyer punk e ethos we should embed it right there's there's a counterfactual version of the world where we don't have privacy you know this technology goes mainstream and privacy just wasn't implemented in time and we've almost normalized this so it's actually a good thing for ethereum to think about is how do we make sure that we codify into the protocol the things that really must be there such that in a world where you know technology just just lifts off in a way that can't control the key things we really need to be there are actually in the protocol so yeah I think privacy really needs to be emphasized very highly at the evm layer for sure okay and what's your opinion about why wouldn't government just Crush third party stable and enforce cbdc in yeah I think the bull case for this is that ethereum is credible NE incredibly neutral block space right it's kind of like is it is it really possible to get a bunch of different government entities all to collaborate on launching some sort of a chain that has this level of liquidity um and this level of interoperability across the world banking systems like it might not be actually be possible um so I think the fact that ethereum is credibly neutral means that people want to integrate with that uh and and it becomes the thing that governments themselves integrate with even if they do a cbdc okay next one uh do you think there's demand for non USD stable coin what do you think what about it yeah what do you think yeah I think my take on non-usd stable coins is that um it's probably going to be the case that uh government entities are going to want to prioritize their local currency in a world where stable coins do take off anyway but it's kind of like I said with a bit torned example it's it's the alternative you could go to so if it's always possible to just go to your laptop and effectively get access to the US dollar then you're not in in your government's currency sucks you're probably just going to go get the US dollar but if it's the case that your government's currency actually is reasonably well-run like in the case of maybe in Euro people prefer the Euro over the dollar then maybe people will use Euro stable coins there in a world where this stuff takes off so the good thing about this technology is it raises the bar of the credible alternative you could use uh if your if your local kind of more centralized version isn't that great okay I think we got 40 seconds left um what are the most promising decentralized stable coin in your opinion crypto wasn't mean to be secured by a company's bang account yeah this is I mean this is a good question um I don't know I've been a fan of D since the beginning um I think that I think sky is a great protocol I I use Sky a lot um but I I I know where this is going to go honestly the hard part about the centralized stable coins is that they're fundamentally it's way harder to build one of those than it is to build a centrally issued one um I think that this industry would have to kind of espouse like its values on stable coins and we'd have to all agree that the the the denomination on like dex's instead of it being usdc or usdt it should be die um but that's going to take a lot of political willpower I think all right ladies and gentlemen Liam horn thank you thank you for your inspiration and side talk about stoc C