Jeremy Allaire, cofounder and CEO of Circle, and Sean Neville, cofounder and president, discuss why they think the internet of value will be even bigger than the internet of information and how all assets will be tokenized. They also talk about why they’re launching a stable coin, how their services in payments, exchange and investing will compete against decentralized versions of the same, and how they chose the assets for Circle Invest — and why XRP didn’t make the cut. They also address the investor presentation circulated that claimed the SEC would not pursue enforcement against Poloniex for prior activity and explain why Circle took investment from Bitmain despite negative sentiment against the mining equipment manufacturer. And they explain how Circle could compete once Wall Street incumbents begin to offer competitive services in crypto.
Thank you to our sponsors!
Clarity PR: http://clarity.pr
Circle’s plans around a federal banking license and brokerage and trading registration: https://www.bloomberg.com/news/articles/2018-06-06/circle-in-talks-with-u-s-to-become-licensed-bank-trading-venue
Acquisition of Poloniex: https://blog.circle.com/2018/02/26/circle-acquires-poloniex/
XRP in a screenshot of Circle Invest, but offered after launch: https://www.coindesk.com/circle-adds-monero-crypto-investment-app/
The Circle Asset Framework: https://www.circle.com/marketing/pdfs/en/circle-asset-framework.pdf
Nathaniel Popper’s tweet showing the Circle investor deck indicating the SEC won’t pursue action against Poloniex: https://twitter.com/nathanielpopper/status/968202570719117313?lang=en
Circle’s stable coins + Bitmain investment: https://blog.circle.com/2018/05/15/circle-announces-usd-coin-bitmain-partnership-and-new-strategic-financing/
Unchained episode on stable coins: http://unchainedpodcast.co/why-its-so-hard-to-keep-stablecoins-stable
Unchained episode with David Vorick, which includes some comments on Bitmain: http://unchainedpodcast.co/why-asics-may-be-better-than-gpus-even-if-they-tend-toward-mining-centralization-ep67
Hi everyone. Welcome to Unchained. Your no-hype resource for all things crypto. I’m your host, Laura Shin. If you’ve been enjoying Unchained, hop into iTunes to give us a top rating and review. That helps other listeners find the show.
Clarity PR is a global, strategic communications agency that shapes market-leading narratives for brands in crypto and blockchain, to drive awareness and grow business. Working with clients, including Atlas Quantum and Securitize, Clarity can move quickly to differentiate the value of your business. Please visit clarity.pr to learn more.
Raising the bar together with Preciate, launching this summer. As a sponsor of Unchained, Preciate has recognized amazing people, because Preciate believes in the strength of recognition and relationships, and the strength of community. Who will be recognized today? Stay tuned.
My guests today are Jeremy Allaire, CEO and Co-Founder of Circle, and Sean Neville, Co-Founder and President. Welcome Jeremy and Sean.
Thank you. Nice to be here.
Laura Shin: 1:00
Let’s start with what Circle is. Jeremy, what are the primary services you guys offer and how do they fit together?
Sure yeah. Circle offers a range of products in the crypto space. At the one end, we have a free payment service, where people can send or receive payments instantly, including across currencies, and that’s built on blockchain tech, and we’ll come back to talk a little bit more about that as we talk about our Fiat stable coin work as well, and sort of all the way at the other end of the business, we have something called Circle Trade, which is an over-the-counter trading service for crypto, one of the largest market makers in the world in crypto assets.
And we also operate trading platforms and investment platforms. Circle Invest is a retail product to invest in a collection of different crypto assets. Today that’s about seven assets, including the ability to buy the market, with just a couple taps. And then, Poloniex, which is a crypto exchange, that we acquired a few months ago, and which is much more sophisticated, both in the range of assets you can trade, and also the trading strategies that you can pursue on that.
That’s sort of the products today, and we’re also launching a new U.S. dollar coin, which is a Fiat stable coin, in the near future.
Laura Shin: 2:18
Over the years, Circle has changed its services and it’s also expanded, and earlier it was a place where you could buy bitcoin. Then it became a place where you could easily make payments in Fiat, but not in bitcoin. And now it’s a place where you can not only buy bitcoin, but multiple assets, as you mentioned earlier. How has the space overall changed as the time you’ve been in it, and how has your strategy changed along with that?
I can take part of that and I think Sean would probably have a lot to add here too. We started the company five years ago, and we were really excited about the idea that this new infrastructure layer for the Internet was being created, and Bitcoin was the best and strongest example of that infrastructure at the time, but we were really excited about the idea that lots of different types of assets could be, what we now say today, tokenized, but could be turned into digital assets, and they could become programmable digital assets, that both traditional forms of money, like Fiat currency, but also other types of assets, could sit on a system like that.
And that once that infrastructure was built, we could really reconceptualize what financial services products were. We could ultimately make things like payment banking just a free service on the Internet, and we could reconceptualize what things like lending and wealth management and other investment-type products would look like all along that crypto-native infrastructure. So, those were founding ideas for the company, but the way the technology has evolved, the way the market has involved, obviously we couldn’t entirely predict. Sean, you could maybe touch on how that path has evolved in line with how the market’s evolved.
Laura Shin: 4:00
Yes, and I’m especially interested in that moment where you did drop bitcoin from the app, and what made you decide to reintroduce, not only bitcoin but multiple assets?
Yeah, I can maybe chime in on part of that. I think, first of all, we never stopped working on top of bitcoin, and in fact, have added other crypto assets over time, so that we, Circle Trade, operates with many crypto currencies, crypto assets. And we never stopped doing that.
Laura Shin: 4:28
But there was a period where people could no longer buy bitcoin right? It was that you were using it on the back end, but people, in their experience, were dealing with Fiat?
But even then, people could still buy crypto assets from Circle. I think you’re referring to specifically the Circle Pay app, which is a mobile app that allows people to send and receive money potentially across currencies, say Euro to dollars and so forth. And that does leverage crypto assets and blockchain tech. In fact, we sort of imagined that the future of payments, whether you think of it as social payment or remittance or whatever category of payment it is, we’d imagine that those things should be operating on top of global standards, like the equivalent in HTTP, but for money, and we can send each other content using open standards around the world.
And we would foresee that in the future payments should execute in the same way, that it should be seamless to send one another payments around the world, and that things like Bitcoin and the evolution of blockchain technology and crypto assets that fuel them will enable that thing to happen. That doesn’t necessarily mean that someone who’s sending a dollar to someone else in the U.S. or overseas to India or Europe or wherever it may be, necessarily wants to buy a bitcoin. It means that they want to be able to seamlessly send money and engage with one another through the currencies that they already use, even though the payment facility itself may end up involving translation into other crypto assets.
And so, that was the focus of the payment product, but certainly it relies on crypto assets to function and we always still traded those assets. And that, as Jeremy had mentioned, is what led to the emergence of Circle Trade, and ultimately others.
Another piece to this, just to maybe answer your question a little bit more Laura, which is, the goal of someone who wants to make an instant free frictionless payment is using a Fiat denominated transaction, the goal of that user is really different than the goal of someone who wants to say speculate on a crypto asset. So, the difference between a payment behavior versus an investment behavior is really, really important, and we want to very clearly segment those.
So, people who want to make payments and do that really easily, and again, we believe that for global mainstream adoption of crypto infrastructure, a lot of that is going to be denominated in Fiat, but for people who want to invest in the underlying assets that fuel these blockchains and other types of assets that are emerging that provide a utility for other services or even investment contracts that are tokenized, people really I think would benefit from a service that is very clearly focused on making investments, managing, looking at managing your rate of return, looking at your risk balance, those kinds of things.
So, rather than trying to munge together an investment behavior with a payment behavior, we have separated out the investment behavior into its own stand-alone app, which is Circle Invest, which I think a really delightful app for people who are focused on investing in crypto or buying something like bitcoin or ethereum or other types of digital assets.
Yeah, I used it last night, just to see what it was like and I do agree that it was so simple. It was very fun. I feel like every time I use this technology, especially if I’m using it directly on the blockchain, through my own wallet or something, it feels like magic, but you guys did put together a great customer experience there.
Laura Shin: 8:02
I’m so curious, actually, and I know this might be a little bit of an apples to oranges comparison, but across your four different products, which offerings have the most traction now, because I view it as maybe a lens through which you could sort of take a snapshot of the overall crypto space right now. So, I’m so curious to know where you see the most uptake?
Yeah, each of the products really are in different stages or lifecycles. Circle Pay has been available broadly for more than a couple years. It has several million customers. It grew 500% last year, and it’s got, I think pretty significant traction in Europe as well, where products like Venmo don’t really exist yet. The Poloniex obviously had an enormous last 12 months. It grew dramatically. We acquired that a few months ago, and that’s a product that also has several million customers. It has been a leader in the crypto exchange market. We’re obviously in a bear market right now, so we’re in a slightly different environment than May or June of last year or into the fall. We can come back to talk about that as well.
And then Circle Trade, we’ve had as a business for several years, and that’s just a very significant scaled business right now, generates pretty significant revenue and cashflow for the company, had an enormous growth year over the last year on a lot of different fronts.
And then Circle Invest is really new. It went to full general availability about a month or so ago, and has had really good early traction, highly engaged users who keep coming back and using it, and we’re very happy with the early traction we’re seeing on it.
Laura Shin: 9:48
And I’m guessing you’ll be making money from, or you already are, as you said, making money from Circle Trade, and I’m sure Poloniex, but it seems like the payments offering maybe is … that’s offered for free and that’s not a money maker for you?
Yeah, that’s right. Circle Pay is a free service, and I think, we’ve talked in the past about this, we don’t believe there’s a business model for payments. We think that payments, whether it’s between people or between people in a business or even between businesses, it’s just going to be a commodity-free service on the Internet, just like sharing information or content or data. We think that crypto assets, blockchain tech, things like applied AI, all make it possible to move and synchronize value, globally, instantly, very, very cheaply, so we don’t really see a business model in charging fees for payments anymore.
Laura Shin: 10:40
And Circle Invest is free as well, but I think maybe you make a little bit of money on the spread or something?
Sean, do you want to talk a little bit about how Circle Invest works?
Yeah, sure. Circle Invest is a zero commission product, so there’s no fee in that sense. Of course, there is a spread and the purchase of the currencies, and we try to be as completely transparent about what that is, it may vary over time as we continue to add more tokens to the product, but that is a revenue-generating product. So, I think in terms of where we’re seeing traction, something like Circle Pay is geared more at usage. Something like Circle Trade, typical trades are say, a million dollars or so, per trade, so that’s a relatively small number of users, but fairly high notional volume.
So, like you said, it’s a little bit apples and oranges, but certainly on the consumer side, the notion is, well, payments, we do believe ultimately will be free. The notion of paying somebody for holding money or for the privilege of sending it and updating the ledgers or, in the world of traditional money, updating the databases that hold the account balances, paying someone to do that will just go to zero. The Internet should make that for free. But whether Circle does it or not, it’s just inevitable that payments, as a business, goes to free.
So, there should be massive usage, and that can be parleyed into other kinds of financial products that are revenue generating.
Laura Shin: 12:09
Let’s talk about your background, because you both have pretty extensive tech and entrepreneurial backgrounds prior to crypto, and I just want listeners who maybe aren’t aware of that to get a taste of what you’ve been doing, but I also want to know beyond what you did, just how aspects of that experience helped you grasp the potential of crypto early, and how that has influenced your thinking about how the space will develop.
Sure. I can start. So, yeah, I’ve been working, and Sean and I overlap a lot in terms of things we’ve worked on, and so on, so some of this is sort of a shared background, but I’ve been working in Internet-based technology platforms since the early nineties, and back in 1994, late 93 and 94, got very excited about the possibility of open protocols making it easy to connect and share information and communications, and actually build software applications that could run through web browsers.
And web browsers had just come out at that time, and so I worked on products that were basically aimed at turning the web into an app platform, where you could write code and build interactive applications that could run in browsers, and helped create a product called Cold Fusion, which was one of the first web programming languages and development tools. That business, Allaire Corp, sort of evolved into a whole family of HTML development tools, server programming languages, app servers, fundamental infrastructure for building the web, building content apps and transactional apps on the Internet. That’s how I got to know Sean, and Sean can share more on his background as well.
And then, that grew to be a global public company with millions of customers, and then eventually we merged with Macromedia, which is one of the bigger Internet software companies in the late nineties, so basically Macromedia had all the tools for creating content. So, creating images, creating web pages, creating animation, creating video, and was the chief technology officer there, and worked on a number of different things, but one of the things that I got really excited about was video on the Internet.
And similarly to earlier things, I think, saw back in 2002, 2003, that open protocols running on these decentralized networks could make it possible to kind of create a model for television distribution and video distribution that replaced cable and satellite and TV, that are sort of more proprietary closed centralized systems. And then ended up leaving Macromedia and starting another company called Bright Cove, which, it’s another global public company now, and thousands of media companies and major brands use it to run their online television and video platforms.
Laura Shin: 15:06
Yes. I’ve used Bright Cove as a journalist.
Yeah, so it’s a lot of media companies use it. And again, the idea was, the open Internet, open networks, open protocols make it possible to replace how an industry works, and open it up to more people globally. So, those were common themes, and then, for me at least, back in 2012, when I became much more interested in crypto, what really struck me, at least, was that, what we were seeing with Bitcoin in particular, was sort of the birth of a new set of protocols and new set of open infrastructure that would decentralize not just information exchange and communications and data exchange, which these prior platforms had done, but it was the foundation for how you could do that to value exchange, both sort of the transfer of value between people, but also how you manifest contracts and how you manifest economic relationships.
That kind of value exchange could all be built on these open networks and infrastructure, and to me, it felt like this was probably more significant than the birth of the web, and that the next 20 years, in terms of the impact of this, would be probably much greater, far greater than the impact of the web. So, it just became really obvious to Sean and I that this was a once-in-a-lifetime opportunity to work on that. But maybe, Sean, you can go through your narrative. My background is less technical than Sean’s, but certainly very product-centric.
Laura Shin: 16:45
Yeah, although I do want to highlight that for listeners, because I also recently interviewed Chris Dixon, who majored in philosophy and I majored in something called modern thought literature, and so I definitely want to highlight, you can go into the liberal arts and still have your profession in technology in some fashion, so I don’t want people to-
Yeah, absolutely. Sean’s a … what you were an English major Sean? Is that right?
Yeah, I mean my background is in engineering, but certainly my undergraduate degree was in English, and I think, particularly because of the birth of the web, it carries through to today, I’ve met so many amazing computer scientists and software architects and the people in all domains, but technical included, who have been political science or English or philosophy. Yeah, I absolutely believe in the whole education rather than strictly vocational paths.
Laura Shin: 17:29
Why don’t you talk a little bit about your background and then we’ll dive deeper into meaningful issues around Circle.
Yeah, sure, maybe just briefly, maybe I’ll take it from the perspective of how this is connected to crypto first and then go backward a little bit. I think one of the common threads for me has been enabling people to do things that they couldn’t necessarily do before, or at least not very easily do before. Whether it’s been someone who’s a graphic designer, or a business person, allowing them to get their work on the web and distribute it around the world to people, and making that really easy without requiring a bunch of engineers to make that happen.
Or in the case of crypto, connecting people who may not have access to first world bank accounts or maybe do have access, but are charged a toll for using them in certain ways, helping them create businesses and support their causes and charities and families and business ideas, and the idea of connecting them globally through a web of finance is really appealing, and I think, has some analogs to previous things I’ve done.
And another element to me, maybe a little more on the technical side is, just this notion of what is information? How is information shared? How is it generated? And if we look at money as another form of data, if it could be treated as just a data type on the open Internet, how is that particular data type best created and shared and distributed globally? Crypto is particularly appealing from that angle.
My past, I’ve created server products and worked on languages and frameworks and mobile apps, consumer side and kind of worked at various stages of different things, been involved in standards organizations and pushing forward open standards when it came to the web, and I think a lot of that is relevant, certainly to this space, but similar to some of the other things Jeremy was mentioning, I feel like, although we’ve known each other for around 20 years and have done a lot of things together, this particular space is the biggest and the most important thing that we’ve been engaged in.
Laura Shin: 19:33
So, I find what you guys were talking about with these open standards and everything, and this free flow of value, similar to the way we saw a free flow of information, I find all those comments interesting because, here you are in this place. I mean, you guys have been making a lot of moves, we’ll just start with one for now. One is that you’ve applied for a federal banking license, and I think this, in a certain respect, it sort of replicates existing structures, but I’m just curious as to why you applied for it and what that would enable you guys to do?
This is definitely an example of, I don’t know what you call it, telephone. Bloomberg published a story, with a pretty dramatic headline, but if you actually read the story, it basically says we’ve had some conversations with folks at the Treasury Department about national charters. So, we have not applied for banking license. I think Bloomberg had heard that we had had a meeting, and got us on the record saying we had a meeting.
So, we have not applied for a banking license. We have tremendous banking partners in the U.S. and globally, and I think, we definitely want to understand how federal banking regulators are looking at the space, and just to put that in context, we are … we’re dealing with a few different things that are kind of at the intersection of banking regulations and crypto, that includes custodial activities. So, unlike traditional payments companies or brokerages, we’re a custodian of assets, and that’s sort of native to how this stuff works. So, we’re a custodian of billions of dollars of crypto assets; people who hold assets across our retail and institutional capabilities, including our exchange, and as more and more institutions get into this space, they want to know, are you regulated as a custodian? Because regulated custodians have certain protections and safeguards and they’re examined differently.
And so, definitely want to understand that. Is there something we could do legally that would improve how institutions look at keeping value in crypto, because we want to see more and more adoption of that. So, that’s one dimension of why we would have those kind of conversations. The other is, we’re really close to launching U.S. dollar coin, and we’re creating a model for taking U.S. dollars and turning them into crypto assets in an open standards way, in a way that works with high quality banking on-shore in a regulated environment.
So, the introduction of tokenized Fiat in a commercially viable way, that really intersects with how the U.S. Treasury’s in charge of the U.S. dollar, so I think there’s an opportunity to work with the federal government on models for how we tokenize Fiat currencies all around the world.
And so, of course we’re going to have conversations with federal regulators as we start moving into some of these types of areas. So, that’s just some context for how a headline like that got out there. But just to confirm, we have absolutely not applied for a federal banking license.
Laura Shin: 22:40
Do you intend to?
Jeremy Allaire: I think we want to continue to grow the business. I think the question is always, are there things we can’t do today legally that would require some other type of license? If, for example, one of the really powerful things about tokens and smart contracts is the ability to express more complex forms of economic arrangements that can include things like loans and debt and tokenized lending, tokenized debt offerings, are really interesting and you can build some really innovative things that involve assets and people from all around the world. We may be able to work with banking partners to do some of that, but if we really want to get close to the middle and reinvent what it means to underwrite and secure a loan using crypto, it may mean that we need other licenses. But that’s not a business we’re in right now. And so, we’ll … as our business plans evolve, we’ll continually evaluate what we need to do.
Laura Shin: 23:40
So, I got this from the same article, so feel free to correct any misconceptions here, but as far as I understand, you also are looking at registering with the SEC as a brokerage and trading platform. Is that correct?
Yeah, that’s right. Our highest priority right now is establishing a broker dealer, and an alternative trading system and operating within that framework, and that’s really aimed at enabling us to provide capabilities to businesses and to investors to take advantage of tokenized investment contracts.
So, we’re really excited about what you can do with smart contracts and tokens, in terms of representing investment contracts. And we have a general thesis that we’re moving into this era of the tokenization of everything, and that includes traditional things that are equity like or things that are debt like. It includes the tokenization and securitization of property, and the ability to build really interesting lending and investment models around property. You know, all these things are regulated activities, and obviously the SEC’s made it very clear that they view those as regulated activities. We agree about that.
But, a lot of the really specific rules around how you do that with a crypto asset, haven’t been really worked through. So, that’s something we’re pretty actively working toward and intend to offer capabilities in that area.
Laura Shin: 25:09
This is somewhat of a long-term question, although because of how quickly these technologies take off, it may be shorter term than I think, but some of the functions that you’re talking about offering, are also being built as decentralized protocols and smart contracts. So, how would you plan to compete with, for instance, like a decentralized exchange that isn’t taking the kinds of fees that you would probably charge?
Sure, Sean do you want to take that?
Yeah. I mean I think, it gets to this really interesting discussion that has been in focus, particularly lately, around decentralization and centralization and what’s the balance there in any given use case. Generally we’ve always seen those things as things that could exist together for different use cases, not necessarily pitted against one another.
And that can be realized in a few different ways. Something like a level one architecture, where you have a base store of value and distributed fashion can also be surfaced, in particular applications in a slightly more centralized fashion. So, if you have a store of value that’s fully decentralized, that may be tradable at Level 1, but if it’s tradable into smart contacts that are, say, considered investments or securities, then that may require a different set of rules that are encoded in slightly more centralized fashion. And that’s not necessarily a bad thing, that can be an enabling thing.
And those two different layers, the decentral and the central, can work well together to enable people to participate in these kinds of contracts and products.
Laura Shin: 26:42
Yeah, that’s interesting. That makes sense. These more centralized relayers that are building on top of the decentralized protocols. Okay, so we’re going to discuss Poloniex and stablecoins or your stablecoin and more, but first I’d like to take a quick break to tell you about our fabulous sponsors.
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Laura Shin: 28:34
I’m speaking with Jeremy Allaire and Sean Neville of Circle. Let’s talk about Circle Invest. The product offers bitcoin, bitcoin cash, ethereum, ethereum classic, litecoin, monero and Z-cash. How did you decide upon these assets?
Yeah. We look at a lot of different things. We’re obviously looking at, what are assets that have significant market cap and liquidity? What are assets that represent what we consider to be clear categories. A lot of these are either blockchain infrastructures or core payment currency type use cases.
We recently published something called the Circle Asset Framework, which is a framework that we look at for any kind of listing decision, whether that’s listing in our exchange or something that will make markets in with Circle Trade, or something that we want to make available in an integrated way to consumers.What you see there is really just a starting point.
Our belief is that over time, retail investors are going to want to invest thematically in lots of different categories, and you see in the product today, by the market, which is a way to buy market cap adjusted investment in the full collection of coins that are there, but you could imagine how that could evolve over time to support other type of collections and to … as we get into a world where there’s not just five or ten, but maybe 25 or 50 or eventually thousands of different types of crypto assets, how do you create an experience for a long term investor, more of a passive investment strategy that someone could make and organize that in a way that makes sense to people.
That’s very much how we think about Circle Invest. It’s not really designed for the day trader. There’s crypto exchanges for people that want to trade in everything or trade really broadly and day trade. It’s definitely designed for someone who wants to take a longer term investment strategy, and those assets were the very clearest to initially get out there. Sean, I don’t know if you want to add to that?
Yeah, maybe just a few things I think. When we look at any project, we want to look at the fundamentals. What are the core tenets of the project and do they align with the core tendency of the crypto currency community, but just look at the technology, the team. It’s a committed, experienced team behind it. Is it creating real value for people? It’s sort of set up to succeed, and of course, there are market dynamics to consider, because there needs to be indicators of sufficient liquidity and of course, legal reviews, which may be dependent on the jurisdiction in which the project is listed or launched.
So you look at all of those things together to assess any project, and I think over time, there will be a lot of really interesting businesses and experiments and collectives that can be tokenized as part of that framework that will become really interesting to people who are not just interested in speculative investment and day trading or swing trading, but making significant investments in those projects and in the value that those specific projects bring to bear, and those are the kinds of projects that we’re particularly interested in.
Laura Shin: 32:03
At the time you launched Circle Invest, a Coin Desk article noted that an initial screenshot included XRP, but you eventually launched without it. Why not list XRP?
We’re obviously continuing to evaluate different payment and settlement tokens. I think there’s obviously been some discussion and debate around the legal status of something like XRP, and obviously we’re going to pay very close attention to that in any decisions we make.
Laura Shin: 32:35
And for that reason, I was also curious why it was still listed on Poloniex, and not only that, but just in general, I was curious to know what standards you’re using for whether or not to list coins on Poloniex?
Sure. Yeah, so as you know, we took over Poloniex a few months ago. Our highest priority has been integrating that into our core operations, stabilizing a lot of things. I think if you’ve been a user of Poloniex, I think they experienced an unbelievable amount of growth last year. So, just making sure that there’s very high availability on the wallet infrastructure. When we took over, there were hundreds of thousands of backlogged cases. Many of those needed to be wrestled to the ground from an operations and engineering perspective, so it’s just been an enormous effort just to get that into a stronger place.
We’ve also been changing and improving the verification procedures for the platform, making sure that it’s compliant with the U.S. laws around identity verification, lots of things. So, those have been our highest priorities. We’re also, of course, looking at the token listing side of it, both are there assets that are not on Poloniex today that we think would be really compelling, and there certainly are, and you can expect to see us launching more assets on the exchange. And are there other assets on there that don’t make sense, whether it’s for market liquidity reasons or lack of developer traction or legal reasons, and so you could expect to see us, maybe remove some as well on those criteria.
So, we don’t publicly comment on what those are or when we’ll do that or anything like that, but we have a pretty rigorous framework around that now, and so you’ll hear a lot more about that in the coming period of time here.
Laura Shin: 34:30
But has you applied that rigorous framework there, because obviously if there’s questions around the legal status of XRP for your Circle Invest product, but you’re continuing to list it on Poloniex, there’s either a difference in standard or the standard hasn’t been applied? And on top of that, when I look at the list of all the coins available on Poloniex, there’s a whole bunch I haven’t heard of that are quite obscure, so I wasn’t sure if that was just because you’re still in the process of implementing that or if you have already culled some.
Yeah, so we … basically taking over a platform with the scale and operation is a non-trivial undertaking. It’s not like you take it over and then boom, you can just start flipping switches and doing things. You have to be very careful about it, because you’re dealing with customer funds and it’s more complex than just sort of making those kinds of decisions. But the highest priority has been obviously getting that infrastructure in a really strong place, and dealing with the core obligations we have around making sure it’s highly available, making sure that customer issues are being addressed, making sure we are verifying all of our customers in the right way. Those have been the highest priorities. But listing and de-listings and that whole framework is also priority for us and we’re going to be doing a lot there.
Laura Shin: 35:50
And aside from one of your presentations that was released on Twitter by Nathaniel Popper of the New York Times showed that the SEC had promised you that they would not pursue any enforcement action against Poloniex for prior activity. Is that true?
I’m not going to comment on a rumored presentation, specifically.
Well there was a photograph. It wasn’t a rumor.
Sure. I’m familiar of course. We absolutely have had very strong engagement with all of the relevant regulators, but what we do, we’re going to do everything that regulators ask us to do, that requires compliance with the law. I think this is a space which is very much a moving target, where this space was back last fall, versus where it was in December and January versus where it is today, it’s evolving rapidly. Regulators’ perspective on the space is evolving as well.
So, what’s important for us is that we have really positive, constructive engagement with regulators all the time and if there’s lines of business that we want to get into that require different forms of licensing, we’re going to do that, but if there are regulators that are looking at the market and looking at activities that they find challenging in the market, and they’re going to pursue those, we’re going to fully cooperate with them as well on those.
Laura Shin: 37:17
And, we have touched on this at various points during the interview, but I don’t think I’ve given you an opportunity to really lay out your vision for what you want Poloniex to be. From your blog post introducing or talking about your acquisition of it, it seems like you have a pretty heady vision. Describe what it is that you’d like Poloniex to eventually look like?
Sure. Sean do you want to take the lead on that and I’ll chime in.
Sure. Jeremy, I’m sure you’ll have a lot to say on this too, but conceptually the thing that’s pretty exciting to us about the space in general is that we are approaching the time when we can have something like a token marketplace, so that people who are starting businesses or interesting projects can tokenize those and surface those things in a marketplace where other people can participate, including investors, if appropriate, and we want to have a platform that supports that, and that means providing software and tooling and technical support for such projects, guidance as appropriate for such projects, so that people can launch and support them, and if we think about what has been referred to as this sort of tokenization of everything, meaning that all forms of value can become represented as a token, then a marketplace to support those tokens and to offer those in a multi-sided fashion is really interesting. I think that starts with something like an exchange today, but it expands to be much more broad than that.
Yeah. I think at a high level, the phenomenon of ICOs was obviously, and has been, a sort of experiment in capital formation and obviously it’s sort of been heralded as this is this incredible new way for capital formation. Lots of that, as we know, is sort of scammy and really problematic, but I do think that there is a fundamental breakthrough here, and the fundamental breakthrough is, it’s possible to form capital and to surface investment contracts that allow people to invest and become stakeholders in technologies, in projects, in protocols and in actual businesses, including being stakeholders, not just potentially getting profits out of how business grows, but being stakeholders in the governance of the business, voting style mechanisms, being stakeholders in a hybrid way, where you’re both an owner and a customer and a user.
So, there’s a lot of really interesting experimentation that’s happening right now, in essentially the recreation of the idea of the firm, and what do microeconomic organization units in this new global, crypto power, digital economy look like, and how do you form capital around those? How do you form contracts, whether it’s a labor contract or a contract to interact with that business, how do you run all of that in a crypto native way? So, really fascinating area, and we feel like, again, we’re in the really early stages of the ability to reconceptualize and design the modern or postmodern firm around this, and we see a tremendous opportunity to provide what we think of as market platforms that allow businesses and even individuals to tokenize things, to tokenize businesses, and to facilitate market participation in those, and to ultimately, of course, provide investment and liquidity options on those as well.
So, when we think about the long term here, it’s really how do we build out, as Sean said, those multi-sided marketplaces to embrace the possibilities here, and just underscore as well, we’re still very much in the early stages of this, and I think there’s some really interesting experimentation that’s happening around everything from the economic models to the governance models and so forth, and we’re just excited, obviously, to help try and create tools and help people facilitate doing more of these things.
Yeah, I’ve spent most of my career as a freelancer, so I kind of love what you’re talking about, because I think it would be amazing the more people that could be independent and not have to work for a traditional business, because I’ve loved my stints being independent.
Laura Shin: 41:50
So, tell me more about your stablecoin, USD coin. You’ve decided to go the route of backing it with dollar reserves. First of all, why have you chosen that model? Because there’s multiple models, and for listeners who missed my stablecoin episode you should definitely go back and listen to that. I will put links to it in the show notes, because there’s multiple ways you can structure these and this is one. It’s a slightly more centralized method. Why did you go this route?
Yeah. I’ll start with that and I’m sure Sean will add. I think actually I want to connect a dot to what we were just talking about here, which is all of these models of tokenization, let’s say if I want to tokenize a business and that allows people to either invest in it or pay to use a service in it, or I want to tokenize property and I want a slice of the property or I want to get some kind of yield out of it, or I want to tokenize a loan and enable someone to have some kind of debt relationship, all of these things need Fiat. They all need a way to take, at minimum, a price stable currency to participate in those.
So, a fundamental infrastructure that’s really missing right now is that, and it really is critical fuel to enable all these smart contract applications to really thrive and grow, and so, that’s a really key missing piece. And it’s a missing piece too even realizing the idea that we can move value around, the same way we can move information around. I want to move dollars in ten seconds in an irreversible way globally, securely, to any device that’s connected to the Internet.
Tokenized Fiat allows us to do that, and it allows us to provide a way to use Fiat in all of these smart contract infrastructures and projects and applications. So if I’m a business and I want to tokenize and I want to enable people to invest in my business, it’s not likely that I want to receive my investment in ether or a volatile commodity asset, just like I wouldn’t want to receive an investment in my business in oil or gold or bushels of wheat. So, having that is really important, but also businesses and people, individuals live in the real world economy. They pay taxes in the real world economy. They are paid salaries and wages, and they buy goods and services in real world economies, and obviously there are hyper-inflation scenarios where they definitely don’t want the real world currency that is in a market, but by and large in the United States, in Europe and in most other markets, that’s a reality.
So, if you’re forming financial contracts or you’re facilitating payments, being able to do that using something that’s denominated in your local Fiat currency is really, really important. For us, the model that we’ve pursued with U.S. dollar coin is really straightforward. How do we take the benefits of crypto infrastructure and public chains for security, speed, settlement, inter-operability, global reach, and extend those benefits to the U.S. dollar? And we really created a model that works that way. Sean, maybe you could talk a little bit about the approach we’re taking with U.S. dollar coin and Centre, and it’s quite different than, I think, a lot of the other Fiat stablecoin approaches or even just stablecoin approaches generally that are out there.
Yeah, sure, I think there are lots of interesting projects in this space, algorithmically backed stable coin projects, crypto asset-backed projects, and obviously the Fiat-backed, and combinations of those and hybrids. This is a full Fiat-backed mechanism, but it’s not just Circle’s mechanism, in that Circle has U.S. dollar coin and other potential Fiat-backed coins. What we’ve done is fostered a framework for multiple members of a network to mint Fiat-backed stablecoins. Circle is one such minter of these coins, but you can imagine other companies participating in the same network, and that network is managed by something called Centre, C-E-N-T-R-E, which we are spinning out and donating a good bit of intellectual property to, so that it can operate separately.
And the notion there is that Centre as a network can enforce network rules on all the members that participate in this framework, including Circle, and those rules involve things like ensuring full licensure, solvency, audits, and general network behaviors, and so, that kind of thing can’t be managed just by one of the issuing minters, like a Circle. It needs to be provided by a separate authority. So, Circle is delivering U.S. dollar coin, but there will also be others who similar offer a U.S. dollar coin, using the exact same framework, and the same framework can be used to offer Euro coin or Yen coin, or others in the network that are all pegged to underlying Fiat assets.
Yeah, so we announced recently that Bitmain, that they’d invest in Circle, but they’re also becoming a founding member of Centre, and setting up businesses to issue Fiat stablecoins in some Asian markets as well, using the Centre protocols and network.
Laura Shin: 47:15
Interesting. Yes, this is actually very interesting. Basically, let me recap it for you to make sure that I understood it correctly. Essentially, you have created this non-profit organization that will set standards for entities that want to accept dollar reserves in order to issue these USD coins, and so there can be multiple providers of the USD coin. Is that correct?
That is correct, and other Fiat coins as well, so there could be Euro coins, Yen coins, and any currency market that wants to operate with this kind of technology.
Laura Shin: 47:52
Okay, and so I imagine there will be standards around auditing, maybe something around the standards for the bank and certain, I don’t know, certain licensing or registration requirements that it has to have, something like that?
You got it. It’s basically a membership and governance scheme, and it’s an open source technology project, and open standard protocol definition, so it brings those all together, and the membership and government piece, really to become a member, you have to be licensed to issue electronic money, whether as a money transmitter or being a bank itself. You need to obviously be in good standing with your compliance with that, and you need to also have the ability to prove solvency, so that the minted and issued assets are fully solvent and are provable and published publicly, regularly. And then there’s some auditing of technical procedures that have to do how an issuer’s own technology’s interact with the Centre smart contracts that are for minting and burning of these tokens to make sure that there’s confidence in the quality and reliability there. And there will be an evolving set of other network rules that will emerge around that as well.
Laura Shin: 49:04
This is interesting, because in that previous episode I did on the stablecoins, I had asked one of the guests, who was Rune Christensen who does MakerDAO, where the way they do it is they over-collateralize their coin, which is pegged to the U.S. dollar or whose value’s pegged to the U.S. dollar, but he said to me, “Oh, you know, that kind of coin is centralized,” and I just wonder what his take would be on this, because this is more decentralized, but obviously, as we’ve seen in the past, banks aren’t entirely trustworthy. So, anyway, I do think it’s a very interesting model though.
Yeah, I think in our view, people want dollars, so they’re actual dollars. I think in the future that people might want something that’s not an actual dollar. They might want something that has stable value that is based on a bond or an algorithm or a mixture of things, maybe it’s a basket of reserve currencies that are algorithmically traded to be price stable. There’s so many ideas for how you could do this in the future, and we’re really excited about those, and at the protocol layer, what Centre’s working on can support those kinds of things as well in the future, but for where we’re at today, whether it’s making payments over public chains or participating in investment contracts, if we really want this to take hold at a mainstream level with businesses and individuals, having Fiat money actually work on this infrastructure is quite important. And so, that is why we’re using that as a starting place today.
Laura Shin: 50:43
Yeah, I think one puzzle piece that would need to be worked out for sure. Well, actually this is slightly tangential, but I did read that you guys had pitched yourselves to the OCC to help set standards for custody of crypto assets, and I’m just curious what you think would be the recommendations that should be adopted.
Yeah, I think custody over crypto assets is something that folks who’ve been in the industry for a while have a pretty good understanding of, in terms of how to do it, with high levels of security, and it’s continuing to evolve. When we got started, really, the only thing people were custody-ing, was bitcoin, and now people are custody-ing up to 100 different types of crypto assets. And it starts to get more complicated. So, what is … a token could be representing a dollar, and so you’re custody-ing a dollar. It could represent a digital commodity like a bitcoin or ether. A token could be an investment contract, so essentially you’re custody-ing an underlying bare instrument that represents some kind of equity value. When you think about what a house or a car is, the actual property is not the physical object, it’s the title and the title is a certificate of some sort. So, if you tokenized those kinds of things, securing and storing and holding on to all these is going to be a really different thing, and it’s quite different than the custody requirements for what a bank is, which is really the kind of safeguards and record keeping and audits and procedures. It’s really around safeguards and procedures and reporting and visibility and that kind of stuff is really what defines a qualified custodian in any given one of these spheres. But I think this is going to actually … custody of crypto is sort of like saying custody of all forms of property, and it’s going to quite quickly exceed the realm of even traditional bank custodianship focused on.
Laura Shin: 52:50
You already answered the next question I was going to ask you, but I do still want to discuss it a little bit more. I have been reading Bank of New York Mellon, JP Morgan and Northern Trust have all been looking at providing custody services, and I’ve been at some of these conferences where people seem to feel that those institutions are more trustworthy and once they enter the space, then some of the crypto native companies won’t stand a chance, so I’m just curious, how do you feel you will compete once these companies start coming in?
Yeah. I mean, I think people maybe thought AT&T was more trustworthy than say Google or Walmart was a more trustworthy brand than Amazon, or you name it. Basically the big industrial giants of media communications and retail have all been replaced by technology companies as the adored brands that people trust.
There are obviously chinks in the armor of some of these big internet companies, and we’ve seen that play out obviously, but I think technology companies have done an incredible job of delivering exceptional value, great products, incredible user experiences with better economics than their pre-technology company counterparts, and so we think in the future of finance, yeah, I think it’s going to be global technology companies that are built natively on this infrastructure that people adore and trust. And so, it’s going to be one in the market, not just because you have some old guys’ name on your company
Laura Shin: 54:19
Although I do think with money it’s a little bit of a bigger leap than it would be just for communication.
It may be. The dominant retail banking brand in China is Alipay. And that is not Bank of Industrial China or whatever, it’s Alipay. It’s a company that’s barely been around for a few years, and almost 800 million people use it for retail finance. So, I think it’s very possible for technology companies to establish really tremendous trustworthy franchises. I do agree that it’s a higher bar, but if you look at the generations, Gen X and Millennials and younger, who have been driving the adoption of these products and services, they’ve proven quite willing to embrace technology native brands and companies, and we certainly think that opportunity exists in this world of finance.
Laura Shin: 55:14
Since you mentioned China, I want to discuss that further. China seems to be part of your strategy. You’ve taken investment from Baidu, IDG Capital Partners, Fenbushi Capital, other China-based firms. You formed a separate company, Circle China, I don’t know what the latest is on that. You’ve received investment from Bitmain, one of the largest crypto money equipment manufacturers and Bitcoin pool operators, so how does China fit into Circle’s strategy, especially now given … because I feel like a lot of this stuff happened, except minus the Bitmain part, happened before we saw this big clamp down in China around crypto.
Yeah, I can take part of that and Sean, maybe jump in too. I think, we’ve always been very impressed with the pace of innovation out of the China market, in particular in fintech as a market. It’s just so far ahead of the U.S. and Europe, so there’s a lot to learn there. This is an example of a market where they’re just way out innovating the West, and so there’s always been a lot we want to learn there.
I think there is a long-term thesis that we have, which is that we do think that China is in the process of opening up their economy. We do think that they’re in the process of opening up their currency to be more open and interoperable with other reserve currencies, and there’s an incredible amount of enthusiasm in China for blockchain technology. If you’ve ever been over there, it’s fanatical in fact.
So, there’s just an incredible amount of interest there. The People’s Bank of China, this was … more of it was published last week on Coin Desk, but they’re marching ahead building a crypto powered reserve, digital currency for R&B, so they’re racing ahead in this area. So, again, there’s just a lot to learn there.
But Circle, we have a global strategy. We have our international headquarters in Dublin. We’ve got operations throughout Europe. We’ve got obviously significant operations in the U.S. and we have operational staff in China. They’re employed by Circle China, that support the global business, and we have a Hong Kong operation, that supports Circle trade, which is a significant business in the broader Asian market in crypto asset trading. So, there are a lot of pieces to that.
Laura Shin: 57:44
And I want to ask about the Bitmain investment, because Bitmain has a somewhat notorious reputation in the West. I shouldn’t have even qualified that with somewhat; I would definitely say it’s notorious reputation. Why take venture funding from Bitmain?
Sean, do you want to take that?
Yeah, I guess one of the things to reiterate or echo a little bit about what Jeremy said is, Circle was founded as an international company, and I think we’re talking together here from the United States, but when we talk about connecting people globally and the new web of finance, that’s not just connecting people from say New York to California. And, I think sometimes in tech, especially in the U.S., we have a tendency to look through a, for better or for worse, a Bay Area lens, when the reality is that in this particular space, the lens is very … it’s international and Asia-focused at this point. It may not be that they’re a generation ahead of everyone else, but they’re a few years ahead, I think, and leading the way.
And leading the way in multiple, along multiple directions, including infrastructure and forward thinking about what this really looks like for all of us down the road, and so that means that there are also really interesting partnerships, including investment partnerships, in Asia as well as in Europe and elsewhere that are helpful for the vision that we’re attempting to accomplish.
And Bitmain is the leading Bitcoin company right now in the world, but has a very broad vision and Jihan Wu has a long-term vision for the impact of this technology and positive ways on the world. Of course there have been some debates around governance and approaches to certain things around the future of Bitcoin and alternative paths, and I think one of the things that is challenging with Bitcoin is unlike previously debates around standards and development of global technology where we had governance mechanisms to allow debates to occur, but ultimately be timeboxed or somehow sandboxed, so that in the past, say a Microsoft could disagree with an IBM, but ultimately agree on the same standard HTTP, so that we didn’t have multiple protocols, multiple web protocols, but even if there was debate, there was a way to agree on a standard.
That hasn’t really been the case with something like Bitcoin specifically, and so that’s led to disagreements that have been notable in the community. That doesn’t in any way detract from the broad vision that we’re all trying to accomplish here together. So, I guess that’s what I would say in Bitmain’s favor.
Laura Shin: 1:00:23
I think some of the allegations against them are also in the direction of whether or not the practices they use are anti-competitive and against decentralization and things like that, so I definitely think … I don’t know how founded or unfounded those are. I did explore this a little bit in my episode with David Vorick, who started Siacoin, and then, now has started Obelisk, which is getting into mining, and I also contacted Jihan to find out what his take was on what David was saying, so it’s not fully clear really what happened. It ended up being a little bit “he said, she said,” but I guess I just wonder if you feel like there’s any risk to you guys to partner with somebody who is perceived as maybe not holding this principle of decentralization as high as some other players in the space.
Yeah, I think if you get to know Jihan, he is incredibly passionate about decentralization. He’s incredibly passionate about this infrastructure being broadly adopted. He’s not just wedded to one model for blockchains. For example, he’s a huge, huge advocate for Fiat stablecoins, and that’s a completely different, if not orthagonal dimension, to something like the core Bitcoin network. So, it’s more nuanced and the ideas are broad.
I mean, we’re passionate about Bitcoin; we’re passionate about Ethereum; we’re passionate about Fiat; we’re passionate about security tokens. We’re passionate about a lot of things in crypto; it’s not uni-dimensional. I think there are people who are very uni-dimensional, maximalists and so on, and that’s just not who we are. I don’t think that’s who Jihan is either.
Okay, well it’s been so great talking with you both. Where can people learn more about you and Circle?
Laura Shin: Okay. Great. Well thanks for coming on Unchained. To learn more about Circle, check out the show notes inside your podcast episodes. New episodes of Unchained come out every Tuesday. If you haven’t already, rate, review and subscribe on Apple podcasts. If you like this episode, share it with your friends on Facebook, Twitter or Linked In, and if you’re not yet subscribed to my other podcast, Unconfirmed, I highly recommend you check it out and subscribe now. Unchained is produced by me Laura Shin with help from Elaine Zelby. Fractal Recording, Jennie Josephson, Rahul Singireddy, and Daniel Nuss. Thanks for listening.