A New Era for Cross-Border Payments with Arnold Lee* of Sphere Labs
For the final episode of Season 4, Jeremy Allaire joined Sphere Labs* Co-Founder and CEO Arnood Lee for a conversation about the frontier of stablecoin applications, such as cross-border payments. Their interview unpacked Lee’s insights about on-chain developments as well as:
- [1:33] – Sphere’s founding
- [7:00] – Use cases for stablecoins
- [8:58] – Dollar access
- [15:22] – Interoperability
- [21:28] – Network effects
- [26:20] – Building blocks
- [31:50] – Regulatory reflexes
If you’re interested in learning more about the future of payment stablecoins and their role in cross-border payments, tune in to this episode of The Money Movement.
*Arnold Lee is the Co-Founder and CEO of Sphere Labs. Sphere Labs utilizes USDC in connection with its products and services offerings.
Jeremy Allaire (00:07)
Hi, this is Jeremy Allaire and welcome to the Money Movement. Today we're going to be doing an episode in the USDC Builder Series where I'm having conversations with builders that are really taking advantage of what we've been able to build at Circle. And I'm really, really pleased to have Arnold Lee, co -founder and CEO of Sphere with us. Arnold, really nice to have you here.
Arnold (00:35)
Yeah, really great to be here and appreciate you hosting. It's an honor, genuinely.
Jeremy Allaire (00:43)
Well, I'm looking forward to the conversation. Maybe we can start just at a high level. I'm always interested in founder stories and when you started Sphere, when did you and your co -founder or founders start? as people like to say, there's an itch to scratch. What was the itch that you wanted to scratch? What did you see?
what was the spark that got you really excited about building in the space you're in? I know your product has evolved and there's a lot to everything that you guys are doing, so we'll come to that in a little bit, but just what was that spark and what were the big ideas that you had that you wanted to go after that got you so inspired to start Sphere?
Arnold (01:33)
Yeah, it's a great question. And I founded Sphere with my best friend from college. His name is Luigi. We've been building software together for about a decade. And we both grew up on the internet. He's kind of middle from the ocean in the Caribbean. Parents originally from Guyana. Mine is originally from Korea, but I grew up in the woods outside of Boston. So the idea of digital money always made sense to both of us.
playing video games when we were young. I'll spare you and the audience the full lore and backstory, but found Bitcoin in 2009 when I was in middle school. parents couldn't speak English very well and wanted to play video games, World of Warcraft specifically. And the only way that I could get paid to do these online surveys was through Bitcoin.
and you could make enough Bitcoin, trade it in peer to peer for a gift card. So that always left an impression on me. 45 minutes bus ride to school and back, thanks to my much smarter younger brother. And, you know, was a Bitcoin user throughout the years, but it wasn't until 2015 or so when Ethereum started to really become in vogue within college circles.
Jeremy Allaire (02:36)
Mm
Arnold (02:57)
And you know, the idea of a decentralized computer made a ton of sense. It was like abstractly very interesting. But you know, it was hard to explain to our parents. Everyone has like an ICO story. And it wasn't until we found, frankly, what you guys were doing with stable coins, where it was explainable to my mom. You know, this is a dollar on the internet. And
Jeremy Allaire (03:03)
Mm
Arnold (03:28)
The initial itch, it's so much easier to just look back and kind of connect the dots. The initial itch was because we would have saved so much time if we were able to bring money from Korea to the United States. And I think it was the same for Luigi. It's like years, decades of starting over. And in 2020, we had kind of gone down different paths.
Jeremy Allaire (03:33)
Mm -hmm.
Arnold (03:53)
I blame him for the finance and bringing us into the world of payments because he was at a bunch of asset managers and eventually startups. I went into IoT because my family is in construction. And we started to build on chain. And we tried for years, essentially since 2020, 21, to create products that people wanted since we had some background building software in Web2. And just kept running into the same problem of payments.
Eventually this accounting labeling tool that we had made so that way international customers could pay us escalated into a global hackathon when sponsored by Stripe. And you know, our timing was historically perfect, incorporated a week after FTX closed a seed round during the regional bank crisis. And that was the initial, I suppose, phases fear a strike for crypto. And we quickly realized that no one really wanted to take crypto.
when crypto is down bad. And the only people willing to talk to us came from the same regions. There were different types of people, but it wasn't the teams that were still left throughout the bear market who had strong convictions on blockchain principally. It was folks from the Caribbean, Latin America, a fruit merchant, engineers from Brazil, remittance provider out of Mexico.
And we just kept seeing these same threads of folks who were way more successful than we were, who weren't blockchain natives, but were incredibly excited by the idea of stablecoins as a form of cross -border payment. And we went all in. And I describe this as the second, and publicly what most people recognize us for, helping folks do these cross -border B2B payments using stablecoins like USDC. So in their initial stages, was a...
Jeremy Allaire (05:33)
Mm
Yeah.
Arnold (05:50)
a hard itch to maybe isolate, but looking back, it makes a lot of sense why the DNA of the company eventually ended up going down the road of payments.
Jeremy Allaire (05:59)
Yeah, it's fascinating to hear both the things that you were excited about technically and then obviously the finding who's got the real problem and then just like, okay, we're going to build for that. I think I can relate very much to starting a journey here and then ending up over here. There's usually a through line that goes through it.
But it's never a straight line as well. I think, as you know, because we talk about this a lot, is this idea of an internet dollar and the ability to just transact directly with people over the internet, at the speed of the internet, with all this cost efficiency, et cetera, is really powerful. It's what we've been chasing for 10 years. And we're finally making progress.
I think very often people ask, what are the use cases for stablecoins? And there's lots of use cases we can point to, of course. But I think one that we're seeing more and more of, it's one of the reasons I was really excited to have you as a guest, is international transactions, especially with small and medium enterprises.
I think what's been interesting, we're seeing more of that and I want to hear more stories and kind how that actually works for you guys today. But it's really interesting because we're finding small and medium enterprises, especially in emerging and developing markets, they can make decisions quickly. They depend very heavily on the internet for a lot of what they do for their business in many cases. And they don't have like...
giant. They're not public companies. don't have all the kind of risk management stuff. And so they're willing to basically be more early adopters. And that's been the case in software historically. The early adopters of SaaS were all SMEs, because no big company was ever going to depend on SaaS. early adopters of AWS were startups, for the most part. And it wasn't big enterprises. It wasn't all these things.
Arnold (08:13)
Okay.
Jeremy Allaire (08:17)
I see that we're seeing kind of product market fit with international SMEs who are like, wow, I like dollars. I want to settle with dollars. My counterparty want to settle with dollars. I'll keep money in this because this is more convenient than my bank. And they start to do it. So we're sort of seeing that emerge. Maybe you could just tell a couple of stories about, just bring it to life a little bit.
You know, obviously if you can't name specific names of customers, that's fine, but just they characterize like who's doing what, you know, how are they doing it before, how are they doing it with Sphere, and what are they telling you?
Arnold (08:58)
Yeah, these are some of my favorite, I suppose, ways to motivate all of us internally, because the decision to go on the ground in Caribbean and Latam, especially within South America, it's visceral. To give you an example, I'm currently in San Jose, Costa Rica. One of our favorite clients is coming up from Chile.
We've been working with him for about a year now and he runs a very successful local fintech out of Chile. You would think that he would be able to get access to robust dollar accounts. You know, the ability to move millions of dollars daily, just natively through say, I don't know, pick your favorite big bank in the United States. But because he doesn't speak English very well, because all of his corporate documentation is in Spanish,
Jeremy Allaire (09:50)
Mm
Arnold (09:58)
He doesn't have any local presence in the United States. He has to depend on his local sponsor banks to be able to give him a robust dollar account. And those sponsor banks have a degree of separation from the ultimate issuer, the correspondent in the United States. And they have to justify to your point from a risk management perspective why they should give access to a higher dollar account to this merchant.
Jeremy Allaire (10:00)
Mm
Arnold (10:25)
is so much structural deadweight loss that we're seeing because of how intensely manual compliance and risk is today. And, you know, it makes sense why it is the way that it is. But for that client who's coming to San Jose and visiting us, it's incredible how difficult it was for him to get access, not just to the dollar accounts, capital markets.
to be able to potentially create local presence in the United States or elsewhere, expand beyond the locally successful business that he has today. It's crazy how he didn't get very far along in conversations just because of who he is and where he comes from. And the way that that client uses us today is we're acting as a way to naturally provide tech infrastructure for stable coins as middleware, but
until the day where the entire world economy is on chain. You still need banks for the entrances and the exits. And as engineers going head first into this rabbit hole of fiat, we were very lucky to recruit folks with decades of experience along the way. We discovered that there are things within the bank messaging system that makes it a lot faster.
and cheaper because you can start to explicitly define correspondent routes. You can explicitly communicate with the people who are in the wire room and operating on these Swift MT -103s or ISO -22s. That merchant, as a result, has been able to get much more robust access to dollar accounts, which has downstream effects on the local SMBs that he services, the individual retail users.
Jeremy Allaire (11:54)
Mm
Yeah. Yeah.
Arnold (12:18)
because oftentimes capital controls makes it really difficult for folks who are not businesses to get these bank accounts. And even if you are, there is a very conservative approach, which makes it hard for these businesses to grow. And that's something that was very strange for us coming from the United States, where you're a smart young person, you can maybe go to Silicon Valley, raise around, and there's a strong culture of entrepreneurship. In many of the countries where we operate,
Internet adoption happened maybe 10 years later and the initial infrastructure is still getting set up. There are many such cases where maybe your country just happened to be born in a country that was had money laundering like 20 years ago or a poor international credit rating from 70 years ago. And because of the circumstances of your birth, that lottery, no matter how legitimate you are, no matter how regulated you are, no matter how much you try to convince
both your local authorities and the ultimate correspondence in the United States or Europe or what have you, it's really difficult to make movement. And stable coins are a beautiful thing to help get rid of some of that deadweight loss because, you know, to your point, it's internet money. And naturally, you want to make sure that it's fully compliant in the funds flow and how it interacts with the entrances and the exits. But...
Some of our favorite moments throughout this journey has been actually getting to spend time with these end clients because we get to see the physical infrastructure, the end users themselves that they help to service. Dollar exposure is not, it may be something that we take for granted more in the West.
Jeremy Allaire (14:05)
Yeah. Yeah. Are you finding, you know, one of the themes that we talk about also, and we've worked on a lot is, is like improving essentially like the blockchain infrastructure that sits behind stable coins to make it better, faster, cheaper, simpler, safer, you know, everything from like the multiple chains we deploy on the cross -chain transfer protocol. Like we're seeing
big improvements in kind of wallet architectures and stuff. So there's a lot going on and for most people that's like gobbledygook. They don't want to know about it. And the whole point, is to sort of, you know, through apps like yours, right, just abstract that away and make it as simple as possible to make the paradigm as familiar as possible, but still getting all the kind of technology and economic benefits from that. But are there key...
kind of technology things or technology changes that have happened really like over the past like say six months, nine months that are helping foster a better product for you, better user experience, better economics. are you seeing traction from the evolving technology in the kind of stablecoin network space?
Arnold (15:22)
Yeah, absolutely. CCTP definitely stands out as a way to make the burging across chains easier. I think there are a ton of really strong stablecoin, essentially money transmitters who have been building out their backends to make the latency and the fees lower. And naturally, merchants are incredibly excited about that. I think cryptography and general privacy tooling, it's yet to hit market and
Jeremy Allaire (15:35)
Mm
Mm
Arnold (15:51)
in a way that may be as apparent as a no -fee bridge.
But the developments on the zero knowledge side, FHE side, businesses as you go upscale are quite concerned about their privacy, protecting the privacy of their end users. And I feel like that will be a strong theme as more, I'll call it middle market, fintechs and merchants start to come on board chain. But your core point is exactly correct, which is most folks don't really care
what the underlying tech is. It's a dollar. How it gets there can be boiled down to is it fast, cheap, compliant, convenient. And I think there's a lot of extra really cool ideas, ancillary to that value prop of, a stablecoin on chains. And hopefully there's a future where merchants start to adopt those more.
Jeremy Allaire (16:29)
Yeah.
course.
Arnold (16:52)
But, you know, from what we've seen at least, if you can abstract away the wallet, you can abstract away the chain, you can abstract away the on and the off ramp, but even touching foreign exchange, touching a liquidity, that's what makes it a no -brainer because it's easy to forget that if you are a company maybe out of Paraguay, your access to local developer talent, access to capital is going to be a lot lower. And so the bar for adoption is harder.
Jeremy Allaire (17:02)
Yeah.
Arnold (17:22)
must be simpler compared to a team of young kids out of MIT in the States.
Jeremy Allaire (17:28)
Yeah. Are you in the sphere products? Do you basically give people like multiple chain paths that they can choose so like they can send and receive on different blockchain networks with USDC and stuff like that?
Arnold (17:42)
Yeah, so for our Web3 users, we prefer to give them the optionality. For, I'll call it Web2 2 .5 users, we tend to just give them the fastest, cheapest route. And if they really want to, they can modify and explicitly provide the chain that they'd like to settle to or settle from.
Jeremy Allaire (17:49)
Mm
Mm
Yeah. Yeah.
Arnold (18:05)
But I think less choice sometimes is good if you don't have the same, I suppose, strong opinions on where your liquidity is.
Jeremy Allaire (18:12)
Yep. Yep. That makes sense. One of the things that I noticed about what you guys have built is, and maybe there's a lot of history behind this, you've added features in a lot of different areas. I think of them as verbs of treasury management. So you have payments, obviously. You have
know, mass payouts, you have invoicing, you know, you have a lot of different pieces and then obviously you have the kind of fiat connections and stuff. but, you know, I'm interested to hear whether some of your customers are, sort of beginning to think about like, just keeping more of their value stored on chain and, and then actually starting to like use tools like what you've built as.
like, you know, kind of actual like treasury management applications for their small business, right? Where they just keep their value there and they perform more and more of the different kinds of tasks with user roles and all that kind of stuff. Are you, are you seeing people sort of actually starting to just adopt that and say, Hey, I'm going to just stay natively on chain as a business versus like going off.
Arnold (19:31)
Yeah, I think that as you do more flow as a non crypto native business and start to trust the blockchain environment more, it becomes easier to justify your employees start to over time become trained on how to interact with it. Hopefully there's more regulatory clarity and there is further development on privacy tooling. I'd say there are a couple of blockers before at least that we hear before everyone will just keep their entirety of
Jeremy Allaire (19:42)
Yeah.
Mm
Arnold (20:01)
treasury on chain, namely within privacy and compliance. But by and large, it's incredibly encouraging just from when we began to now how much more our merchants are sending flow through chain because they've proof is in pudding.
Jeremy Allaire (20:04)
Okay.
Arnold (20:19)
You can do a default MT -103, do multi -country compliance check bounce back up to the person at each intermediary, what are the wire instructions? And there's so many fields that are left blank by default and it takes weeks and maybe it's 500 bips by the end versus, know, USDC A to B could be 50 cents, could be zero cents plus gas.
Jeremy Allaire (20:34)
Yeah. Yeah.
Yeah, mean now gas is like on base and Solana and know, some of these other it's like effectively zero. Yeah.
Arnold (20:52)
Sorry, exactly. I'm very optimistic that we'll continue to see this movement of adoption. you know, there, as you go down these rabbit holes, I'm sure you know this better than I do. These MSPs operate off of latency provided through...
Jeremy Allaire (21:00)
Okay.
Arnold (21:15)
I'll summarize as one of my favorite sayings. You start off as a payments company, then you become a compliance and risk company, and then you realize that it's credit all the way down. And I think there's a whole world to expand on there for them as they think about hedging against currency risk or doing more of these ops entirely programmatically on chain.
Jeremy Allaire (21:28)
Yeah.
Sure.
Yeah, I'd be interested to like, to related things actually to what you were just talking about. One is, you know, one of the things that we see with our stable coin network is sort of there are intrinsic network effects, right? You know, you probably chose USDC because there was like liquid and there were a lot of other wallets that supported or, you know, and now you have USDC and now your clients are using USDC and
Again, there's these network effects. are nodes on a network. The number of nodes just sort of grows the utility of the network for everybody. And so everyone wins. But I'm curious if you're seeing network effects yourself, meaning, hey, someone started, they had a need because there was a specific flow that they had. And then they're like, wow, this is great. I want to convince this other business that I have or this other user that I have to adopt this. And it's sort of like when email came online.
It was sort of like some people had email, a of people didn't have email, some people had a website, a lot of people didn't. Every major utility, even social networks, et cetera, when do you get a critical mass where enough people have it and then the utility just really grows. are you seeing some...
kind of velocity happening in terms of people who are saying, there's increasing utility. We're certainly seeing it right in the aggregate numbers of transaction volumes that are happening on chain. Just keep going up and up and up. But I'm curious to see what you're seeing because you've really built a tailored product that has that fundamental business payment utility in it.
Arnold (23:12)
Yeah, definitely seeing network effects. And I think it comes down to how difficult it is in the normal world to verify the quality of your counterparty, especially overseas. If you don't speak the same language, don't have any local presence, how do you know about their licensing structure, their legal structure, if they're in fractions, are they properly filing XRs or Cleveland?
Jeremy Allaire (23:39)
Yeah.
Arnold (23:41)
And the only way to find out in the regular world is just try and send a ton of flow through them and hope that it doesn't break. Whereas on chain, even if the onboarding requires them to learn certain components of like, hey, this is how you make a wallet. You could certainly abstract that with an automated off ramp flow where send money to address immediately gets liquidated. I think that as people become more comfortable with just being aware of
Jeremy Allaire (23:46)
Ready.
Arnold (24:11)
these operational flows, say a vendor who's receiving payments overseas from someone who is stablecoin forward, even if they don't feel it immediately because it shows up as dollars into their dollar account, just communicating about it and noticing that, hey, my counterparty has become so much more competitive as a result. There are natural market pressures that are empirically seeing for at least our clients leading more to adoption.
Jeremy Allaire (24:30)
Mm -hmm.
Mm -hmm.
Arnold (24:41)
And while simultaneously an educational effort and we're seeing a good degree of regional fragmentation because cultures are different, regulatory regimes are different. I think across the board, it's just insane how much cheaper and faster you can get these things through. As a not even native crypto company who's just leveraging this...
append -only data structure as a tool.
Jeremy Allaire (25:11)
Yeah. Do you find that some of your customers increasingly know what stablecoins are and can articulate the benefits of those and it's becoming just part of the parlance of how they operate?
Arnold (25:30)
Yeah, they might not know the word stablecoin specifically, but internet dollar, where there's some blockchain involved, becoming increasingly easier to have conversations about.
Jeremy Allaire (25:35)
Yeah.
Mm
Mm
Arnold (25:44)
It would be different, I think, if there weren't that huge competitive advantage in adoption. But everyone who doesn't natively have access to robust dollar accounts feels the pain of neither being able to get easy dollar exposure or having to pay intense intermediary fees just because so much of global effects and trade is dollar denominated.
Jeremy Allaire (25:48)
Yeah, right.
Mm -hmm.
Arnold (26:11)
And, know, if you have to interact with like an FX broker directly or, yeah, depend on an intermediary. So T plus one at least, and a lot of fees. so, yeah.
Jeremy Allaire (26:16)
yeah, Bank WepEx, yeah, right, yeah.
Yeah. Maybe a little bit of a, it ties into some of the earlier questions about adoption, but like, you know, obviously one of the benefits of stable coins is by existing on this kind of programmable money surface, right? People are building more and more building blocks on chain. So they're building borrowing and lending mechanisms.
they're building on -chain credit models. There's a lot of stuff that's emerging. And so when you think about the building blocks of corporate treasury and commercial finance and stuff that needs to get done, invoice factoring and selling the NFT for credit or all these things. And there are companies doing all of this, obviously, today. So we know a lot of these. And there's tons of companies doing this. like,
Do you see a world, this is maybe a little bit like looking out in the future and what you see, like, do you see a world of, you know, more and more of the value stored this way and these businesses are, you know, seamlessly, they don't even know it, like allocating into, you know, DeFi lending pools or they're taking advantage of, you know, credit markets on invoices or like this kind of stuff. Do you see like more of the value and utility beyond this, like the efficiency of
of payment throughput, right, kind of coming in terms of what people will do with this.
Arnold (27:54)
Yeah, maybe this is a bit of a hot take. I certainly see a growth in what you mentioned. I think that'll be hard to argue against. Whether it represents a high majority of total global economic activity, I feel like is somewhat intractable because so much of adoption from our
experiences are dependent on the demographics of a given country and the regulatory regime in that country, which are more macro things that are harder to control. I'm very optimistic that young people who are internet, grew up on the internet and increasingly want to use digital dollars or native on -chain applications or are eventually going to be within those agencies
Jeremy Allaire (28:28)
Mm
Yeah.
Arnold (28:54)
and running for office and setting policy. I'm very optimistic that future could happen, but it's harder to reason about when you think about how many different countries there are, each with their own culture and I suppose set of sovereign.
Jeremy Allaire (28:56)
Okay.
Arnold (29:11)
concerns. If it's super easy as an example, as a country without a strong currency for your citizens to get access to dollars, maybe you would want to have stricter capital controls, even if dollar pegged economies have a history of success. So
Hopefully that starts to answer your question. I think it will kind of depend on the trajectory of those two factors of demographics and regulation. If there's, fingers crossed, a world where the majority of people, I suppose, are used to internet native experiences.
Jeremy Allaire (29:48)
Mm
Arnold (29:50)
And we see globalization stemming culturally from liberal democracies setting the tone. I'm very optimistic that more of this activity will happen natively. what we're currently building is a way to sort of act as a connective tissue between not large corporates, not banks, but for fintechs who exist in those stricter jurisdictions to have a fully compliant way to be able to downstream
interacts with these open loop general purpose networks.
Jeremy Allaire (30:21)
Mm
100%. Yeah, we definitely see that as well. Like basically equipping, you know, Web2, fintechs with like, you know, blockchain transaction monitoring and, you know, travel rule compliance and like the, you know,
even like the basic wallet infra that's needed to deal with this and not be afraid of dealing with the transactions and signing transactions and all the fun stuff. But I think on your point about policy adaptations, I have a thesis, and this is just from my own experience over the last 30 years building internet infrastructure, is that
in many ways, like society decides, not policymakers. policy is always responsive to society, even in a fully authoritarian regime. If there's a technology that has significant utility, and especially software powered, that is over the top of the internet, software powered technologies, people will adopt those that give them more utility, even if it's sort of outside of the sort of defined rules.
Arnold (31:13)
So.
Jeremy Allaire (31:39)
that exists there. And that definitely happens. at some point, if the utility is very, very high, policy will adapt. And this is the story of the internet. When the internet came out, was in most places, if you want to publish something or if you want to say broadcast audio, it was very hard. was mostly national monopolies, many of them government run.
Arnold (31:53)
to.
Jeremy Allaire (32:07)
that could actually broadcast audio. And if you wanted a license to do that as a foreign entity, et cetera, it was impossible. But like the concept that you need a license to broadcast audio is just gone. Like I can broadcast audio to any human on earth, basically, with probably very few exceptions. So saying censored speech, I might get blocked by a great firewall. But like basically you have that. And you've had that with, you know, what I kind of call over the top platforms, over the top content.
Arnold (32:20)
Right.
Jeremy Allaire (32:37)
over the top publishing video, communications, peer -to -peer communications, all of these things that have been these scaled out internet utilities, they're software powered, people adopt them, and they do run in the face of maybe what local laws were. Even Uber and Airbnb and these structures found their way in, and then people are like, no, no, you're not taking this away from me.
Policy then responds and says, OK, well, we've got to deal with the risks of it, but we're not going to take it away. And so my own view is that over the long run, and I think very long term, there just are going to be fewer currencies in the world. And there will be more countries that align against a uniform kind of, they'll have to have fiscal responsibility vis -a -vis global currency monetary regimes.
And like you said, there's good evidence to say that's not a bad idea. But in any case, I do think that you'll have that. And then in general, think policy will respond to social adaptation. But I also agree with your view about generationally, some of this is different. But that also plays out in the internet space, meaning the percentage of viewing hours of video content that is sort of like online through Netflix, YouTube, compared to the percentage of viewing hours.
of broadcast cable satellite terrestrial. It's still dominated by cable satellite terrestrial, even though for us, right, we're like, that's crazy. Like, that's insane. But it actually is. The world is still, you know, a demographic that just like depends on that infrastructure. There's a huge percent that are there. And these things take decades to change. And so, like, even though maybe whatever it is, only 15 % of the viewing hours are online,
Arnold (34:12)
Yeah.
Jeremy Allaire (34:33)
like it's still massive and it's a massive industry change. And the same thing with even e -commerce, right? E -commerce is still the minority, a significant minority of retail transactions, but it's massive and it's changed everyone's lives. And so I think about things like stable coins, on -chain finance, all of the utility that comes, it's going to be like hyper scale in terms of the utility and people will adopt it.
And it will have these profound network effects. then society, like businesses in a country or households in a country, say, no, no, this is how we're going to do it. And like, OK, there might need to be some rules that are developed, but like we're not going back. it maybe starts out as 2 % of the activity or 5 % of the activity. But even 10 % of the activity is enormous, right? The TAM on legal electronic money is over $100 on.
And then the TAM on all the utility of moving that money around is trillions and trillions of dollars. So we don't need it to be everything. We just need it to be 10%.
Arnold (35:40)
Yeah, 100%. I think, you know, on a long enough time horizon, I am surprised but very glad that you mentioned your thesis about the centralizing force on currency. I think that is very real and is going to happen even if you don't have stablecoins. Net FDI flows, the appetite for people to increase local value.
Jeremy Allaire (36:10)
Mm -hmm.
Arnold (36:11)
and shift capital over from where it's currently sitting, that would take such a long time to play out. And it seems empirically since, I don't know, the 1940s, 50s, it hasn't quite achieved the fruition that people would have thought. And everyone just wants a good base unit. And there's so much that goes into what defines the dollar as the reserve.
Jeremy Allaire (36:14)
Mm
Arnold (36:41)
We could do like a case analysis of what are the alternatives. And I think that is especially a strong argument. But yeah, I think on a long enough time horizon, you are correct, which is why we also have conviction in this in the decades or centuries long front. It's hard to argue against math, which is kind of what the append -only data structure boils down to.
Jeremy Allaire (36:44)
Yeah, no, no, clearly, yeah. Yeah.
That's awesome. what maybe the last question for you is sort of like, know, what's next for you guys? What are you most excited about? What are you most excited about delivering on? And what do you think, you know, maybe in just in the context of sort of the next 12 months, like where do you want to be?
Arnold (37:29)
Yeah, so our existing Sphere Pay business is going quite well. And so we're really excited to start getting our MSP designation and building out that business. However, what we've realized is...
In the meantime, before we get to a world where more people just recognize the utility of operating on chain, there is a gap where the risk compliance teams at various companies within countries, especially at regulated entities, they have existing mental models of what is low risk, what is medium risk, what is high risk.
Jeremy Allaire (38:12)
Mm
Arnold (38:14)
It is a very hard...
battle. And I think, you know, one, that circle can fight because you guys have that leverage to be able to do so. But for the fintechs that are our vendors, our clients, I think there is a unique insight that we found while doing so much manual work in coordinating between sponsor and intermediary banks that enable cross -border payments, even at the fiat level, to get cut down 10, 100, in some cases, 2 ,000 times.
Jeremy Allaire (38:37)
Yeah.
Arnold (38:47)
which most people don't know about because most people haven't been in a wire room. And it's something that we'd love to, we'll be releasing more material about it over time. Just give folks out of the box, because there's no way, you know, a Brazilian MSB equivalent would know the intimate details of what goes into a fed wire spec or who the best counterparties are in Japan.
Jeremy Allaire (39:13)
Mm
Arnold (39:14)
And technology here, the cryptography, is a great way to provide an immutable log of the things that are normally kept in Postgres or only exposed to independent examiners. So, sir, I'd love to tell you more about it. Maybe.
Jeremy Allaire (39:25)
Mm
Yeah, that's cool. You don't need to tell everyone. Yeah, very cool, Arnold. Well, super conversation and really pleased that you could come on the Money Movement and we'll keep tracking your progress.
Arnold (39:44)
Thank you. was a really amazing convo. And it's kind of crazy to have the chance to be able to talk to you about this. I used to watch a lot of Flash. And so thank you for what you're doing at Circle. And I'd to continue staying in touch, keep you posted on what we're doing.
Jeremy Allaire (40:04)
Absolutely. All right, cool. think we are officially.
Hi, this is Jeremy Allaire and welcome to the Money Movement. Today we're going to be doing an episode in the USDC Builder Series where I'm having conversations with builders that are really taking advantage of what we've been able to build at Circle. And I'm really, really pleased to have Arnold Lee, co -founder and CEO of Sphere with us. Arnold, really nice to have you here.
Arnold (00:35)
Yeah, really great to be here and appreciate you hosting. It's an honor, genuinely.
Jeremy Allaire (00:43)
Well, I'm looking forward to the conversation. Maybe we can start just at a high level. I'm always interested in founder stories and when you started Sphere, when did you and your co -founder or founders start? as people like to say, there's an itch to scratch. What was the itch that you wanted to scratch? What did you see?
what was the spark that got you really excited about building in the space you're in? I know your product has evolved and there's a lot to everything that you guys are doing, so we'll come to that in a little bit, but just what was that spark and what were the big ideas that you had that you wanted to go after that got you so inspired to start Sphere?
Arnold (01:33)
Yeah, it's a great question. And I founded Sphere with my best friend from college. His name is Luigi. We've been building software together for about a decade. And we both grew up on the internet. He's kind of middle from the ocean in the Caribbean. Parents originally from Guyana. Mine is originally from Korea, but I grew up in the woods outside of Boston. So the idea of digital money always made sense to both of us.
playing video games when we were young. I'll spare you and the audience the full lore and backstory, but found Bitcoin in 2009 when I was in middle school. parents couldn't speak English very well and wanted to play video games, World of Warcraft specifically. And the only way that I could get paid to do these online surveys was through Bitcoin.
and you could make enough Bitcoin, trade it in peer to peer for a gift card. So that always left an impression on me. 45 minutes bus ride to school and back, thanks to my much smarter younger brother. And, you know, was a Bitcoin user throughout the years, but it wasn't until 2015 or so when Ethereum started to really become in vogue within college circles.
Jeremy Allaire (02:36)
Mm
Arnold (02:57)
And you know, the idea of a decentralized computer made a ton of sense. It was like abstractly very interesting. But you know, it was hard to explain to our parents. Everyone has like an ICO story. And it wasn't until we found, frankly, what you guys were doing with stable coins, where it was explainable to my mom. You know, this is a dollar on the internet. And
Jeremy Allaire (03:03)
Mm
Arnold (03:28)
The initial itch, it's so much easier to just look back and kind of connect the dots. The initial itch was because we would have saved so much time if we were able to bring money from Korea to the United States. And I think it was the same for Luigi. It's like years, decades of starting over. And in 2020, we had kind of gone down different paths.
Jeremy Allaire (03:33)
Mm -hmm.
Arnold (03:53)
I blame him for the finance and bringing us into the world of payments because he was at a bunch of asset managers and eventually startups. I went into IoT because my family is in construction. And we started to build on chain. And we tried for years, essentially since 2020, 21, to create products that people wanted since we had some background building software in Web2. And just kept running into the same problem of payments.
Eventually this accounting labeling tool that we had made so that way international customers could pay us escalated into a global hackathon when sponsored by Stripe. And you know, our timing was historically perfect, incorporated a week after FTX closed a seed round during the regional bank crisis. And that was the initial, I suppose, phases fear a strike for crypto. And we quickly realized that no one really wanted to take crypto.
when crypto is down bad. And the only people willing to talk to us came from the same regions. There were different types of people, but it wasn't the teams that were still left throughout the bear market who had strong convictions on blockchain principally. It was folks from the Caribbean, Latin America, a fruit merchant, engineers from Brazil, remittance provider out of Mexico.
And we just kept seeing these same threads of folks who were way more successful than we were, who weren't blockchain natives, but were incredibly excited by the idea of stablecoins as a form of cross -border payment. And we went all in. And I describe this as the second, and publicly what most people recognize us for, helping folks do these cross -border B2B payments using stablecoins like USDC. So in their initial stages, was a...
Jeremy Allaire (05:33)
Mm
Yeah.
Arnold (05:50)
a hard itch to maybe isolate, but looking back, it makes a lot of sense why the DNA of the company eventually ended up going down the road of payments.
Jeremy Allaire (05:59)
Yeah, it's fascinating to hear both the things that you were excited about technically and then obviously the finding who's got the real problem and then just like, okay, we're going to build for that. I think I can relate very much to starting a journey here and then ending up over here. There's usually a through line that goes through it.
But it's never a straight line as well. I think, as you know, because we talk about this a lot, is this idea of an internet dollar and the ability to just transact directly with people over the internet, at the speed of the internet, with all this cost efficiency, et cetera, is really powerful. It's what we've been chasing for 10 years. And we're finally making progress.
I think very often people ask, what are the use cases for stablecoins? And there's lots of use cases we can point to, of course. But I think one that we're seeing more and more of, it's one of the reasons I was really excited to have you as a guest, is international transactions, especially with small and medium enterprises.
I think what's been interesting, we're seeing more of that and I want to hear more stories and kind how that actually works for you guys today. But it's really interesting because we're finding small and medium enterprises, especially in emerging and developing markets, they can make decisions quickly. They depend very heavily on the internet for a lot of what they do for their business in many cases. And they don't have like...
giant. They're not public companies. don't have all the kind of risk management stuff. And so they're willing to basically be more early adopters. And that's been the case in software historically. The early adopters of SaaS were all SMEs, because no big company was ever going to depend on SaaS. early adopters of AWS were startups, for the most part. And it wasn't big enterprises. It wasn't all these things.
Arnold (08:13)
Okay.
Jeremy Allaire (08:17)
I see that we're seeing kind of product market fit with international SMEs who are like, wow, I like dollars. I want to settle with dollars. My counterparty want to settle with dollars. I'll keep money in this because this is more convenient than my bank. And they start to do it. So we're sort of seeing that emerge. Maybe you could just tell a couple of stories about, just bring it to life a little bit.
You know, obviously if you can't name specific names of customers, that's fine, but just they characterize like who's doing what, you know, how are they doing it before, how are they doing it with Sphere, and what are they telling you?
Arnold (08:58)
Yeah, these are some of my favorite, I suppose, ways to motivate all of us internally, because the decision to go on the ground in Caribbean and Latam, especially within South America, it's visceral. To give you an example, I'm currently in San Jose, Costa Rica. One of our favorite clients is coming up from Chile.
We've been working with him for about a year now and he runs a very successful local fintech out of Chile. You would think that he would be able to get access to robust dollar accounts. You know, the ability to move millions of dollars daily, just natively through say, I don't know, pick your favorite big bank in the United States. But because he doesn't speak English very well, because all of his corporate documentation is in Spanish,
Jeremy Allaire (09:50)
Mm
Arnold (09:58)
He doesn't have any local presence in the United States. He has to depend on his local sponsor banks to be able to give him a robust dollar account. And those sponsor banks have a degree of separation from the ultimate issuer, the correspondent in the United States. And they have to justify to your point from a risk management perspective why they should give access to a higher dollar account to this merchant.
Jeremy Allaire (10:00)
Mm
Arnold (10:25)
is so much structural deadweight loss that we're seeing because of how intensely manual compliance and risk is today. And, you know, it makes sense why it is the way that it is. But for that client who's coming to San Jose and visiting us, it's incredible how difficult it was for him to get access, not just to the dollar accounts, capital markets.
to be able to potentially create local presence in the United States or elsewhere, expand beyond the locally successful business that he has today. It's crazy how he didn't get very far along in conversations just because of who he is and where he comes from. And the way that that client uses us today is we're acting as a way to naturally provide tech infrastructure for stable coins as middleware, but
until the day where the entire world economy is on chain. You still need banks for the entrances and the exits. And as engineers going head first into this rabbit hole of fiat, we were very lucky to recruit folks with decades of experience along the way. We discovered that there are things within the bank messaging system that makes it a lot faster.
and cheaper because you can start to explicitly define correspondent routes. You can explicitly communicate with the people who are in the wire room and operating on these Swift MT -103s or ISO -22s. That merchant, as a result, has been able to get much more robust access to dollar accounts, which has downstream effects on the local SMBs that he services, the individual retail users.
Jeremy Allaire (11:54)
Mm
Yeah. Yeah.
Arnold (12:18)
because oftentimes capital controls makes it really difficult for folks who are not businesses to get these bank accounts. And even if you are, there is a very conservative approach, which makes it hard for these businesses to grow. And that's something that was very strange for us coming from the United States, where you're a smart young person, you can maybe go to Silicon Valley, raise around, and there's a strong culture of entrepreneurship. In many of the countries where we operate,
Internet adoption happened maybe 10 years later and the initial infrastructure is still getting set up. There are many such cases where maybe your country just happened to be born in a country that was had money laundering like 20 years ago or a poor international credit rating from 70 years ago. And because of the circumstances of your birth, that lottery, no matter how legitimate you are, no matter how regulated you are, no matter how much you try to convince
both your local authorities and the ultimate correspondence in the United States or Europe or what have you, it's really difficult to make movement. And stable coins are a beautiful thing to help get rid of some of that deadweight loss because, you know, to your point, it's internet money. And naturally, you want to make sure that it's fully compliant in the funds flow and how it interacts with the entrances and the exits. But...
Some of our favorite moments throughout this journey has been actually getting to spend time with these end clients because we get to see the physical infrastructure, the end users themselves that they help to service. Dollar exposure is not, it may be something that we take for granted more in the West.
Jeremy Allaire (14:05)
Yeah. Yeah. Are you finding, you know, one of the themes that we talk about also, and we've worked on a lot is, is like improving essentially like the blockchain infrastructure that sits behind stable coins to make it better, faster, cheaper, simpler, safer, you know, everything from like the multiple chains we deploy on the cross -chain transfer protocol. Like we're seeing
big improvements in kind of wallet architectures and stuff. So there's a lot going on and for most people that's like gobbledygook. They don't want to know about it. And the whole point, is to sort of, you know, through apps like yours, right, just abstract that away and make it as simple as possible to make the paradigm as familiar as possible, but still getting all the kind of technology and economic benefits from that. But are there key...
kind of technology things or technology changes that have happened really like over the past like say six months, nine months that are helping foster a better product for you, better user experience, better economics. are you seeing traction from the evolving technology in the kind of stablecoin network space?
Arnold (15:22)
Yeah, absolutely. CCTP definitely stands out as a way to make the burging across chains easier. I think there are a ton of really strong stablecoin, essentially money transmitters who have been building out their backends to make the latency and the fees lower. And naturally, merchants are incredibly excited about that. I think cryptography and general privacy tooling, it's yet to hit market and
Jeremy Allaire (15:35)
Mm
Mm
Arnold (15:51)
in a way that may be as apparent as a no -fee bridge.
But the developments on the zero knowledge side, FHE side, businesses as you go upscale are quite concerned about their privacy, protecting the privacy of their end users. And I feel like that will be a strong theme as more, I'll call it middle market, fintechs and merchants start to come on board chain. But your core point is exactly correct, which is most folks don't really care
what the underlying tech is. It's a dollar. How it gets there can be boiled down to is it fast, cheap, compliant, convenient. And I think there's a lot of extra really cool ideas, ancillary to that value prop of, a stablecoin on chains. And hopefully there's a future where merchants start to adopt those more.
Jeremy Allaire (16:29)
Yeah.
course.
Arnold (16:52)
But, you know, from what we've seen at least, if you can abstract away the wallet, you can abstract away the chain, you can abstract away the on and the off ramp, but even touching foreign exchange, touching a liquidity, that's what makes it a no -brainer because it's easy to forget that if you are a company maybe out of Paraguay, your access to local developer talent, access to capital is going to be a lot lower. And so the bar for adoption is harder.
Jeremy Allaire (17:02)
Yeah.
Arnold (17:22)
must be simpler compared to a team of young kids out of MIT in the States.
Jeremy Allaire (17:28)
Yeah. Are you in the sphere products? Do you basically give people like multiple chain paths that they can choose so like they can send and receive on different blockchain networks with USDC and stuff like that?
Arnold (17:42)
Yeah, so for our Web3 users, we prefer to give them the optionality. For, I'll call it Web2 2 .5 users, we tend to just give them the fastest, cheapest route. And if they really want to, they can modify and explicitly provide the chain that they'd like to settle to or settle from.
Jeremy Allaire (17:49)
Mm
Mm
Yeah. Yeah.
Arnold (18:05)
But I think less choice sometimes is good if you don't have the same, I suppose, strong opinions on where your liquidity is.
Jeremy Allaire (18:12)
Yep. Yep. That makes sense. One of the things that I noticed about what you guys have built is, and maybe there's a lot of history behind this, you've added features in a lot of different areas. I think of them as verbs of treasury management. So you have payments, obviously. You have
know, mass payouts, you have invoicing, you know, you have a lot of different pieces and then obviously you have the kind of fiat connections and stuff. but, you know, I'm interested to hear whether some of your customers are, sort of beginning to think about like, just keeping more of their value stored on chain and, and then actually starting to like use tools like what you've built as.
like, you know, kind of actual like treasury management applications for their small business, right? Where they just keep their value there and they perform more and more of the different kinds of tasks with user roles and all that kind of stuff. Are you, are you seeing people sort of actually starting to just adopt that and say, Hey, I'm going to just stay natively on chain as a business versus like going off.
Arnold (19:31)
Yeah, I think that as you do more flow as a non crypto native business and start to trust the blockchain environment more, it becomes easier to justify your employees start to over time become trained on how to interact with it. Hopefully there's more regulatory clarity and there is further development on privacy tooling. I'd say there are a couple of blockers before at least that we hear before everyone will just keep their entirety of
Jeremy Allaire (19:42)
Yeah.
Mm
Arnold (20:01)
treasury on chain, namely within privacy and compliance. But by and large, it's incredibly encouraging just from when we began to now how much more our merchants are sending flow through chain because they've proof is in pudding.
Jeremy Allaire (20:04)
Okay.
Arnold (20:19)
You can do a default MT -103, do multi -country compliance check bounce back up to the person at each intermediary, what are the wire instructions? And there's so many fields that are left blank by default and it takes weeks and maybe it's 500 bips by the end versus, know, USDC A to B could be 50 cents, could be zero cents plus gas.
Jeremy Allaire (20:34)
Yeah. Yeah.
Yeah, mean now gas is like on base and Solana and know, some of these other it's like effectively zero. Yeah.
Arnold (20:52)
Sorry, exactly. I'm very optimistic that we'll continue to see this movement of adoption. you know, there, as you go down these rabbit holes, I'm sure you know this better than I do. These MSPs operate off of latency provided through...
Jeremy Allaire (21:00)
Okay.
Arnold (21:15)
I'll summarize as one of my favorite sayings. You start off as a payments company, then you become a compliance and risk company, and then you realize that it's credit all the way down. And I think there's a whole world to expand on there for them as they think about hedging against currency risk or doing more of these ops entirely programmatically on chain.
Jeremy Allaire (21:28)
Yeah.
Sure.
Yeah, I'd be interested to like, to related things actually to what you were just talking about. One is, you know, one of the things that we see with our stable coin network is sort of there are intrinsic network effects, right? You know, you probably chose USDC because there was like liquid and there were a lot of other wallets that supported or, you know, and now you have USDC and now your clients are using USDC and
Again, there's these network effects. are nodes on a network. The number of nodes just sort of grows the utility of the network for everybody. And so everyone wins. But I'm curious if you're seeing network effects yourself, meaning, hey, someone started, they had a need because there was a specific flow that they had. And then they're like, wow, this is great. I want to convince this other business that I have or this other user that I have to adopt this. And it's sort of like when email came online.
It was sort of like some people had email, a of people didn't have email, some people had a website, a lot of people didn't. Every major utility, even social networks, et cetera, when do you get a critical mass where enough people have it and then the utility just really grows. are you seeing some...
kind of velocity happening in terms of people who are saying, there's increasing utility. We're certainly seeing it right in the aggregate numbers of transaction volumes that are happening on chain. Just keep going up and up and up. But I'm curious to see what you're seeing because you've really built a tailored product that has that fundamental business payment utility in it.
Arnold (23:12)
Yeah, definitely seeing network effects. And I think it comes down to how difficult it is in the normal world to verify the quality of your counterparty, especially overseas. If you don't speak the same language, don't have any local presence, how do you know about their licensing structure, their legal structure, if they're in fractions, are they properly filing XRs or Cleveland?
Jeremy Allaire (23:39)
Yeah.
Arnold (23:41)
And the only way to find out in the regular world is just try and send a ton of flow through them and hope that it doesn't break. Whereas on chain, even if the onboarding requires them to learn certain components of like, hey, this is how you make a wallet. You could certainly abstract that with an automated off ramp flow where send money to address immediately gets liquidated. I think that as people become more comfortable with just being aware of
Jeremy Allaire (23:46)
Ready.
Arnold (24:11)
these operational flows, say a vendor who's receiving payments overseas from someone who is stablecoin forward, even if they don't feel it immediately because it shows up as dollars into their dollar account, just communicating about it and noticing that, hey, my counterparty has become so much more competitive as a result. There are natural market pressures that are empirically seeing for at least our clients leading more to adoption.
Jeremy Allaire (24:30)
Mm -hmm.
Mm -hmm.
Arnold (24:41)
And while simultaneously an educational effort and we're seeing a good degree of regional fragmentation because cultures are different, regulatory regimes are different. I think across the board, it's just insane how much cheaper and faster you can get these things through. As a not even native crypto company who's just leveraging this...
append -only data structure as a tool.
Jeremy Allaire (25:11)
Yeah. Do you find that some of your customers increasingly know what stablecoins are and can articulate the benefits of those and it's becoming just part of the parlance of how they operate?
Arnold (25:30)
Yeah, they might not know the word stablecoin specifically, but internet dollar, where there's some blockchain involved, becoming increasingly easier to have conversations about.
Jeremy Allaire (25:35)
Yeah.
Mm
Mm
Arnold (25:44)
It would be different, I think, if there weren't that huge competitive advantage in adoption. But everyone who doesn't natively have access to robust dollar accounts feels the pain of neither being able to get easy dollar exposure or having to pay intense intermediary fees just because so much of global effects and trade is dollar denominated.
Jeremy Allaire (25:48)
Yeah, right.
Mm -hmm.
Arnold (26:11)
And, know, if you have to interact with like an FX broker directly or, yeah, depend on an intermediary. So T plus one at least, and a lot of fees. so, yeah.
Jeremy Allaire (26:16)
yeah, Bank WepEx, yeah, right, yeah.
Yeah. Maybe a little bit of a, it ties into some of the earlier questions about adoption, but like, you know, obviously one of the benefits of stable coins is by existing on this kind of programmable money surface, right? People are building more and more building blocks on chain. So they're building borrowing and lending mechanisms.
they're building on -chain credit models. There's a lot of stuff that's emerging. And so when you think about the building blocks of corporate treasury and commercial finance and stuff that needs to get done, invoice factoring and selling the NFT for credit or all these things. And there are companies doing all of this, obviously, today. So we know a lot of these. And there's tons of companies doing this. like,
Do you see a world, this is maybe a little bit like looking out in the future and what you see, like, do you see a world of, you know, more and more of the value stored this way and these businesses are, you know, seamlessly, they don't even know it, like allocating into, you know, DeFi lending pools or they're taking advantage of, you know, credit markets on invoices or like this kind of stuff. Do you see like more of the value and utility beyond this, like the efficiency of
of payment throughput, right, kind of coming in terms of what people will do with this.
Arnold (27:54)
Yeah, maybe this is a bit of a hot take. I certainly see a growth in what you mentioned. I think that'll be hard to argue against. Whether it represents a high majority of total global economic activity, I feel like is somewhat intractable because so much of adoption from our
experiences are dependent on the demographics of a given country and the regulatory regime in that country, which are more macro things that are harder to control. I'm very optimistic that young people who are internet, grew up on the internet and increasingly want to use digital dollars or native on -chain applications or are eventually going to be within those agencies
Jeremy Allaire (28:28)
Mm
Yeah.
Arnold (28:54)
and running for office and setting policy. I'm very optimistic that future could happen, but it's harder to reason about when you think about how many different countries there are, each with their own culture and I suppose set of sovereign.
Jeremy Allaire (28:56)
Okay.
Arnold (29:11)
concerns. If it's super easy as an example, as a country without a strong currency for your citizens to get access to dollars, maybe you would want to have stricter capital controls, even if dollar pegged economies have a history of success. So
Hopefully that starts to answer your question. I think it will kind of depend on the trajectory of those two factors of demographics and regulation. If there's, fingers crossed, a world where the majority of people, I suppose, are used to internet native experiences.
Jeremy Allaire (29:48)
Mm
Arnold (29:50)
And we see globalization stemming culturally from liberal democracies setting the tone. I'm very optimistic that more of this activity will happen natively. what we're currently building is a way to sort of act as a connective tissue between not large corporates, not banks, but for fintechs who exist in those stricter jurisdictions to have a fully compliant way to be able to downstream
interacts with these open loop general purpose networks.
Jeremy Allaire (30:21)
Mm
100%. Yeah, we definitely see that as well. Like basically equipping, you know, Web2, fintechs with like, you know, blockchain transaction monitoring and, you know, travel rule compliance and like the, you know,
even like the basic wallet infra that's needed to deal with this and not be afraid of dealing with the transactions and signing transactions and all the fun stuff. But I think on your point about policy adaptations, I have a thesis, and this is just from my own experience over the last 30 years building internet infrastructure, is that
in many ways, like society decides, not policymakers. policy is always responsive to society, even in a fully authoritarian regime. If there's a technology that has significant utility, and especially software powered, that is over the top of the internet, software powered technologies, people will adopt those that give them more utility, even if it's sort of outside of the sort of defined rules.
Arnold (31:13)
So.
Jeremy Allaire (31:39)
that exists there. And that definitely happens. at some point, if the utility is very, very high, policy will adapt. And this is the story of the internet. When the internet came out, was in most places, if you want to publish something or if you want to say broadcast audio, it was very hard. was mostly national monopolies, many of them government run.
Arnold (31:53)
to.
Jeremy Allaire (32:07)
that could actually broadcast audio. And if you wanted a license to do that as a foreign entity, et cetera, it was impossible. But like the concept that you need a license to broadcast audio is just gone. Like I can broadcast audio to any human on earth, basically, with probably very few exceptions. So saying censored speech, I might get blocked by a great firewall. But like basically you have that. And you've had that with, you know, what I kind of call over the top platforms, over the top content.
Arnold (32:20)
Right.
Jeremy Allaire (32:37)
over the top publishing video, communications, peer -to -peer communications, all of these things that have been these scaled out internet utilities, they're software powered, people adopt them, and they do run in the face of maybe what local laws were. Even Uber and Airbnb and these structures found their way in, and then people are like, no, no, you're not taking this away from me.
Policy then responds and says, OK, well, we've got to deal with the risks of it, but we're not going to take it away. And so my own view is that over the long run, and I think very long term, there just are going to be fewer currencies in the world. And there will be more countries that align against a uniform kind of, they'll have to have fiscal responsibility vis -a -vis global currency monetary regimes.
And like you said, there's good evidence to say that's not a bad idea. But in any case, I do think that you'll have that. And then in general, think policy will respond to social adaptation. But I also agree with your view about generationally, some of this is different. But that also plays out in the internet space, meaning the percentage of viewing hours of video content that is sort of like online through Netflix, YouTube, compared to the percentage of viewing hours.
of broadcast cable satellite terrestrial. It's still dominated by cable satellite terrestrial, even though for us, right, we're like, that's crazy. Like, that's insane. But it actually is. The world is still, you know, a demographic that just like depends on that infrastructure. There's a huge percent that are there. And these things take decades to change. And so, like, even though maybe whatever it is, only 15 % of the viewing hours are online,
Arnold (34:12)
Yeah.
Jeremy Allaire (34:33)
like it's still massive and it's a massive industry change. And the same thing with even e -commerce, right? E -commerce is still the minority, a significant minority of retail transactions, but it's massive and it's changed everyone's lives. And so I think about things like stable coins, on -chain finance, all of the utility that comes, it's going to be like hyper scale in terms of the utility and people will adopt it.
And it will have these profound network effects. then society, like businesses in a country or households in a country, say, no, no, this is how we're going to do it. And like, OK, there might need to be some rules that are developed, but like we're not going back. it maybe starts out as 2 % of the activity or 5 % of the activity. But even 10 % of the activity is enormous, right? The TAM on legal electronic money is over $100 on.
And then the TAM on all the utility of moving that money around is trillions and trillions of dollars. So we don't need it to be everything. We just need it to be 10%.
Arnold (35:40)
Yeah, 100%. I think, you know, on a long enough time horizon, I am surprised but very glad that you mentioned your thesis about the centralizing force on currency. I think that is very real and is going to happen even if you don't have stablecoins. Net FDI flows, the appetite for people to increase local value.
Jeremy Allaire (36:10)
Mm -hmm.
Arnold (36:11)
and shift capital over from where it's currently sitting, that would take such a long time to play out. And it seems empirically since, I don't know, the 1940s, 50s, it hasn't quite achieved the fruition that people would have thought. And everyone just wants a good base unit. And there's so much that goes into what defines the dollar as the reserve.
Jeremy Allaire (36:14)
Mm
Arnold (36:41)
We could do like a case analysis of what are the alternatives. And I think that is especially a strong argument. But yeah, I think on a long enough time horizon, you are correct, which is why we also have conviction in this in the decades or centuries long front. It's hard to argue against math, which is kind of what the append -only data structure boils down to.
Jeremy Allaire (36:44)
Yeah, no, no, clearly, yeah. Yeah.
That's awesome. what maybe the last question for you is sort of like, know, what's next for you guys? What are you most excited about? What are you most excited about delivering on? And what do you think, you know, maybe in just in the context of sort of the next 12 months, like where do you want to be?
Arnold (37:29)
Yeah, so our existing Sphere Pay business is going quite well. And so we're really excited to start getting our MSP designation and building out that business. However, what we've realized is...
In the meantime, before we get to a world where more people just recognize the utility of operating on chain, there is a gap where the risk compliance teams at various companies within countries, especially at regulated entities, they have existing mental models of what is low risk, what is medium risk, what is high risk.
Jeremy Allaire (38:12)
Mm
Arnold (38:14)
It is a very hard...
battle. And I think, you know, one, that circle can fight because you guys have that leverage to be able to do so. But for the fintechs that are our vendors, our clients, I think there is a unique insight that we found while doing so much manual work in coordinating between sponsor and intermediary banks that enable cross -border payments, even at the fiat level, to get cut down 10, 100, in some cases, 2 ,000 times.
Jeremy Allaire (38:37)
Yeah.
Arnold (38:47)
which most people don't know about because most people haven't been in a wire room. And it's something that we'd love to, we'll be releasing more material about it over time. Just give folks out of the box, because there's no way, you know, a Brazilian MSB equivalent would know the intimate details of what goes into a fed wire spec or who the best counterparties are in Japan.
Jeremy Allaire (39:13)
Mm
Arnold (39:14)
And technology here, the cryptography, is a great way to provide an immutable log of the things that are normally kept in Postgres or only exposed to independent examiners. So, sir, I'd love to tell you more about it. Maybe.
Jeremy Allaire (39:25)
Mm
Yeah, that's cool. You don't need to tell everyone. Yeah, very cool, Arnold. Well, super conversation and really pleased that you could come on the Money Movement and we'll keep tracking your progress.
Arnold (39:44)
Thank you. was a really amazing convo. And it's kind of crazy to have the chance to be able to talk to you about this. I used to watch a lot of Flash. And so thank you for what you're doing at Circle. And I'd to continue staying in touch, keep you posted on what we're doing.
Jeremy Allaire (40:04)
Absolutely. All right, cool. think we are officially.
Jeremy Allaire
Co-Founder, CEO & Chairman at Circle
Arnold Lee
Co-Founder & CEO, Sphere Labs