International Payments with Stablecoins

Jeremy: Welcome to the Money Movement, a show where we explore the issues and ideas, shaping this brave new world of digital currency and blockchains. Today, we're going to be exploring the world of stablecoins and international payments. How can people, individuals, and businesses use this powerful technology, these digital dollars, or crypto dollars as some folks to say these days to move value around internationally? It's one of the really critical and important building blocks of public blockchains is that you have the reach of the internet.

We're really excited to be able to talk about that today. I think, obviously, when a lot of people think about stablecoins, the root use case, or where these emerge was in trading and markets, it was traders and people moving around value at high speed across the internet, across these digital trading venues. Of course, the traders that started and drove the early adoption of this really saw the power of this as an international payment medium. They could settle a transaction with a counterparty anywhere in the world with very little risk, with very low cost. I think very quickly saw that this form of moving value and making payments was far superior to the existing infrastructure that they had to move value around like the existing legacy financial system.

Secondly, when we think about USDC in particular and CENTRE Consortium, and what we really tried to put forward when we established that two years ago, the vision behind that wasn't how do we create a better digital dollar for trading markets. The vision was how do we create a protocol and an infrastructure that's going to allow for interoperable payment everywhere. That payments would have the same reach and utility as we have with sharing content, data, and communications on the internet. That was that core vision.

While things like USDC and tether and other stablecoins have really taken hold in the world of training, the uses are really evolving. We're seeing those uses evolve very fast over the past 6, 9, 12 months into this world of international payments. It is in fact one of the largest and fastest-growing opportunities in this digital currency world. Today, I'm really excited to have several guests who are going to be joining us. These are key leaders of firms that work in markets across Asia and Latin America, and who are really firsthand both participating in, and seeing these shifts happen. I'm very excited to have these guests. To kick this off, I'd like to welcome our first guest, Darius Sit the co-founder and managing partner at QCP Capital. It's so nice to see you, Darius.

Darius: Hi, Jeremy.

Jeremy: Good to see you.

Darius: Good to see you. Always good to speak to you.

Jeremy: Yes.

Darius: How's it going?

Jeremy: It's going really well. I appreciate you're joining us very late in Singapore. Thank you very much, of course [crosstalk]--

Darius: No problem.

Jeremy: Maybe we can just start. I want to talk a little bit about QCP. Obviously, you've been in this business of using stablecoins for quite some time, active in the trading markets, and increasingly, you do much of your business in stablecoins. Maybe just tell us a little bit about that and why that's become such a central part of your firm, and how you guys operate?

Darius: To start, QCP, just a couple of lines, we are trading firm. We focus a lot on spot flow and markets in Asia, global as well, but we do a big focus on Southeast Asia, China and Korea as well. We do a lot of derivatives as well. Stablecoin is a very very big part of our business because of the way things are moving in terms of settlements in Asia, as well as the use of stablecoins for trading and derivatives. To answer your question, three years ago, I think we realized that it was going to be a very, very big and scalable operation to go into stablecoins.

The trigger for us was really China because even three, four years ago, China, we really had a chat with the PBOC. We knew the intention is to launch a digital currency, not just for trading or not just for crypto specific purposes, but really to replace their fiat currency, that digital currency was going to be the way of doing it. If you go to China, you will see that the adoption is already there because no one uses cash. Everyone is doing payments in digital forms.

If you go to a Starbucks there and you take out a note to pay, everyone looks at you and wonder which village you're from. When we saw this, we realize that the rest of the world was one step behind it. We knew that the stablecoins were going to be something. Even though at that point, it was very specific to crypto natives and very specific, very very small section of just trading, USDT being used for leverage trades and whatnot. We knew that it was going to be a tectonic shift at some point. Fast forward to today, in China, the government is paying the civil servants in digital currency. It's huge.

Jeremy: I remember we met. I don't know how long ago it was. I was really struck by part of what you were sharing, which was that, you had started using stablecoins as a way to settle between trading counterparties and that you were seeing a real shift. That shift was that the people who wanted to use stablecoins wanted to actually use it as a settlement medium for commerce. It wasn't just about how to use this as a speculative trading tool for trading digital assets, but actually, people wanted access to and use stablecoins so that they could actually settle commerce transactions between buyers and sellers, suppliers, and customers. Talk a little bit about that shift. When did you start seeing that shift start happening, and which markets have you really seen that growing?

Darius: The thing is when we tell most people that we are crypto trading firm, they assume that our customers are crypto natives or guys who are very familiar with the blockchain and crypto, guys who are in the space, but in Asia, that's actually not true. The biggest users of stablecoins are guys who are not crypto natives. These are guys who don't own Bitcoin, who don't own Ethereum, but they move and they do settlements in stablecoin, USDT, USDC. The reason for this is because the context of Asia is that in Asia, unlike Europe or America, it's a very fragmented economic region, so each country has its own idiosyncratic economic policies, banking policies. There are a lot of capital controls. It becomes very tricky to move money around, not just purely. For example, for business transactions or [unintelligible 00:07:40] hedging, it's very tricky. This started almost organically. I think I would say somewhere early 2019. We realized that non-crypto natives, business people, corporates were using this as a way to bypass or rather not have to go to the banks and

not have to go to the remittance houses.

Jeremy: This idea, I use this concept of over-the-top money in digital media, there used to be, you had to get your TV through broadcast or satellite or cable and then people went over-the-top. They went over the top of the internet and you could just get to the video and the internet. This is over-the-top money, basically. It's dollars too, which of course if you have all these mixed economies and at the end of the day, everyone feels confident in selling a transaction in dollars. You get the power of the internet, the speed of the internet, the convenience of the internet and you get dollars and it goes over the top, and opens up for economic relationships, so a lot of possibilities throughout, I guess, China and Southeast Asia.

Darius: Exactly that. Instead of taking a date to settle with the bank, and having to go to the bank and do a TT where you have fees, or you have expensive FX spreads, they do it instantly. It's just over WhatsApp, over telegram. We chat, boom, done. Instant settlement, very low fees, and it's moving really quickly.

Jeremy: You said you started to see the shift to businesses and everyday business people who are saying, "Hey, this is actually just a better way to do business starting in early 2019." Obviously, we've seen in the post COVID world this dramatic increase in circulation of stablecoins, and on-chain transactions have been growing super fast. It's now definitely the killer app of blockchains, but are you seeing that as well, just more and more diverse counterparties that are looking to adopt this now?

Darius: Exactly. Crypto natives, of course. The traders as usual, but we decided to see you guys like furniture distributors, alcohol distributors

guys on the street who are just buying and selling wholesale clothing, e-commerce guys. It makes complete sense for them to do it this way, so the local currency, no problem. They can use the internal banking system. Anything dollars is stablecoin. We start to see this had been happening in huge sizes as well, so it's become very corporate in fact.

Jeremy: This is, I think, a major shift that people have been looking for, waiting for, which is, all of a sudden, you've got corporates from small to medium, to even some large who are just like, "This is just a better way to settle and a better way to move value." They're just adopting it organically. They're figuring it out. Obviously, it's benefiting firms like you that are key liquidity enablers in the entire region. It's obviously very, very exciting. If you had the fast forward two years, I don't want to say five years, let's just say two years, three years, is this is going to be 10X what it is today? Where do you see the volumes? Where do you see the adoption?

Darius: I think the sky is the limit. The fact is this, China has already launched it, the big banks in China. The Chinese banks have built infrastructure for it. What everyone was thinking that this is blockchain technology. Everyone's going to take some time to build infrastructure. China has the big banks that have already adopted it, built infrastructure. They're paying civil servants in the digital currency. I think it's a fact that when China adopts something, the rest of Asia will follow very quickly. We are getting requests and engagement from the rest of the Southeast Asia central banks to start looking to this. I think, again, like I said, people don't realize that they are two steps behind. I think the adoption will happen very, very quickly because it's already a reality in China. I think most people don't know how real the adoption is there.

Jeremy: Seems like a real tipping point moment.

Darius: I think so.

Jeremy: Darius, so wonderful to have you on the program, share your perspective from [crosstalk]. Really exciting what's happening, and look forward to seeing you very, very soon. Have a great night.

Darius: Thank you. You too. Thank you.

Jeremy: Excellent. Obviously, a lot of very interesting things happening here. The demand for dollars, the demand for high speed, efficient, secure transactions, the speed and utility of the internet, these are all really powerful forces that are driving stablecoin payments internationally. Just to echo what we're hearing, this isn't just traders. This is now corporations of all types, even small merchants that are figuring out that this is just a better way to do business. Very, very exciting. I want to turn now to another part of the world, to Latin America, and welcome our first of two guests from the region. The first, Fabricio Tota is the director at Mercado Bitcoin, the leading digital currency exchange in Brazil.

Welcome, Fabricio.

Fabricio: : Hi, Jeremy.

Jeremy: It's great to have you here. Thank you so much for joining.

Fabricio: Thank you. Thank you for inviting me. It's a pleasure.

Jeremy: Excellent. I know you guys recently launched USDC on your market and recently launched that in the Brazilian market. Maybe you could just start talk a little bit about how you have viewed stablecoins and their importance and the importance of that in particular for a market like Brazil.

Fabricio: Actually, we listed the USDC in Brazilian reais here. We have a different pitch, different objectives, different goals on list, and a stablecoin here. The process of selecting was something very important for us to have a really strong stablecoin from people very aligned with our values, our mission, our vision of the ecosystem. That's why we have choose USDC, and differently from what could be the most obvious idea of money flow using stablecoin for settlement, so one here, what we thought is a little bit different. We listed stablecoin giving our customers, almost 2 million customers, an option for getting exposition in US dollars.

It's completely possible to get exposed, but not as easy as other parts of the world. For example, you can't have a bank account in US dollars. You have to settle things here in Brazil, in Brazilian reais. You can't use US dollars for business in general. Even getting exposed just to protect yourself, maybe Brazilian reais can devaluate, and that really happened this year. We have a stable economy, but not that stable. To protect ourselves from a devaluation from our currency, that was our pitch. That works.

Jeremy: This is the demand for dollars, but in particular, these are digital dollars that you can use on the internet. You can use them in your own digital wallets, so for a business or an individual, of course, too, but that's an attractive way to move and store value obviously. Of course, it has this ability as a settlement medium. People who have it understand intuitively that, "Oh, this is an internet digital dollar. I can now use this with counterparties. I can use it in trade and payments, and settlement."

Maybe talk a little bit about what this really opens up. Using USDC and this conversion with Brazilian real, in some ways, it creates a powerful corridor for international payments between Brazil and the rest of the world using stablecoins. What are your expectations around that? Do you see that digital currency native international payments that come in and out using stablecoins as a killer app that's going to be driving usage?

Fabricio: Yes, there's this possibility but regulation is very tough here about sending money, the remittance business. Sending money abroad is not that easy. Theoretically, you must go to a financial institution regulated by the central bank. They have control of all the remittance, the in and outflux of money. Even though you can do it and it's completely legal to buy, to sell, to have, to own stablecoins or any other crypto asset, if you use specifically for remittance, then you must go to a financial institution.

I think regulators here, they have a big challenge because they have something that can be used beyond their control. There's nothing they can do about to avoid people using it for that. In my opinion, regulators must sit at a table and talk about trying to understand. Unfortunately, Brazilian regulators, they do have a good knowledge about the crypto ecosystem in general. They're very aware of that.

Right now, the Brazilian central bank president is an FX guy. He was an FX trader. He knows all the power that stablecoin that they have as a way of moving money. I think we are at a good position, Mercado Bitcoin itself, we have good relationship with the central bank and with our SEC, CVM or SEC here. I believe, in a short period of time, maybe things are going to be more flexible for remittance using stablecoins to have even an opportunity to use a sandbox from a regulator, that maybe we can use that for remittance using stablecoins also.

Jeremy: In the traditional model there, you have expensive FX fees. You have to go through a traditional bank. It moves very slow. It can only go to a traditional bank, but obviously, with stablecoins, people can just freely make those payments on the internet. Like you said, I think regulators everywhere are coming to realize this is a new global capability and it's happening organically. People are adopting it, and so they have to figure out how to adapt. It sounds like you're right at the cutting of that in Brazil.

Fabricio: Yes. The beautiful part is that

it's possible and it's beyond their control. There's nothing they can do about it. They must talk. They must understand. They have to bring people, bring companies together to find a way to do it in a way that's good for the companies, good for the economy, and good for the country also. I think that many, for example, let's say, it's about a micro remittance make things cheaper and better for everybody.

Jeremy: Yes. Are you seeing within your customer base demand either from individuals or businesses where they're interested in that benefit of the global payment capability that comes with blockchains?

Fabricio: Yes, we do have some people using to pay things here in Brazil also. They have found the power of crypto much easier, much cheaper, and better way of moving money but specifically for stablecoin and other assets also, other crypto assets. Last year, we have seen a boom in investments here in Brazil. With interest rate going down, so people thought, "Okay, I have to find a way to make some money with my investments and invest in other stuff other than bonds or especially public bonds." This is most traditional way of investing here and finding other ways of private bonds or stocks and now, crypto assets and even stablecoins include this crypto assets. I think people are discovering what's possible and what's going on in this in our ecosystem and that's amazing.

Jeremy: Obviously, it's very exciting. It's obviously challenging existing frameworks that have applied around the financial system as we heard earlier with Darius throughout Southeast Asian markets. I think very similar situation businesses are figuring out this is just a better way to do business and they're moving into it and obviously, the governments, are having to react, but it feels like there's obviously a lot of momentum. We're very excited to see USDC adopted in Brazil. That's a really powerful connection to a really critical market. We'll be very interested to see how the usage grows for you and again, really appreciate you making time and joining us on the show today. Thank you, Fabricio.

Fabricio: Thank you so much, Jeremy. It's a pleasure. I hope, in a short period of time, I'm sure that the usage-- People are smarter than us, I think. We plan something, we show them a way of using something but I'm pretty sure they'll find other ways, other usages and that's very exciting.

Jeremy: Absolutely. Thank you again and have a great rest of the day.

Fabricio: Thank you.

Jeremy: Obviously, I think one of the big themes that we hear and that we see is that people and businesses in many countries around the world, they found it difficult to transact in dollars and to transact in dollars globally in some markets, and with increasing intensity, there's really profound economic and monetary challenges. These are driving more and more people into digital currency around the world and we certainly expect that to accelerate. Now, one such market is Argentina, another key Latin American market, and we're very privileged today to welcome Sebastian Serrano, founder and CEO of Ripio, another fast-growing Latin American digital currency firm. Welcome, Sebastian.

Sebastian: Welcome and thank you for having us. Nice to talk with you always.

Jeremy: Yes, likewise. Great. I know Ripio is a very fast-growing digital currency firm in Latin America. You've got support in a number of different countries but I know one key market that you've serve is Argentina. I wanted to focus a bit first just a little bit on the dynamics in that market. Maybe talk a little bit about the dynamics of digital currency in Argentina and maybe a little bit of the broader context for our audience.

Sebastian: Maybe we can talk a little bit about our history and it has a lot to do with the stablecoins and crypto. Argentina, especially we have operations in Brazil, Mexico and many countries but I grew up in the Patagonia in the south of Argentina. I have seen the peso collapse three times. It is basically once every 10 years, and the country has gone into many economic struggles, several defaults. It's currently on the bridge of a big default. This year, the peso has dropped more than 50% in value. We have a very bad history of policy on the peso. It has been very difficult for anyone to store value. When we start the company in 2013, it was on the mission to give access to cryptocurrency from a very strong need for the good form of money to store value and to save and to connect to the world.

Especially, Argentina, it's a country that half of the population doesn't have access to banking. This is common across Latin America. There is a big history of saving in US Dollar in physical cash, and that people literally store under the mattress. We were born with this mission of giving access into this new digital economy. We live in 2020 in the era of the internet. Everybody has a cell phone. 90% of the population have access to the internet, and there is a big distrust in banks, and really a big opportunity in giving access to financial services and give a financial inclusion. That's what makes the company exist. Basically, our mission has always been around access into all of this.

I think stablecoin going is a beautiful development. We actually started educating. We have a big role in building the tools but also building education around everything that is connected because it's not only lack of access of the tool, but it's also a lack of the knowledge in how to have control of your finance. We have been educating our user base. We start talking about the stablecoins when they begin existing two years ago. We integrated stablecoins about a year ago. We have seen incredible growth, especially over the last few months. We added USDC, and it's a recommended one, in January and it has exploded in volume and this is all that is happening with economy with the pandemic.

It has made the volume of stablecoins grow over 20x. We are seeing a lot of growth. We are currently reviewing at activity levels of the rally of December 2017 or more. 2 days ago, we had our highest number of concurrent users simultaneously using the wallet. Our main product is a wallet. We have 2000 people actively using at the same time-

Jeremy: That's great.

Sebastian: -which is a challenge when you grow that fast and especially in such a constrained environment. It's inactive users [unintelligible 00:29:12] 3x this year and it's a fast-moving and the thing is that people is looking for ways to-- Our use cases is not so much a payment right now. People is buying and holding.

Jeremy: [crosstalk] stored value. They want the power of these digital dollars and the stored value capability. I think it's a really profound moment in time in the economic development in the world, internet's development in the world, this technological development, they're all coming together as catalysts and we're seeing that and you're seeing that. It's very exciting. Do you think, as people in Argentina start to

store and hold these digital dollars, they'll realize that they can use them just like a text message, they can use them just like a piece of content on the internet, and of course, they're all very comfortable with that and using that with people they know in every country, everywhere in the world, is the next step this growth in the use in international payments?

Sebastian: Yes. Also, this is obviously more the younger population is eager and is the first adopters. Our user base is 20 to 45 and all their generation still want the physical dollar that they can hold. It has saved them so many times. It's going to be a little bit more difficult to all the generations to don't have the paper on their hands. In younger generations, that they WhatsApp everywhere, they are able to contact anyone in the world freely and interact freely. It just makes sense. I think we're going to move into a world where everybody's going to be working together. We are forced right now for the situation to be all online.

We are realizing of the power of that we can really make most of the companies work online. It makes sense that we can just move money as simple and easy. I think it's also a beautiful revolution in the sense that this is first being adopted by individuals. We are seeing the individuals to be the first ones to save money before companies and start using. This is more retail than funds and corporations. I think, the same like Fabricio mentioned, in Brazil, regulations for exporting, for example, are very tight. This is going to be very difficult for the soy exporter which is the main production in Argentina to avoid all the regulations that there are around it to be able to export using stablecoins which will require a change in the entire framework. I think, for someone like a freelancer that is doing design on the internet, it's going to be clear, simple.

Jeremy: Creators, media people, software engineers, content creators, people who make goods for things like e-commerce marketplaces, that'll be very easy for them to want to adopt this.

Sebastian: They are already working online remotely from their homes and it's going to be just simple and cheaper. It's going to be adopt from there. Regulators are going to have to- with everything, laws are always behind the usage of things. People, they start having a new update, a new way to interact, and then regulators follow after understanding the use cases on how people is behaving. From the beginning, we have always in talk with every regulator, educate them, not only our user base but also people in the government. As with everything, there are risks and good regulations mitigate risks and increase the potential of things, but regulations destroy the potential and amplify the risks. If we're able to work with regulators and governments, we can really have a lot of potential in this and really grow our online economy which right now is very tied into the old world.

Jeremy: It seems like you're laying down the infrastructure for Argentina and of course in other markets in Latin America to plug into this new global digital economic system. As you said, the young people are figuring it out first smartly just to either protect themselves and save value, but of course, they're experiencing the utility of this. They will lead the way, of course. As you step back and I know you've been in this industry for a long time and have a lot of the battle scars, but--

Sebastian: This is very exciting. It's very exciting moment.

Jeremy: It is an exciting moment. I was just going to say, this is an exciting moment, mature stablecoins, enabling things is an exciting moment. Where do you see things in two years or three years with the adoption?

Sebastian: I think we're going to see tremendous growth. We right now have 450,000 users mostly in Argentina. Our second country is Brazil. Our main product is the wallet. We also have an exchange with DCM and the rest of the infrastructure services. We are laying down the, as you mentioned infrastructure for all of these to start building the future of finance. I expect, in two or three years, we might be in millions of users. Maybe five, six million users. I think we're in that tipping point and by 2024, I think we will be in that level. To put it in an order of magnitude, one of the biggest wallets in Argentina is Mercado Pago from Merkel Oliver, the largest e-commerce. Their last number I have is 800,000 users. Crypto is in a very big in the same order of magnitude.

Jeremy: It should surpass that because people can get--

Sebastian: It could surpass that, yes. Very likely.

Jeremy: That could happen very fast. It'll be fun to watch. Sebastian, it's really wonderful to connect, really wonderful to hear the story. I'm really excited about the momentum of course, and we're watching really closely how this technology starts to spread and connect people in Argentina into this economy everywhere and appreciate all the work that you're doing as well.

Sebastian: Thank you for having me. Nice to see you.

Jeremy: Nice to see you. Obviously, it's really tremendously exciting to start seeing the power of global digital money unfold, this proliferation of wallets, exchanges, trading firms that support stablecoins like USDC and others. They're laying the foundation for broad-scale usage in international payments. I think we're going to continue to explore this in future episodes. We're going to be talking first hand to businesses that are building on stablecoins and we want to showcase live the speed and the power that these have to move money and value around the world. We'll have an exciting episode coming up where we get hands-on and really show the power of this for people and businesses around the world.

On a similar note, I'm excited that next week's show we're going to be talking about stablecoins and Global Financial Inclusion, a topic that we touched on today. A very profound impact on people everywhere who have mobile devices, but don't participate in this global financial system. Stablecoins are creating a way for them to do that for the first time. We're going to be joined by several guests who are going to speak about the real transformation in people's lives that becomes possible with digital currency proliferation around the world. This promise of connecting people everywhere into a more open and inclusive financial system has animated not just our work, but I think the work of many innovators and entrepreneurs in the industry. We're going to be excited to continue to dive into that theme next week. Until next week, stay well, stay safe and stay informed. Thank you very much. [music]

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