Hello listeners, welcome to another episode of the Jacob Shapiro podcast.

I know we're behind on our cadence a little bit.

We had some cancellations, some things happening.

This episode, Rob and I spend the first 10 or 15 minutes trying to talk

about, um, how to avoid negativity.

'cause I've gotten some feedback from some of our last episodes and you

guys have been so negative lately.

Uh, and we tackle that sort of head on.

And I think it was actually a helpful corrective 'cause we're trying to talk

about volatility without being negative.

And sometimes it's hard to do that 'cause the human brain does not like change.

Uh, even if change may in the end be positive.

And then we spend most of the rest of the episode talking about stable coins.

Um, and that might be a phrase that turns off people who are not

immediately interested in things like Bitcoin and cryptocurrency and

central bank digital currencies.

Uh, but I really tried to pitch this conversation at a very, very high level.

You know, starting with literally what is a stable coin?

Why does this matter?

And I think this conversation is actually one of the more critical ones

Rob and I have had this year because we start thinking about what some of

these different technologies and moves by central banks and nations mean,

uh, and some of the geopolitical logic behind them and why it's driving a real

change in my thinking around things like currency in stores of value.

Um, so I hope you enjoy this episode.

As always, you can email me, uh, jacob@jacobshapiro.com.

Probably the easiest email address if you want to get to me to express any thoughts.

Uh, comments, concerns, potential guests you wanna have on the show.

Anything else you wanna send me, feel free to send it there.

Um, I try to respond to everything.

Um, and if you haven't, if you're a new listener, we've

got a bunch of new listeners.

Uh, if the data is correct, leave us a rating, leave us

a review, leave us a comment.

Uh, hugely helpful for us.

It takes three seconds of your time, so take care of the people that you love.

Cheers, and see you rather.

Alright, Rob and I are back at it.

Rob, we, we promised the listeners that we would be positive, um, for this episode,

uh, 'cause we were fairly doom and gloomy.

Uh, in our last episode, we'll see if we can actually follow

through on that promise.

But to get us started, so rather than bearing the lead, I have two

positive indicators that I wanna share with you before we get into

what we really wanna talk today about.

Um, what we really want to talk about today.

English, Jacob.

Uh, the first is that violent crime is actually falling.

Pretty rapidly across the entire United States.

Um, I've joked on the podcast before sitting here.

I'm literally here in downtown New Orleans.

New Orleans had overtaken Chicago for a per capita murder rate in

the country a couple of years ago.

Um, over the last three years, homicides in New Orleans

have declined by almost 45%.

Uh, similar data for Philadelphia, almost 50%.

Boston declined by 30%.

Los Angeles, 30%.

Um, New York by.

Oh, roughly 20% you go down the list.

Um, a pretty huge decrease in violence.

Um, there's also something to be said there for, you know, there was a huge

increase in violence around COVID and the disruption that happened around

COVID, whether it was economic or, you know, not having access to the same, I

don't know, everything from schools to homeless shelters and everything else,

like maybe that caused things there.

And academics and social scientists are trying to figure out what caused that.

Um.

Also, I mean, I think maybe, um, a little bit of, I, I think you can give a little

bit of credit to the Biden administration, which really, uh, was pushing a, for

getting money to local police and also focusing more on police work.

Uh, you know, trying to pour, they literally poured hundreds of

millions of dollars into community violence interruption programs.

So that's the kind of, you know, namby-pamby stuff that the right would

say, oh, the left and all this, you know, talking and this, that, or the other.

Well, actually it looks like it works a little bit if you look at the data,

like maybe that's part of it there.

Um, so I had that data point, and then another one, um, we often, uh, you

know, talk about how, uh, you know.

US society is unhealthy and they're fat and they're on drugs and everything else.

They're still fat.

Uh, no offense to y'all, but, um, uh, US drug overdose death, uh, US drug

overdose deaths have also declined pretty rapidly in the last couple of years.

They peaked around 20 21, 20 22.

They were edging up close to 125,000 deaths a year for drug overdoses.

But they have fallen from about that 120,000 level in

21, 22, uh, closer to 75,000.

Um.

Last year.

And then data looks pretty good for this year so far, even though we're

only halfway, uh, through the year.

I think some of that is also that the US government and the bo, both the

first Trump administration and the Biden administration really played

up the impact of drug overdoses, especially in poor parts of the

country and trying to get programs out there to fix some of these things.

Um, so, you know, even as we're talking about, uh, tariffs and

everything else, like, uh, US society is at least like overdosing on drugs

less and killing each other less.

So it doesn't get much more positive than that, does it?

Do you think those things are connected, by the way?

Is there a drug related element to the murder rate?

Uh, I don't know.

Uh, we'd have to get an expert on, on, on that onto the podcast.

My initial armchair answer would be probably not, because I think

a lot of those drug overdose deaths have been driven by, um.

You know, the opioid crisis.

So I don't think that that's gonna be, like, it's not like gang violence or drug

violence has been leading to the surge in those deaths or things like that.

It's almost like you have the opioid crisis on the one hand, and then, um,

you had the, the increase in violence also, like if you look back over a 30,

40 year time horizon, we've been steadily getting less violence for 30 to 40 years.

There was this blip post COVID for three or four years, which is one of the reasons

I think it was so unnerving for people because we thought, at least in the United

States, that we had turned a corner and suddenly we hadn't turned the corner.

But the, the long-term trend is still pretty clear, um, that, you know,

rates of violence are going down.

So, no, my initial reaction would be, no, but we'll have to find somebody to

come on the podcast and talk about that.

Who focuses on these things?

And I didn't, I didn't pull data for anyone else, but, uh, I don't

know it when you, it, it sort of had become a trope for me over the last

couple of years where, and, and, and some things are still really bad.

Like you look at the performance of the US education system relative to other

countries in the world, still bad.

Um, I assume that the, um, the ozempic data will decrease obesity

rates in the United States.

I don't think it's necessarily there in the data that we have

at our fingertips quite yet.

I'm a little worried about what that means long term, like getting your,

you know, however much percentage of your population addicted to pills that

prevent them from getting fat or shots that prevent them from getting fat.

I don't know.

And we don't know the long term repercussions of that.

Um, but, you know, maybe even the obesity rates will start to go down too.

But just, uh, you know, uh, the flippancy with which we sometimes

speak about, you know, especially socioeconomic decline in the United

States in particular, the data's at least telling us something a little

different over the last couple of years.

And I think it also, honestly, um.

You know, if I'm getting serious for a second before we get into stable coins

and some of the other things we talked about, you know, I was talking with

Marco, um, on the podcast, uh, what a couple of weeks ago, and we were talking

about, you know, the general phenomenon of young men in particular in the

United States being left behind and, you know, sort of women outperforming them.

And maybe these are people who are flocking to your, your Joe Rogans

or, you know, some of the less savory aspects of the media ecosystem.

Um, and it was funny, Nate Silver actually wrote this piece, um, in this

past week where he talked about, um.

And this is all like self referential, but he talked about how among voters

who report poor mental health, liberals outnumbered conservatives, 45% to 19%.

So the liberals are the ones who are reporting poor mental health.

Um, and so his point was that the Democrats, um, have trouble with, uh,

or the, the young men the Democrats are having trouble with aren't

necessarily the ones who have been captured by the conservative media

who are looking for a helping hand.

It's actually the ones who report high mental distress.

Um.

Uh, go towards the Democrats and the others are so happy.

They think the Democrats are too neurotic and too depressed.

So they go to the Republicans because the Republicans are giving them a happy view

of what's going on in the world, and they are also themselves fundamentally happy.

So maybe like there's some deep-seated psychological like thing that they

don't, that they're not aware of.

But if you trust this data, or at least trust how people are reporting their

own mental health, the people who are flocking to these media sources don't

feel like they have a problem at all.

And if anything, they are flocking to a particular form of politics that they

find also speaks to that positivity about life rather than the negativity that's

being shoved, um, from the other side.

I don't know what, I don't know what to do with that either, but all kind

of goes into the critique that we got on the last podcast, uh, that was

like, Hey, you guys are super negative.

Why you guys, why have you guys been so negative lately?

So, I don't know.

I thought, I thought it was a nice little, um, I won't say a corrective, but it's

nice to think a little bit positive.

Well, it's interesting that the, the defining narrative on the democratic side

is what's wrong with all these people?

Rather than presenting a narrative of what can we do that's positive and, you

know, going to, going to present an image of somewhere to move to rather than,

you know, uh, seemingly everything kind of being reactionary to other people's

actions and, and that sort of thing.

But, um, but yeah, I mean, we were just talking about this, uh,

yesterday in another interview.

You know, the, when we talk about a lot of the big problems in

the us, you know, you're really talking about dollars and cents.

Um, and the stuff that underlies everything is really more about

technology and culture and people, and that's just much healthier.

And especially in the technology side, like, you know, the future's so bright,

we gotta wear shades, I think is still my, my base thesis and um, it's gonna

be hard to shake me outta that one.

So, you know, even though we talk about the negatives a lot because we're

talking about dollars and cents and fiscal policy and, and things like that.

Um.

Let's not lose sight of the bottom up.

Really good stuff.

No, just 'cause it's not, let's not.

And and I wanna reframe it for the listeners, which is, you know, one of the

things that you've really coined on the podcast in which I've, I've taken with

me and some of this, um, some of the work I've been doing is, you know, you've,

you were the one who coined for at least me, the phrase, the volatility spiral.

And I think we have to be really careful about talking about volatility

and change versus being, or.

Versus over-indexing on negativity because I think one thing you and I both agree

on is that there is going to be a ton of change, and when you have change in

volatility, you get creative destruction.

You can destroy entire industries, entire classes of people who had jobs that

maybe won't be there in 10 or 15 years.

Um, you know, this, this came, you know, look at, look at

coal miners in West Virginia.

There's a whole class of white collar jobs in the United States that should

be looking at chat GPT and quaking in their boots with the things that are

coming because of creative destruction.

But the other side of that is if you're having an energy transition

and if you're having AI and robotics and all these different technologies

that are emerging, you're also gonna have incredible creation of.

Wealth and opportunities that we can't even imagine.

I was, I um, had to do a virtual event for, um, our friends over at

Chile Moss yester or, uh, on Monday.

And, you know, I was trying to give a positive sense of what was going on

in the world and it's hard to do in my presentations 'cause I spend the

first 45 minutes talking about what everybody's afraid of in the headlines.

And then I get to the end and I'm like, Hey, you have to be really positive.

Um.

Because there's all these different opportunities, but

of course, the questions were still like, relatively negative.

And actually, I, I wanted to put this to you.

Like, one of the first questions I got was, um, you know, well, all

these things you're saying about AI and you're optimistic about ai,

like, doesn't that just mean people aren't gonna have jobs anymore?

Like, that seems like it's gonna be absolutely catastrophic for wealth

and equality and for, you know, uh, employment and all these other things.

And I said, look, like, I guess that's technically possible, but I, I seem

to remember like people like Henry Ford in the United States saying that

we were only gonna work two days a week, a hundred years from now anyway.

And I'm not working two days a week.

Jesus.

I need to like reexamine my life here.

So I think we'll still be working.

I don't know.

How would you respond to that question if you got it?

Well, I mean exactly the way you just said.

People have said that about every technology ever in

the history of the world.

And if we're ever at the point where humans truly cannot do anything useful

because robots and AI do everything for us, then that's called paradise.

And go play golf and be happy.

Um, you know, so.

I'm not too worried about it, let's just say.

Uh, but just on the volatility spiral real quick.

I think it's really important to, to recognize that these things are connected.

The bad and the good are connected.

Volatility does it, it's a, like a Janus faced process.

And if you look back a hundred years ago, I mean it was so similar.

So many of these elements, everyone was afraid, especially the elites,

the elite people were afraid.

I always love, there's a great book called The Intellectuals and the Masses

and it's all about how these hamby pamby intellectuals were just terrified of

like ordinary people like coming off the farms and, and doing things and how

dare they go to the beach resort, you know, Virginia Wolf writing letters,

you know, fantasizing about gassing the masses of British culture and.

And that's, you know, that's a very common thing is when you have this

drastic change, the people who lose are the people who are wedded to the old way.

And I recognize the irony of that because as like people who take

care of wealth for a living, wealth represents what's been done in the past.

Mm-hmm.

And, and that's very important to protect during these periods.

'cause that's what gets destroyed in many ways as new wealth gets created.

And, and those two things go together.

The destruction opens up, the opportunities for the new people to

come, the new ideas, the new innovations.

And you can see it, you can see it all around.

It's not just like, I don't think anyone could look out there and say that

technology is not accelerating right now.

Like, that's become a very consensus view and that's not a coincidence.

Um, it's accelerating 'cause the same forces that are causing it to

accelerate, that are encouraging, the acceleration are the same forces that

are, you know, uh, making us crazy with all the wild changes in the world

every day, and volatility and chaos.

So,

yeah, and it, it actually goes to, I mean, I sort of brought up the, the

Nate Silver piece about Democrats and Republicans, tongue in cheek.

But it also goes to when you have change, um, where new wealth is created is either

gonna be in capturing the opportunities, so in a positive affirmation of what

this technology can do, or the things that it can make easier or, you know,

whatever else that technology is gonna do.

But then you can also create wealth, probably based on fear, which is how do

you protect what you already have, whether that's your data or your fa you know

what, whatever else you're talking about.

We're even seeing in real time.

I know we'll probably talk about Ukraine's drone attack on Russia later

in the podcast, but you're, you're watching how, what, 10 years ago?

I remember the first time I saw a drone, um, I was in Austin, Texas.

I was on a run, there was like something up in the sky and I

thought it was a bird at first.

And I was like, huh, what is that?

And I just kind of stared at it.

And now like.

Like, fast forward like 10 or 15 years, and it's like, oh wow.

Drones are like gonna wipe out entire, like sections of

like strategic bomber fleets.

That's absolutely crazy.

But point being that like, you know, or cybersecurity or things like

that, there's gonna be a class of wealth that is also about protection.

And probably to be in a healthy society or a wealthy entrepreneurial ecosystem,

you probably need people who are going to push forward and create positive images.

And you also need conservatives who want to conserve and protect

the things that came before.

And maybe we shouldn't demonize both of them.

Maybe we just need to get used to change and not try to find

stability, um, within all of it.

Wow.

I sort of sound like a, like I'm doing therapy on myself

in real time with a podcast.

No,

that was

good.

That

was a, yeah, that was great.

We should clip that and save it.

Okay.

I will, I'll, I'll play it to myself when I'm getting too negative.

All right.

I think that's enough.

Let's get into the real stuff.

Not that that wasn't real, you know what I'm trying to say?

Um.

Our first topic today, and it might take up most of the podcast,

we'll see how long we talk about it, is going to be stable coins.

Um, and Rob flagged this to me on our knowledge platform because, um, you

know, Rob, you, you identified what you thought was a, a big potential risk

hiding in plain sight with stable coins.

But, um.

I want to kind of start at a more baseline level.

'cause I don't know how, how much of our listener base is gonna

know what we're talking about and even know the basic terms.

Um, and even I, as I was getting ready to prep for the podcast, like was having

trouble sorting through all of the different like permutations and is this a

stable coin versus a digital bank currency versus a, you know, like, it, it's

actually kind of hard to keep in mind.

So I think the first value we can do is at least sort of describe what this is

and what the issue is because it's big.

Um, and it's big not just, um, for the economy.

I mean, the US government is thinking about this very seriously.

Um, you had President Trump put an executive order out earlier

this year basically banning a digital dollar and putting the

US government on the side of, um.

Issuance of stable coins by private entities, by entities that are

recognized by some regulatory apparatus.

That's sort of unclear to me.

And then you've also had two bills that are making their way

through the US Congress, the the Stable Act and the Genius Act.

Um, the, the stable stands for stable coin Transparency and Accountability

for a Better Ledger Economy Act.

And the Genius Act guiding and establishing national innovation

for US Stable Coins Act.

Um, as an aside, if I was named Emperor of the World, I would fucking

get rid of all these stupid acronyms.

Like, it's cute if it makes sense, but Jesus Christ, too much.

Anyway, sorry.

Um, so is that supposed to be a

reference to his, him calling himself a stable genius, by the way?

Oh, it must.

Yeah.

I didn't even, I didn't even register.

Of course.

That is what it's, that's pretty funny.

Yeah.

Yeah.

Glad you, I'm glad you're finding the humor I can't find And a volatility

spiral.

The, the legislation becomes funny.

That's another aspect of

you, you've

go all the way into farce.

Yeah, well anyway, we will see if these bills get through, but they

are supposed to, on a bipartisan level, establish federal regulation

for the issuance of stable coins.

So this is not something that's abstract, this is something that the

government is working on in real time.

And I have to tell you, like I just, the fact that Congress is, is thinking

about how to legislate, um, you know, the regulatory apparatus around stable coins

by itself makes me very skeptical of them because like the House and the Senate are

not exactly known for their tech savvy.

Um, and they're the ones that are thinking about this and like their

staffers have been reduced anyway.

So like, that sort of makes me nervous.

But let, let's start at a very, very high level now that I've sort of made

the case to the listener that they should care about this and not just

turn off and say, oh, just two bros talking about some kind of crypto thing.

I don't understand, Rob, what is, what is a stable coin?

Very simple definition for those who aren't following along very closely.

So, um.

People who don't care about crypto or don't care about Bitcoin

should care about stable coins.

'cause it's not really in the same category as Bitcoin.

It's really in the same category as like payments, technology

and traditional finance.

And that's the framework that you have to use to think about it.

Um, things like Bitcoin, uh, I mean, Bitcoin is a, uh,

supply defined real asset.

I mean, it's like gold.

Stable coins are a blockchain based payment technology basically.

And the way to think about it, like the analogy to use for a stable coin

is like the old, uh, bank script.

Like back before the Federal Reserve, when you had standalone

banks in the United States, they would issue their own paper money.

There wasn't, you know, one single dollar.

You would have lots and lots of different kinds of, uh, of paper bills going around.

Those bills were backed by something at the bank.

You know, usually 30% gold coverage.

You know, it depended on the time and the bank, but that's really what we're talking

about here in terms of stable coins.

They are a, an a digital paper script that almost anyone can issue.

You know, whether it's a company or, or a financial company or,

you know, Starbucks can do them.

And, um, they are in theory backed by something, you know, the most conservative

ones are backed by, you know, holdings of US treasuries or even US dollar cash.

Um, and then we'll get into kind of the issues around that.

But that's, that's basically what it is.

It's designed to be a, a payments technology tool, not a store of value.

And you sort of like, uh, put your finger on it, but like, you know,

my first question as I was trying to dive into this, not being super

familiar with it, was what is to stop.

You and me from issuing our own stable coin, um, and like

selling it to the masses.

And if you think that, that's a silly question, you should note that World

Liberty Financial, which is this company that is associated with the

Trump family, um, announced in March.

So two months after the executive order about no digital dollar.

And a couple months before you get this US legislation about, uh, issuance

of stable coins and the regulatory framework, they announced what they

call USD one A stable coin redeemable.

A stablecoin redeemable one-to-one for the US dollar.

Um, backed.

At least in the, in the language of the company, a hundred percent by short

term, US government treasuries, US dollar deposits, and other cash equivalents.

Um, and then the tokens themselves, the US D one tokens minted on the Ethereum

and Binance Smart chain, uh, blockchain.

So like, what is to stop anybody from just saying, aha, like I have a stable coin.

Buy my stable coin.

I'm, I'm backed by cash equivalents.

Sure.

Like, I have tons of cash equivalents.

Just take my stable coin and you'll be fine.

Does that question make sense?

Yeah, it totally makes sense.

And the answer is, as far as I understand it, pretty much anyone can, can issue one.

You know, the idea is that you use it for, uh, primarily

for existing kind of networks.

So say we had like.

The Jacob Shapiro podcast, uh, group, and we issued a stable coin and

said, okay, people who are listeners can transact with each other using

these coins and buy Jacob Shapiro Bobblehead merchandise with these coins.

And they're backed by, you know, I mean, that's kind of

what we're talking about here.

Um, so a real fragmentation of who's issuing money.

Yeah, and this is what the stable ingenious acts are supposed

to cover to a certain extent.

Um, so like these acts are meant to create a regime for the issuance and

regulation of payment stable coins, and it would allow stable coins to

be issued only by subsidiaries of insured depository institutions or

other entities approved by the office of the comptroller of the currency.

Um, and you know, like it's, it's one of the weird things is that

you wouldn't have to be a bank necessarily in order to issue them.

If this legislation goes through, that would be something of a change.

So you could get non-banking entities that really feel like they're

starting to impinge on like what banks are supposed to be doing.

But I guess you could have these, uh, non-bank entities

that at least like live up to.

Um, whatever the regulations are that they decide in the end are part

of the regulatory oversight there.

So the point being, maybe that's not gonna be true in six months if they pass

some of these bills, but at least here today, like I, I was reading the World

Liberty Financial press release about USD one, um, and it said cash equivalence.

And I was actually wondering like, well, does that, that doesn't

technically mean anything, does it?

I was wondering maybe we should get Matt and Jonathan on here and ask

them, but like, could that be anything?

Could that be like, oh, like the Trump meme coin is a cash equivalent.

Doge is a cash equivalent.

Like we just have like these assets technically backing these things

one to one and then we'll sell them.

But if you get a collapse in one of the assets that you're, you

know, nebulously defining as a cash equivalent, could it cause a run?

Um, I don't know.

Am I being too, um, too playful with the word cash equivalent?

Does it mean something more specific than that?

Uh, no.

I think that you've gotten so the heart of the matter, which

is, it's really twofold, right?

Like we can, we can lay this out and then we can go into

each of these issues in detail.

The one issue is who creates money?

What is money, right?

Like very briefly, money is whatever you think you can exchange for stuff

you want to consume really quick.

And there's different levels of moneys.

And when something becomes more and more liquid, it becomes more and money

like, and then you have real money, which is what you think of as money.

So US Treasury bonds are not money.

People don't think of them as like, oh, I can, even though they're extremely

liquid, they're not money in the same sense 'cause it's, you know, they

can lose value, blah, blah, blah.

Um, what we're talking about here is the private creation of money, uh, by a wide

range of mostly unregulated entities.

That's the purpose of this bill.

The purpose of it is to supposedly unleash us innovation in payments and

provide this sort of framework that non-regulated banks can, can do this.

Like that is the reason why they're doing this.

So you have the unrestricted creation of private money is the one issue.

And then the second issue is what stands behind the money.

And as you point out it doesn't, it, it can be anything that is cash equivalent.

You know, the, the definitions are unclear.

Certainly US treasuries are gonna be in there.

You know, the, the whole point behind this is none of these entities make money.

If all you're doing is buying currency and putting it into

one for one against these coins.

'cause then like that's a very, there's no spread to be earned.

Mm-hmm.

Like the whole point was that the banks would have 30% gold, but then

they could have a hundred percent paper against that gold and, you

know, capture all the difference.

So you have the collateral problem.

And again, like you pointed out, can trump coins be money?

Well, yeah, probably in some definition.

And then you get to the issue of, well, are stable coins, can they

be backed by other stable coins?

And those are backed by, like, it's, I mean, anyone who's paid attention

to the, uh, subprime mortgage crisis understands that very quickly

you run into potential problems.

So those are the two different categories of, of major issues that we can go

down, I think is the creation of money, which God damn, we're creating

enough money as it is government money.

And then on the other hand, the collateral, the, the lack of trust

and, and how do you get over that?

And that ties into the international aspect because again, the other part of

this, not only unlocking US innovation, the backers of these bills want to use

this as a tool to encourage broader US uh, dollar usage internationally.

And that's a big thing, you know, as, as well that we can get into.

Yeah, and we should, and I, I'm glad you said that because I mean, that's sort

of the third aspect of this, but I think one of the really interesting things when

you start looking closer at this issue is that at least, and I, I only looked at

these three and there's probably more out there, but the us, the EU and China are

all thinking about this very differently and rolling out very, very different

types of policies, different regulatory frameworks, different national security.

Like it's very, very different.

So when we're talking about multipolar world order like this now becomes one

of the examples because now literally the definition of money and means of

exchange is changing before our eyes.

Because there are these different strategies for approaching these things.

And that's before we get to things like Bitcoin, which you know, maybe

exist outside of the system or which maybe some people want to use

to try and bring into the system.

I have to say that the.

I don't wanna step on this part of the conversation, but the notion that stable

coins are going to, you know, increase the power of the US dollar abroad,

that sounds to me like justification, like, like looking backwards.

Like, oh, I want the stablecoin thing.

And hey, I'll say that it does this for the US dollar, but I'm not quite

sure that maybe it necessarily does this, uh, for the US dollar too, but,

we'll, we'll get to that in a second.

Um, before we sort of dive a little bit deeper here, I want to ask another

one of my, um, you know, primer questions for the listener base.

'cause this was honestly one thing I was thinking about too.

You say it's the private creation of money, let's say for, and I

think you've already said this, but I just wanna make it really clear.

Let's say that there was a rule that every stable coin had to be backed one

to one, one-to-one to the US dollar.

Technically, if that was true, it wouldn't be creation of money, would it?

It would just be like, okay, this thing exists on an Ethereum or

whatever chain, but literally, like it's, it's just mirroring the exact.

Number of dollars that are in the system, right?

It becomes the technical creation of money when you expand the, the assets behind

it to treasuries or something else, or to like another stable coin, like that's

when you start getting, uh, entities that can like start creating their own money.

Is that the right way to think about it?

I think so.

If you, if you set it up in such a way that for every individual stable coin

you have to collateralize it and, and with one US dollar, like just currency

and keep that in a bank deposit, and that's like restricted cash.

It can't be used for anything.

It can't be used as collateral for anything.

Then yes, under that strict definition, it would just be like

creating a digital mirror of a dollar that exists with no amplification.

But that's almost certainly not what's, what's being cooked up here.

No, it's definitely not what's being cooked up here.

But when I was thinking about this from a very simple, almost naive point of view

and I started seeing, okay, so it's not one-to-one to the US dollar or whatever

currency, then like to your point, so it's literally just a way to create more money

in the system than whatever the central bank or the Federal Reserve or whoever

it is that is supposed to be in charge of this wants, that's what it feels like.

It feels like a way, to your point, to create money out of nothing.

Uh, if you can somehow like make the margins work.

Or, or, or, yeah.

Am I being too facetious there?

I think that's the outcome.

It's not necessarily the intent.

I think the intent is to basically enrich.

Trump's cronies who want this and can make money by starting stable coins.

Like the people who would run, you know, the 18 hundreds

equivalent of the private bank.

They're the ones who are like, yeah, let's do stable coins.

'cause you know, all this innovation like that is ultimately why this is happening.

And then there's, you know, associated, that is the seemingly more benign

argument of, okay, well this is a very innovative technology and this is going

to unleash innovation in a way that digital dollars would not, um, you know,

which, like, that's how it's being.

Pitched, but really this is like a moneymaking opportunity.

Yeah.

That's what innovation by the private sector means is, you know, the

people who, who are well positioned, they're gonna make a lot of money.

Exactly.

Okay.

And we should say like, there are lots of, you know, lots of, uh, stable

coin issuers and things like that before the Trump family realized that

this was a potential opportunity.

Luna And, and, uh, you know, is a, is a famous story of one that collapsed,

uh, a cryptocurrency that was aside, was tacked also to a different stable coin.

Um, so it's, it's not like this is new.

This has been sort of happening in the background.

For a couple of years here.

It just, there definitely has been a push by this particular

administration to capitalize on it and to capitalize on it for personal gain.

I don't think that's anything less than an objective statement

of what's going on here.

Well, we're gonna spend a lot of time on risk and a lot of time on sort of the

geopolitical competition around this.

So why don't we, at the very first, um, like take our own advice.

What's the positive spin here, Rob?

Because you sort of alluded to it already, but even in alluding to it,

like we both poo-pooed it, but like if we were trying to be, you know,

earnestly optimistic about this, what's the good version of this?

Like if we weren't reading a cynical point of view into the

people that are issuing the, this, like, is there a net positive here?

Is there something fundamentally transformative or something that

stable coins tied to the US dollar would really help in terms of greasing

the wheels of the economy or making people have easier access to money?

Like, I have trouble finding that positive spin to myself, but do, do

you understand at least the positive spin a little bit better than I do?

Well, the positive spin is.

To some extent it'll increase, or I should say, reduce the friction of transactions.

'cause the whole point of stable coins, like they are a crypto

technology, they're a crypto product, is that you have instant settlement.

It's like Bitcoin.

When you make a Bitcoin transaction, that transaction happens

instantly and it's not reversible.

So compare that to a bank transfer that takes, you know,

sometimes several days to settle.

Um, you know, there's a whole kind of creaky infrastructure,

creaky by design because it's designed to be more deliberate.

It's designed to, you know, if someone steals a million dollars and

transfers it out, you wanna be able to reverse that if you discover it, you

know, within t plus one or whatever.

So that is the purpose of the innovation, uh, within the US itself.

And that, you know, as a standalone thing is good.

Like for sure, like we need.

Innovation around that.

So like picks, for instance, in Brazil, which we've talked about

in the past, Pix is another way of getting to much the same thing.

It was reducing, it didn't, it's not a new currency, it's just a very low friction,

uh, system for moving currency around much faster and easier with instant settlement.

But it didn't change.

Like the rail is not different.

There's, it's not a digital rail, it's just a fast payment rails.

So Crip, uh, uh, stable coins are a digital coin, but they

accomplish the same thing.

It's taking that friction away, instant transactions and, and that's good.

Right?

The other, you know, positive thing is that this is really

accelerating the push by.

Other nations to figure this stuff out because the US is trying to use

this as a weapon among other things.

Like they're saying we're, we're gonna entrench US dominance with this, which

I don't think they're going to do, but people are taking that seriously.

So in, in Europe for instance, they've really had a fire lit under

their butts to go out and push the implementation of the digital euro.

You know, originally they were gonna have some initial plan in place by October

of this year with potentially some, you know, rollout and phased form in mid 26.

Now there's people calling for, Hey, we need like a pilot program

running like in 2025, like very soon.

We need to get the digital Europe Euro up and running, not only to get

the benefits of it, but to protect against some potential onrush of

all these, you know, stable coins into our, you know, monetary sphere.

So.

It's, it's unwittingly accelerating the innovation around this.

And that is, that is very good.

Um, because there is friction, uh, in all these payment systems, you know,

all over the place.

That actually raises a good other question that we need to, to talk about

a little bit because you mentioned the euro the EU is talking about, and

the European Central Bank is talking about a digital euro, which is a very

different path than what the US is pushing forward here, um, with encouraging

the use of dollar backed stable coins.

So maybe we should pause for a second and say, here, what is a

central bank digital currency?

Because the Euro, um, China will talk about them in, in a couple of minutes.

Like they are pursuing this central, uh, central bank digital currency versus

the United States, which is basically saying, nah, like, we want to use these

dollar backed stable coins in order to take advantage of this technology.

So talk a little bit about what the, what the difference is between, between those

two things and what you talked about.

Yeah.

It's a super important question and it really gets to the heart of the.

The ideological differences and sort of the almost geopolitical differences

here, if I could say that between the two regions and the different approaches.

So let's start with the stablecoin one.

The stablecoin one, as we said, that's private money.

It's deliberately taking the act of money creation and taking it

outside of the banking system.

So think of the banking system is like, is like a giant brain

or or giant nervous system.

And at the center of that nervous system is the Federal Reserve.

But like the Fed reaches out to every little tendril at the end

of the nervous system and can touch and oversee everything.

Like everything is part of that nervous system.

That's the regulatory backbone of the US banking system and, and

all fiat and money stable coins deliberately get out of that because

they don't want to be part of that.

They want to encourage private initiate initiation and all

that stuff that we talked about.

That's a very, very different thing.

The European approach, the digital central bank currency approach,

the digital euro is the opposite.

That is a, essentially a stable coin created by the banking system

created by the European Central Bank.

So it's a digital version of the Euro that you can use in the same way and get many

of the same benefits of a stable coin.

So like no friction, instant payment, sort of like the picks example in Brazil.

The, in terms of the benefits of day-to-day use just makes

things easy, that sort of thing.

But it remains within the nervous system of the banking regulatory structure.

So the Euro, the European Central Bank regulates all entities that are

holding these things and are, you know, providing the infrastructure behind them.

Very importantly, because so much of banking is based on trust and the

trust that you have in the regulatory system to stand behind, uh, uh,

intermediaries, to stand behind lenders like that is a key thing.

So it's a much more centralized, um, kind of approach as opposed to the

US one, which is like very similar to like the US approach 200 years

ago, which was, you know, we're not gonna have this central system.

Even during a period where there was already a move in many places towards

central banking, the US went the opposite way and said, we're gonna

have individual banks and like it's the same philosophical, uh, take

that each, each, uh, side is sort of taking, again, all these years later.

I, um, I could not help.

When you said that, uh, when you were thinking of the Central Bank as the brain,

I, I assume maybe I'm the only person who did this, but maybe other listeners will

also, maybe they were also thinking of Starship Troopers when they discovered

the brain bug on the far away planet and all the other bugs being the, the

tendrils that you were talking about.

They're probably afraid.

Afraid.

Yeah.

J Jerome Powell is afraid.

Yeah, I bet he is afraid.

I bet.

I guess Trump is Neil Patrick Harris putting his hand on the big brain and

saying, aha, like he's, he is afraid.

Um, well, let me ask a question that, that sort of cuts to the heart

of that because, you know, I talked about these two bills that are

making their way through Congress.

Maybe they don't get through.

I mean, we sort of have to put that proviso out there, but under both

bills, so these permitted payment stable coin issuers, which we've

said are not banks, so you're getting outside the brain system.

Um.

Would be required to maintain reserves that back all the

outstanding payment stable coins on at least a one-to-one basis.

And under both of these bills, those reserve have to be held in what?

What the bills describe as safe assets.

And the examples are US currency bank deposits, deposits held at a Federal

Reserve Bank, treasury securities with a maturity of 93 days or less.

Certain repurchase agreements backed by treasuries.

We're getting slip slippier more slippery with every single step here.

Or money market funds that are invested in safe assets such as

treasuries or repos on treasuries.

The question I wanna ask you is I. I think once you start getting into the treasuries

there, you can see where the problem is.

But if that bill just cut it off at deposits held at a Federal Reserve bank.

So if it was US currency bank deposits and deposits held at a

Federal Reserve bank, isn't that just a central bank digital currency?

And you're just creating new mechanisms that are allowed to issue them, but that

are tied very, very closely to the brain.

Because unless there are, you know, unless there is US currency bank deposits or

deposits held at a Federal Reserve bank, sorry, you can't issue the stable coins.

You have to have these things.

Now, I, I recognize once you get into some of the, the slippery slope of

the others, like it gets a little more, but I'm, I'm trying to like

shine a light on that definition of central bank digital currency.

So if it was just those three, how would that in any material way be different?

I know it's different sort of from a philosophical perspective, but

how is that different materially from a digital euro or a digital

yuan issued by a central bank?

Yeah, I think functionally would be pretty much the same if that were the case.

So, yeah, it is, that is the right way to think about it.

Like, are you creating more money with this?

But if it's backed by the things that already are like true money,

true currency, then you're not.

And that's, uh, that's an important distinction to make.

Okay.

Um, well then let's get, let, let's get into it and let's get into the risk and

then maybe we can talk about what Europe is doing, what China is doing, and,

and how it's different because at least in these bills, um, you know, they're

talking about, I'll, I'll say that again.

Treasury securities with a maturity of 93 days or less.

Certain repurchase agreements backed by treasuries, money market funds that

are invested in safe assets such as treasuries or repos on treasuries.

So tho those can be some of the assets.

There's two thoughts that I have here, and then I know you're

gonna take this and run with it.

The first is, man, this must really be the wild, wild west out there then.

Because they're proposing these bills, because there is no regulatory

framework for these things.

So World Liberty Financial or anybody else, unless they're showing their

books publicly, uh, can probably define their collateral however they want,

um, for any of these stable coins.

So like, it, it would, I don't have any exposure to stable

coins myself personally.

I don't know if you do Rob either.

But I read that and I was like, whew, like that like makes me nervous

if I have any exposure there right now, because what do I really know?

And we've seen some examples of literally billions of dollars of

market capitalization being wiped out by quote unquote stable coins that it

turned out weren't so stable because they were tied, uh, to leaky assets.

So, um, you know, there's that thing about the Wild West.

And then also though, I mean this was something that you said on the podcast we

were on yesterday, the On-Ramp podcast.

We'll put a link in the show notes where you, um, I thought

you put it perfectly there.

There is no more.

No risk asset, like the US Treasury has been the no risk asset for 30 years.

If you're still treating it that way, that might be a big mistake.

Um, so take it whatever direction you want.

But it seems to me that even in this bill, even if this bill makes the

wild west, the, the wild wild west.

The wild west, there's still like even in like, you know, if we were

talking even five years ago, you probably wouldn't have batted an

eyelash at oh, like treasury securities with maturity of 93 days or less.

But in the world we're living in today with what yields are doing

today and what's happening to the dollar today, that feels like a

much less certain proposition.

So have at it.

Yeah, I mean, again, I think you have to think of it in terms of money

creation, which is inflation basically.

And credit quality.

And potential credit risk.

So on the one hand, all of the things that you just listed in that definition,

other than I. Uh, the currency part, bank deposits and not time deposits, regular

bank deposits, those are not money.

So you're taking those and transforming them into, into money and that has

inflationary consequences 'cause it's the same as if you were just

printing more dollars and, and putting them out there for people to use.

Um, and then on the credit quality side, yeah, as you mentioned,

there is no more risk-free asset.

Um, the, like, we don't have to go into all those different assets

and what the potential risks are.

But the, um, the problem is, and this is something that we learned in

the financial crisis, because if you remember in the financial crisis, a

money market fund famously broke the buck, which basically means that they

had some shitty collateral in there.

And that's supposed to be a fund that has the ultimate highest standards of.

Of collateral quality.

And what you saw at the time was the financial system manufactured.

Um,

the technical word is crap, crap that they put AAA rating on because there

was a demand for AAA rated stuff.

And, you know, that's how we got the subprime mortgage issues and,

and CDOs and sort of this whole, uh, the story that everyone knows.

If you've seen the big short, um, we are creating the same incentive here because

now the more you know, AAA rated, you know, the, obviously it's not strictly

AAA rated, but the more stuff you can fit into this definition of crap that

you can leverage into these stable coins, the more demand there's gonna

be to manufacture this kind of stuff.

That creates all sorts of bad incentives, um, because you're gonna manufacture it

out of low quality stuff in a fake way.

Um, so I think that's sort of the underlying mechanism that I think

is, is very worrisome in addition to the quality and the potential risks

of that non-money collateral itself.

And then just stepping a little farther in that direction, 'cause this gets to

the international side too, and, and, you know, take up internationally.

Part of the problem here is, um, the fact that it's outside of

the regulatory banking system.

It's not backed by FDIC, it's not overseen.

Like, I don't know how they're going to regulate these stable coins if these

are the requirements, but it's not being regulated by the banking system.

Um, and that's a really important point because.

The banking system is slow and creaky for a reason because it's designed

to be safe first and then innovative.

And the problem here is that, um, when you're talking about foreign institutions

or even domestic institutions that are, you know, likely to want to adopt these

stable coins in any quantity, you are really playing in the wild West, as you

say, because it really is the equivalent of accepting the paper bank script of

some, some bank, uh, out on the frontier.

And that's gonna really hinder adoption by anyone who is legit.

Um, like there's just no reason to take that, that kind of risk because

then you have counterparty risk.

Um, in this, in the way that we talked about.

Like, okay, if the stablecoin issuer does fail for some reason.

What sort of chain reaction is that gonna have with all the other stable

coins and, and you know, everyone who's outside of the regulatory garden.

So in the end, you know, the only people who are willing to take that counterparty

risk are basically people who want to use these things for nefarious purposes

because they can't get access to real US dollars in the real banking system.

Yeah.

Um, you sent.

To our knowledge platform.

You sent a, an article that Dan Davies, who's a former regulatory

economist at the Bank of England.

He's written books including the Unaccountability Machine.

He wrote a, a, a very negative piece about stable coins recently.

He, he described, he described, uh, the underlying technology, uh, as, uh,

people emailing each other magic numbers, which I, I think that was a little bit

too far, but, you know, it's sort of hard to, hard to disagree when you think

about the lack of regulation around this in the United States right now.

And, and.

The question that it brought up to me, it's sort of a two part question.

Are you thinking about that risk from a backwards perspective or

also from a forwards perspective?

Because from a backwards perspective, you can imagine that there's a lot of junk in

the, in the stable coins that currently exist out there because they haven't

been subject to any regulatory oversight, uh, from the US government, or at least

this stepped up regulatory oversight.

So if you can pass this legislation and you say there's this much time

period, are you sort of giving people an opportunity to basically clean up

their books and for all the sins that they made, Hey, like you have this time

period, you know, it's backed by the US government, so, uh, make sure that

you sell your other shit coins that are backing these things up and make sure

that they're in one of these assets that's been defined by the regulatory regime.

Um, there's that, and then there's also the, from an enforcement

perspective going forward, is that what you're worried about?

Because we can say that there's a regulatory oversight and that

they're only allowed to have this, that, and other, um, assets, but.

Is that actually what's gonna be, do you actually trust the

enforcement of that regulatory body?

Can you start to, I don't know, make interesting products behind these things

that mix some of the assets that are allowed to be, and then like, it just

like gets into this very stable thing.

So I think, I think your answer is probably gonna be both, but

I wanted to give you a chance to opine on both of those things.

'cause it seems to me there's, there's a problem in what's already there and

then there's about, well, how do you set something going forward that maybe

people would want to engage with?

Um, the answer is both.

I mean, you anticipated that.

Totally.

Right?

Um, ultimately, like when I think about the real issues here and, and a lot of

people like this is TMI, like, okay, we're getting into some real nitty gritty

stuff, but I think ultimately this comes down to trust and how the US is projecting

that trust out into the world right now.

And obviously that's.

That's been the theme de jour of the last five or six months is the US is

degrading its trust at a rapid pace.

And this sort of fits in that theme when you think about that more broadly

because for both of the reasons you just described, there's going to

be a lack of trust by, uh, by legit entities around these stable coins.

Um, and it, it sort of is, is uh, is very different from what you're

seeing from China, what they're projecting from the Europeans and

what they're trying to project.

And I think it's interesting in that, in that sense, we're giving up trust in

exchange for more disorder basically.

Um, and, and that seems to be a, a consistent theme.

So yeah, it is both and neither of those is gonna be very conducive to,

um, to the kind of usage that would be.

Really great for mainstream purposes.

Yeah.

Last, last us question, focus on this and then we'll get into to China and Europe.

Um, you know, the, you're saying that that would prevent people from wanting

to engage with, with stable coins.

If you did have some kind of, like, let's say the legislation gets

passed, you're moving forward, but let's say one of these.

Stable coins has a shaky balance sheet behind it, and that gets

found out and there's a run on it.

Does that have systemic impact on the US economy?

On the global economy?

Like how do we even think about the potential like financial risk

that comes from some of these things being a part of the system?

Because it, it looks like it's going to happen.

I mean, it looks like they're just ironing out the details, but these

things are going to be welcomed in.

So do you think about it from a real like financial crisis point of view?

Is it gonna be more like limited to a particular stable coin

or a particular group that is exposed to that particular thing?

Like how, how is a, as somebody who is thinking about risk

is, is thinking about that?

Well, a lot of this is still speculation and people are gonna push

back and say, you know, why are we being so negative on stable coins?

They're not even here yet.

Um, so this is really about setting out the framework of

how to think about these things.

'cause they're not for the most part here yet.

But the issue is that

currency is a, is a promise.

Uh, the dollar is a promise.

The dollar is a credit instrument.

Like, let's not forget that even currency is a form of of credit.

There's no income, there's no fixed, you know, interest rate associated

with it, but it is a promise to pay from the Federal Reserve.

And the issue is that currency and all sorts of credit, money mar like all of

this, it's just a big chain of promises.

And almost all the time, like that's fine because you have restrictions

on, you know, uh, those domino effects that can build up if one of

the links in that chain breaks, you know, you have capital requirements,

you know, all this sort of stuff.

And the problem is like if you start pushing a system where you're creating new

promises, you're creating forms of credit.

That's what this is.

These are forms of credit.

At the end of the day, it is a currency.

Um.

It's outside of that backing, then you can have these domino effects

that are kind of uncontrolled.

And that's going to, you know, to the extent that these things are

essentially acting as money in the economy, it's inevitably going to bring

into play the formal banking system.

'cause you're gonna have banks that are like, you know, say they have a, they

have assets outstanding, uh, to some big client that, you know, their assets

side of the balance sheet is some shit coin, stable coin that's gonna collapse.

And then they have a, the bank itself has a credit issue.

You know what I mean?

Like, there's no ring f ring fencing this, excuse me.

Once you introduce private money into the system, you just have

to make sure that there's not enough of it that it can blow up.

You know, uh, sap out your, your inner defenses, in other words.

But once you unleash it, you can't control how much is gonna be created.

So it's a, it's a private, private money.

So it's, it's a real risky thing in that sense.

So it's not to say, oh, this is gonna cause a disaster right away.

It's just like, it's inevitably going to cause major problems.

Um, and you just have to be able to foresee that and, and make sure that

if they do start percolating out, that you understand all your exposures

in a merit in a very careful way.

And I mean, to go back to what we were talking about before,

and this maybe gets into the geopolitics and culture around it.

I mean, if you're trying to be positive on it, you're basically saying yes, but

the, the friction that you eliminate by using these stable coins and the

way that you get capital flowing, because you don't have to do a bank

wire for all these other things.

And if anybody listening to this has ever had to transfer large amounts

of money or dealt with an estate or anything like that, you know what a pain

in the ass this still is, like in 2025.

Like it's, it's really annoying.

To your point, Rob, some of it is to prevent fraud or if

something is stolen, to get back, some of it is just ridiculous.

It's the banks charge fees on the wires or the banks charge fees

on having access to the system.

And it takes forever because it's antiquated and you gotta

call three different times with three different number.

Like, it, like it's, you're, you're very obviously like not

optimizing things for efficiency.

Because the banks made money off of transferring these things because

the bank was the trusted actor.

So if you could have a ledger where you can trust the, the providence

just because, oh, like then the, the transaction could not have happened if the

ledger did not recognize it and you trust the ledger, like, okay, like I get it.

Um, that seems to be the bull case and it's about that innovation, like

doing something to try and push growth.

The other side is okay, but the fear of who are the actors who

are actually gonna use this?

Do you actually trust the stable coins?

Is the regulation around it going to keep up with the pace of

innovation around these things and protect people from the actors who

will try to use it against them?

And that's where I think you get more of the European, um, and the

Chinese model and the cultural model.

Um, I think the first thing to say here, when we start thinking about

this from a more international point of view, China's already ahead on this.

Uh, and China's been ahead on this for quite some time.

Um, when you think about, you know, you talked about picks in Brazil, I mean, Ali

chat, we pay like the way that, you know, uh, payments work, not just in China, in

many Asian economies like it, you know, the, the notion of cash, I think is much

more present here in the United States than it is in some of these other places.

And some of, to the extent that some of these other countries are

thinking about, well, we don't want cash to go away completely.

Like how do we preserve cash?

Whereas in the United States, like it's sort of a cash is

still a real means of exchange.

Um, so there's that.

But China, when I say that they're ahead, you've got Ali, Chad and WePay,

but you've got the Chinese government itself sort of recognizing this challenge

to their brain's authority, to the, you know, central Bank of China's authority.

And so, you know, China has famously banned Bitcoin because.

Obviously you don't want some kind of courtesy that is outside of

the bounds of Chinese sovereignty to be existing inside of China.

That brings back all sorts of memories when, um, you know, other

mediums of exchange rather than what was, uh, you know, represented by

the central Chinese government was being used as a means of exchange

in different parts of the country.

China, the Chinese government, is living in perpetual fear of, you know,

regionalization and of different regions breaking off and doing their own thing.

And if you have a currency that can do that, that is not subject to, in this

case, the Chinese Communist Party.

Makes sense.

Uh, but then also like the Chinese government doesn't necessarily like that.

I, I'm sorry, I think I said Ali Chatt.

I think Alipay and WeChat Pay is what I was trying to say.

Um, uh, but the Chinese government doesn't necessarily like that.

Alipay and WeChat is the way that everybody is paying because

China's had its own problems with its own tech companies.

A couple of years ago when you and I were first starting to work

together, Xi Jinping was bringing the tech guys and companies to heal

and he was making an example of Jack Ma and he was shutting down the IPO

for Ant and he was saying everybody has to bend the knee and do certain

things to be part of this ecosystem.

And so China has rolled out a digital, a digital yuan to 29 different cities.

Um, and it's pretty obvious that this was a rollout for full scale implementation

and for how Chinese central banks are gonna track monetary supply.

So, I mean, there have been different problems with it.

The payment volumes are still relatively low.

I mean, it's hard to get data on this, but you're still talking about probably

less than a percent of the Chinese population in terms of like all Chinese.

Payment volume is happening with, um, the digital you want.

Uh, but you know, if you think about this, you've got the US saying, okay, we,

we thought about it for a couple years.

No digital dollar stable coins.

We're talking about the legislation.

You've got China, which is saying, oh, well we banned Bitcoin and we've been

doing Alipay and WeChat for years now, but we even think there's problems with that.

So let's pilot roll out the digital you want to 29 cities

and see what's gonna happen.

And then of course, my favorite's, the Europeans, this is like so stereotypical,

they launched their investigation phase for a digital euro at the end of 2021.

We're here in 2025 and they're all looking at each other being like, we should really

do something about this very quickly.

Uh, because the US is doing things with stable coins and

China is doing other things.

Like maybe we should, to your point, get off of our butts and do something.

But thinking in terms of a digital euro not going.

Uh, the stable coin route, basically looking to a certain degree at what

China has been doing and say, that's probably what makes the most sense.

And honestly, for, for Europe, it makes more sense than for all three.

Like if you're looking for a way to really entrench EU financial

cohesion, uh, if you could like really ensconce the digital euro there and

move that together, uh, I don't know.

That seems like it would be a pretty powerful thing for, for at least

closing the gap in some of the divisions that have happened in the Euro.

So, um, yeah, take that whatever direction you want.

When we're thinking about the international order of this, because

it does seem to me like you're getting ver three very, very different

models for what currency and trust is going to look like going forward.

And if you were just, if you were an alien from Mars and you get beamed

here in 2028 and you were looking at, well, which of these three blocks

currencies would I want to interact with?

I don't know, like, that's an interesting question.

Your answer might be none of them.

Like the, the aliens, the, the aliens invented Bitcoin and now we're here

because the Bitcoin's already here as Matt Pines would probably joke.

So anyway, I, I know I rambled a little bit, but take it from there.

No, I think, um, I think the kind of tid reality here is that this doesn't

make a huge difference in the end unless you're in a really dysfunctional

system, which is why criminals wanna get this and people in failing states

wanna want to access these things.

Like Brazil is a great success story because Brazil had a famously

creaky and antiquated and slow and expensive financial system

where spreads were enormous.

If you just look at what people were making on like account receivable

financing in Brazil, I. Oh my God.

They're paying 20% a month just to finance accounts receivable and

picks basically made that go away.

'cause it was instant settlement.

I forget what it was, but Brazil used to have like 14 day settle.

Like it was something crazy.

Right.

So if you're talking about something like that, then yes, this stuff

really matters in the us you know?

Yes, that's a pain in the butt to make some really big transfer bank to bank.

We don't do that very often.

And yes, to fix that would add some grease to the wheels of the economy, but

the productivity gains to be had from that, or like, they're pretty limited.

Like it's, it's marginal, right?

It's not so discount that it's real, but it's pretty marginal and, and

similar for, for Europe, China is a particularly interesting one because

they've, they've already gotten a lot of the benefits of this through like

the picks sort of route where you have things like we, we pay and um.

Like, for most people, like your day-to-day life, that's all

you, that's all you care about.

Like digital, like whatever, I don't care.

All I wanna do is wave my thing and it pays automatically and it goes

really fast in terms of settlement.

Um, so I think that probably explains why adoption of the

digital Yuan has been slow.

Because, you know, in many cases it's just, it's just not that pressing.

It's sort of like when Apple had the Apple wallet and you could

hit the button and, and get your payment card, you know, on your phone

and use the n, the NFC for that.

Like, adoption hasn't been that great because it's pretty easy to just pull

your card out and do the same thing.

You know what I mean?

So you're solving a problem that's, that's not huge.

And in many payment technologies, like that's kind of ultimately

what you're getting at.

Like the system is doing a pretty good job as it is, even if it is creaky in

many places, which is why I think on net.

This is a bad idea for the United States to do this.

'cause I think the, the negatives outweigh those positives that you get.

Um, and that's, uh, that's, that's troubling.

And I think it also is why like the Europeans have

been pretty slow to do this.

'cause you know, I mean, there're slow to do everything, but it's

not gonna revolutionize, uh, you know, European economies overnight

by getting a digital euro.

Not necessarily, but if, but if you're hedging risk, like the, the

European Central Bank, um, is, is the one of the three players that

really has to think about geopolitical risk when we're talking about that.

Because I mean, in one of the articles that you sent over, more than two thirds

of card transactions in the Euro area are processed by international payment brands.

Same for online payments.

Um, and the Euro area payment market itself is very, is very highly fragmented

for all the reasons that you might think the, you know, we, we talk all the time

about the inefficiencies within the Euro itself, and that's true from a payments

or a currency perspective as well.

So there actually is a real logic to, if you want to have sovereignty

and cohesion and the ability to track things over the entire Euro area there,

Europe in, in some, is the one that has the biggest imperative to act now.

Um, one of the interesting things about the United States pushing stable coins to

your point is I don't see the imperative.

I see people saying no, well, it can further US foreign

policy and things like that.

But I mean, to your point, I don't see that there's a,

a pressing imperative link.

To sovereignty or national security interest that would make the

United States want to do this.

And if anything, by doing this, okay, like maybe you're greasing the wheels of growth

and you can take that positive aspect, but you are also absolutely just eroding

the trust of the US dollar even more.

Um, and that trust is declining, not just because of Trump administration policies

because of the size of the deficit and the size of the debt, which has been

going up for many years under, you know, administrations of both parties because

of the types of politicians that are waiting in the wings for future elections.

They're all populous.

There are no, you know, I think, uh, you know, Rand Paul is, is trying

to stage a last minute defense against the big spending bill.

He says he is got three other senators who can come with him.

Elon is out there tweeting into nothingness.

Oh, this is terrible.

Like, yeah, like, uh, you know, nobody cares what you say.

They're moving forward with it.

They gotta get the goodies out to the people that they want to get them out to.

So, um, I dunno.

I, I think for Europe it is kind of a, oh, if the US is gonna do this stable

coin thing, and if China's got their own.

First of all, they have their own sovereign ecosystem.

Plus they've got a central bank that has already thought about this and is

already piloting it in 29 Chinese cities.

And we're doing nothing.

We're just like relying on an international payment system that we

think is just gonna be there because globalization and blah blah blah.

Like I think there really is a strong impotus and push here, push here for

Europe to to do something rather than just be hijacked by one of these systems.

Yeah, that's a really good point and I'm glad you brought that up.

'cause that is like what I just described is like that was

the status quo 12 months ago.

And I think what's accelerating this is not so much that the

Europeans are concerned about missing out on the innovation.

It's exactly what you said is driven by fear.

It's waking up and realizing, oh my God, like we're dependent on Visa

and MasterCard and we're dependent on the swift banking network.

And we were very happy to use that and weaponize it when it was Russia.

Uh, but.

What if Trump wakes up on the wrong side of the bed tomorrow and

we're on the receiving end of that?

'cause he hates Europe.

Like that is a very real intangible fear.

It's like wake, you know, the US waking up and realizing like, oh my God, our

whole telecom system is built on Huawei and we're at their, at their mercy.

You know, same, same sort of thing.

Like this is critical, critical infrastructure.

So yeah, that's, that is the real driving force is trying to reduce

that dependency as much as possible.

And it really says a lot that, uh, the, you know, the Europeans

feel and need to do that.

I mean, it's pretty, it really shows the state of the, of the

relationship between the US and Europe.

Um, you know, that they're moving with, uh, you know, with some speed to try

to figure this out and get the US out of the plumbing of, of their payment

system even at the same time that.

They seemingly, you know, you can go buy a Huawei phone down the street from

me and, uh, a BYD car, and, you know, all these sorts of, uh, uh, areas where

in theory you're having other critical infrastructure that, uh, is exposed.

They, they seem to have less concern in some ways about some of their

relationships with Chinese infrastructure.

Well, and there's an irony to this as well, because, um.

You might, I was less sympathetic to this argument at the time, but in hindsight,

it actually looks more and more like a Rubicon was crossed, um, in 2022 when

the US basically weaponized the US dollar payment system to freeze Russian assets

and took 300 billion in, you know, liquid foreign exchange reserves from Russia,

uh, as a result of their invasion.

Now, Europe was probably happy at the time that this happened.

Um, and by the way, this is also an example of why this is not just a Trump

issue, like Biden was president at that time, um, and the United States

under Biden was reportedly proposing to different G seven, uh, nations to

seize the money that was taken from the Russians as a result of, you

know, some of that attack on Russia's foreign reserves and things like that.

So, you know, in 20 22, 20 23, Europe could look at that and say, Hey,

great, like this is the United States using its leverage against Russia

for an attack on a European country.

Like, this is great, but if you turn it around and you get a. Germany or a

Poland or a France that says, oh, the US is not a stable security ally anymore.

And then you think about, well, if they can take dollars from the Russians

using the payment system because they're mad at Russia, what's, what's

gonna stop them from doing that to us?

Especially in the context of a White House that is calling the Kremlin

directly and not speaking to European allies about some of the deals

that they're trying to make on the backend of the U Ukrainian conflict.

So you start to stack those things up, and if you're an advisor to the new German

chancellor or to the French president, and you start thinking, okay, you want to have

more sovereignty at the European level, uh, you are completely dependent on the

international payment system and on the dollar, like you are way, way behind here.

So you might wanna start thinking about, about that issue.

So I say that.

One.

'cause I think that Russia's invasion of Ukraine and the way

the dollar was used there, maybe in retrospect it was a Rubicon.

And I also just wanna point out that this is not just like, I think President

Trump has accelerated this with the way that he is pushing really, really hard.

Um, but there was already doubt in the system.

So if what you really wanted to do was buttress the case for stable coins,

you know, ironically what you should be doing is restoring faith in the dollar

first, and then you can bring out the stable coin to something like that.

But they're sort of imagining like, well, everybody wants the dollars, so let's

just do the stablecoin thing, because that's obviously what people want.

And to your point, like that feels like an antiquated way of thinking

about the world and where, and the, and the currency in which global

capital flows are being directed.

Just one more, um, thought on the European side of things.

It, it's interesting to see what they do here because, um,

the losers here are banks.

Like, let's, let's be honest, like banks do not want this.

Yeah.

Let's, let's cry

a river for them.

Let's get the world's smallest violin to start playing for the banks.

There

they are.

Poor banks.

Sorry, go on.

Yeah, exactly right.

And um, you know, it's, it's funny to think because in many ways, like that's

been one of the stumbling blocks to true economic integration in Europe is

like the banking system remains very fragmented and it's very sensitive,

like in many, for, for many reasons.

But one of which is that nation states in Europe historically used the banking

system for national lens, like, especially in, in France, like the banking system

was kind of like an arm of the state and viewed as, as an arm of the state to do

what the state wanted and direct capital in the places that it wanted it to go.

So these historically reviewed as kind of like national assets and um.

Even today, like that persists.

There's been very little integration.

They won't even let Unic credit buy whatever freaking other bank

like this is all, this is all, you know, up to date, uh, even today.

And it'll be interesting to see if the centralizers within the European

Central Bank can overcome that because of the impetus of like, Hey,

this is, this is a real risk to us, um, our exposure to these systems.

Because if they can, that could, that could really accelerate

European integration, economic integration, just the notion that

you can have a European wallet.

I mean, that's basically what it amounts to.

And there'll be all sorts of, you know, wrappers around that wallet

and apps and ways to use it that the banks will hope to participate in.

But for the first time, you truly will have something that is paying

European in the financial system.

And that would be a pretty important development.

It's not clear that that's gonna happen, but if it did, I think that

would be pretty, pretty positive for the European integration thesis.

Um, so it's worth watching carefully.

I think it's also, and we'll have to get outta here on this 'cause

we're already, we're, uh, encroaching on time, but, uh, you know, I,

I've been a self-professed, um.

Cryptocurrency and Bitcoin skeptic for years now have had voices on the podcast

trying to explain it and understand it.

And I've had like my moments and flirtations, but generally have

always been in a skeptical posture.

But when you lay out, you know, all, all the arguments that we just

did, suddenly the logic of something like Bitcoin makes a lot more sense.

Because when you think about different governments and different central banks

and then different other actors that are rethinking the way money works and

literally playing with the tools that, you know, uh, exchange all these things,

well then the notion that there is something that is apolitical, that is

just based on a finite amount of supply that nobody can hack that isn't subject

to new regulatory oversight or something like suddenly, like that digital gold,

um, uh, metaphor makes a lot more sense.

I don't think digital gold makes sense in a world where there's

still cash, but if we're moving to a world where, well, you've got a US

stable coin and a digital euro and a digital yuan, and you've got bitcoin.

Like, if you're asking five years from now, if, if that's the menu

that you have to choose from, what do you wanna be paid in, what do

you want to keep your assets in?

If it's gotten to your head, you have to put them in one.

Like that's a very, very different kind of proposition than even asking

that question three years ago.

So I, I sort of feel myself from a geopolitical level being pulled, um, in,

in that direction, which is big for me.

'cause like, I, I've been fairly skeptical this entire time in Park.

'cause I couldn't, I couldn't articulate that geopolitical logic behind it.

And I, I, I think I said this on the podcast we did the other

day with the on-ramp guys.

I was over-indexing on the power of the state.

Like, geopolitics sort of makes you do that.

But if all of these different states are playing in these weird

ways, uh, I, I, I don't know.

I I'm, it's not a fully formed thought yet, but you can feel the,

the discomfort that I have with some of these developments and the

direction that they're headed towards.

All right.

Well, Rob, I think we put, I think we ended there.

We're gonna have sim on the podcast for an emergency episode, um, on Friday.

Uh, well, so this, we'll post on Friday.

We'll have sim a day later 'cause SIM's gonna come on

and talk about Russian drones.

You and I could have some initial thoughts, I think, but rather

we get an expert on here to talk about Operation Spiderweb.

But, so the listeners know it's at the top of our minds.

We've been thinking about it a lot.

So much so that I need to get somebody in here to talk about it

from that framework perspective, because my mind has been blown.

And hopefully you enjoyed the positivity at the beginning.

And we will get back to you, uh, as soon as we can.

A couple weeks.

Cheers.

Thank you so much for listening to the Jacob Shapiro podcast.

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