Original Title: Why Circle CEO Jeremy Allaire Is So Optimistic About Stablecoins' Future

Translated by: Kaori, BlockBeats

In March of this year, stablecoin USDC issuer Circle faced a serious run on its reserves due to factors such as the bankruptcy of Silicon Valley Bank, resulting in sustained deviations from its peg. This crisis represented the biggest challenge to Circle since its inception. In August, Coinbase Global announced its acquisition of Circle's equity and the closure of Center Consortium, the joint operator of stablecoin USD Coin (USDC). Despite unclear regulatory conditions in the United States, Circle remains at the forefront.

Recently, Circle co-founder and CEO Jeremy Allaire discussed on the Unchained podcast the reasons why Coinbase invested in Circle, how Circle became stronger during the banking crisis, his views on PYUSD, and his opinions on the US stablecoin bill. BlockBeats has compiled and organized the full text as follows:

Circle's New Move

Laura Shin: Circle recently dissolved the Center Consortium responsible for managing the development of USDC. Coinbase holds a stake in Circle. What is the driving force behind these actions?

Jeremy Allaire: Looking back over the past few years, we invented USDC and showed it to the world about five years ago. When we created USDC, we had a vision for a fiat digital currency protocol, which we called fiat currency tokens. At that time, they were not widely known as stablecoins, but some people did call them that. It can run on the blockchain, and you can build something that enables interoperable value exchange based on these open networks. We have a lot of ideas, and we really believe that these protocols are something that would benefit from standardization around them. It is very important for us to work with other industry leaders to develop these standards and jointly take responsibility for protocols like USDC.

Therefore, we are very fortunate to have established a partnership with Coinbase in 2018. This strategic partnership is very important for both companies to promote the development of USDC in the market. As part of this partnership, Circle issued USDC, and we have many ideas on how to develop it over time.

Although there are regulations on what currency transfers are and how companies like Circle should operate, there are no real regulations on stablecoins. For example, how to hold reserves, how to manage the security of the network itself, all of which are governance issues in a sense, as well as how to deal with the interaction between regulation and law. Therefore, we created the Centre Consortium to envision self-governance for stablecoins and to release more and more policies, etc.

Now, five years have passed, and USDC has gone from nothing to becoming one of the most important digital currencies and assets in the world, with revenue in the billions of dollars, from a very small scale at the beginning.

At the same time, we regard stablecoins as part of a prudent regulatory framework, which is the regulatory framework that central banks and payment systems, the main regulatory agencies, hope to establish. As governance shifts from a self-regulatory mode to a government regulatory mode, this nature changes. Therefore, together with Coinbase, we are studying how to ensure that Circle can continue to build, innovate, do what we need to do as issuers and operators, and continue to have strong economic incentives to achieve success as widely as possible. Therefore, while they own a portion of Circle's equity, Circle fully controls the development and operation of USDC, ensuring that everything can operate under the new stablecoin laws emerging globally.

Laura Shin: Interestingly, this arrangement has sparked speculation about whether Circle is undergoing self-adjustment due to its acquisition by Coinbase. As the CEO of Circle, are you leading the company towards going public or towards being acquired by companies like Coinbase?

Jeremy Allaire: Yes, we are indeed on the path to becoming an independent public company. Over the years, our company has been fortunate to have multiple strategic investors. Recently, BlackRock acquired a minority stake in our company as part of a broader strategic partnership reached between our companies last year. Owning a stake in the company can create great product and value consistency, which is crucial and important. I hope to ensure that Coinbase not only earns money from USDC, but also holds a stake in our long-term success, which I believe is a win-win situation.

This year is the 10th anniversary of Circle's establishment, which is an interesting year for us.

I often say this sentence, but when we founded the company 10 years ago, I made it clear to investors and employees that it would take decades of effort to achieve the company's vision. We now have over 100 billion stablecoins in circulation, but this has hardly begun to penetrate the financial system. Therefore, there is still much to be done, and the utility of a common protocol and the US dollar on the internet also has enormous potential. It is not just about the flow of funds, but about representing and storing funds in this form. There are $25 trillion in electronic dollars in the world, distributed in different formats, so our scale is small. So I want to say to everyone that despite our high revenue and profits, Circle is still a startup in my eyes.

Laura Shin: Circle recently announced that Mercado Libre, the largest e-commerce and payment company in Latin America, will adopt USDC. Can you tell us some information about this partnership and what impact you think it will have on Circle?

Jeremy Allaire: This is a very excellent company that has paved the way for modern business. They also play a very important role in the payment field in Latin America. This is a broader theme that we see, namely the growth in demand for digital dollars and the demand to use them in markets where local currencies may not be as attractive, and Latin America is undoubtedly one of them. But I believe that the first phase of this plan will be launched in specific countries in Latin America, and ultimately we envision that it will be widely promoted.

However, I believe that when we observe the indicators of stablecoin adoption, this point is very important. It has evolved from "Oh, this is just something used for trading on DeFi" or "This is just something used by arbitrage traders" to become a basic means of providing US dollar value reserves for those in need, and providing very efficient cross-border payment mechanisms for those in need.

These are mainstream large companies that serve hundreds of millions of users. Mercado Libre has approximately 200 million customers, which is very large. Therefore, we are thinking about how to expand the overall market of wallets that can trade USDC. Coinbase has over 100 million wallets that can trade USDC. Such partnerships do expand this range, and there are many, many wallets that people use. MetaMask has 30 million active users, all of whom can use USDC for transactions. As more and more wallets, traditional fintech companies, digital wallet companies, and all new personnel establish the next generation of account abstract wallets (which will become killer applications to achieve all these availabilities), these things will be established, creating more and more ways for people to use USDC.

Laura Shin: For example, if I am in Chile and want to buy something on Mercado Libre, will it display the price in Chilean pesos and also in USDC?

Jeremy Allaire: I actually don't know the details of user experience or how it's set up. What I do know is that they have a lot of customers who have a great demand for holding and trading in US dollars. So this is really a powerful way to move the value storage of their customers to digital dollars. Obviously, once they have these digital dollars, the strong functionality of their own platform and its interoperability becomes apparent. That's why stablecoins are interesting in some ways, especially USDC. An open network where you can directly engage in peer-to-peer, interoperable transactions is where the real power lies.

Laura Shin: You previously stated on Twitter that 70% of USDC is adopted from outside the United States. Is this simply because people want to denominate their savings in US dollars, or are there other driving factors?

Jeremy Allaire: I think first of all, the entire blockchain ecosystem is very globalized. Generally speaking, we know that there is a lot of activity in markets around the world, so to some extent, if you need a reliable and exchangeable digital dollar, USDC is a good choice, so it also follows the overall growth of the international market. However, we do see significant growth in demand for the value of dollar reserves, especially from emerging markets such as Latin America, Africa, Southeast Asia, and other similar regions, where many startups are launching new products and establishing partnerships with important global companies, which are also using this method to settle transactions. So, this international level is very strong, and I hope it can continue to maintain this state.

Why should the US government care about stablecoins in USD? The fact is that it makes digital USD a powerful export for the US, enhances the country's soft power, and strengthens the economic interests of households, businesses, and the government itself. Therefore, the spread of stablecoins in USD, especially those that are well-regulated, truly compliant with the law and regulations, is strategically aligned with the national economic and diplomatic interests. This may be controversial for some, but it is a fact.

Laura Shin: Circle has just released a new programmable Web3 wallet platform, which will help businesses provide digital asset payment services to their customers. Please tell us more about this platform.

Jeremy Allaire: Obviously, we are well known for the USDC stablecoin. In addition, USDC itself is a protocol that exists as a dollar protocol that any developer can build on and access. This has been widely used in DeFi, wallets, custody, and various other products and services, where they integrate this protocol and then provide users with a secure way to store, trade, and settle dollars. Therefore, a large part of the success of USDC is indeed built on cooperation with developers, working with those who are trying to create value and need a built-in trusted stablecoin.

But we believe that as a company, there is still much more we can do. Therefore, last year, we spent hundreds of millions of dollars to acquire a company called CYBAVO, which has excellent technology in deploying blockchain, managing and deploying smart contracts, and handling wallet security. We are very excited about this emerging Web3 service category. By analogy, Amazon has established its own e-commerce infrastructure, which they have made available for developers to build on. This has made it easy for Web2 developers to launch an application, which has led to the creation of Amazon Web Services.

If you are a startup or a large company, and you say "I want to build a blockchain-based application, but I don't want to worry about managing infrastructure, security, operations, and compliance, as these are very difficult problems. I just want to focus on providing a pleasant end-user experience, which is safe for both users and me as a developer." This is a big demand, and when we talk about developers, there are many discussions about developers on the blockchain, the blockchain developer ecosystem, and so on, which is very important. We know that products like USDC are being launched on more chains, and we can also discuss this issue, but the key issue is that there are very few developers who can easily build a blockchain-based application and ensure that users safely hold NFT tokens or stablecoins and make payments.

There are approximately 100 million software developers in the world, but only about 500,000 developers are able to build on blockchain. In order to see Web2 evolve into this new architecture, there must be significant changes in the difficulty of building, operating, and running these applications and services for these developers. For us, this is a huge opportunity. This is consistent with the work we have done in stablecoins, as all applications, whether they are commercial, financial, consumer, or any other type, require the use and movement of currency. We can make all of this very simple, using blockchain infrastructure, EVM, and other abstract layers of breakthroughs, so that it only increases the number of applications. We hope to build more useful applications.

If we increase the number of useful applications and integrate them into our protocol (such as USDC), the network will grow and the network utility will also increase. If we can do this, it will create a lot of value for ourselves. Therefore, this is a new source of revenue, which we monetize like AWS, and it is pay-as-you-go at a public price. If there is a very successful application, we can generate a lot of revenue. You can easily get started, and this is a true self-service. So, this actually goes back to my roots. Many people may not know, but my career started with building developer platforms, programming languages, and some of the most popular web development tools ever created in the Web1.0 and Web2.0 eras.

I believe this marks a transition for Circle, from a stablecoin issuer to a more platform-oriented enterprise in the entire Web3 space.

Laura Shin: Are Circle's six new blockchains driven by demand that you see? For example, do developers or DeFi builders say we need this, or are you just making sure "if any of these stand out, we'll be there"? How do you make these decisions?

Jeremy Allaire: Both are important, although there are hundreds of blockchains, we will not launch native USDC on hundreds of blockchains. Now, there are still many innovations happening on both Layer 1 and Layer 2. Considering the actual number of applications I just described and the actual number of users of these applications, we are still in the early stages of maturity. However, in the next few years, there may be around five different Layer 1 and Layer 2 that occupy about 80% of the market. There are still some unresolved issues in privacy, security, scalability, and other aspects, and there is still a lot of innovation and competition, as well as completely new architectures emerging. We hope to be a full-chain and we want to ensure that if an infrastructure has strong technological innovation and has a certain number of developers' attention, or will receive developers' attention, we will cooperate with this infrastructure and put it into use. We will continue to be a full-chain and experiment, but at the same time, the other products we are building are also designed to allow you to build a multi-chain application.

Our Web3 services, smart contract platforms, etc. will target multiple chains, and we are also working hard to solve the interoperability problem, which is a huge problem in a world with multiple Layer 1 and Layer 2 solutions, and no one thinks it will end. We really have a very bad way of transferring people's funds, which is through bridges. You lock USDC through the bridge, and then a wrapped version of USDC moves on these bridges. This is slow and exposes a huge hacker honeypot. Therefore, many of the most high-profile hacker attacks are basically aimed at bridges, some of which have multiple signatures, and someone has obtained the key... I mean, this is too bad. We are talking about billions of dollars, which is terrifying. In fact, USDC is the most bridged asset in the entire ecosystem.

Therefore, we have built and launched a cross-chain transfer protocol for USDC, called CCTP. This allows users or developers to build applications where USDC can be transferred from one chain to another without the need for bridges, locking, or any additional fees. We are able to do this because we are the authoritative mint for USDC. This means that if I have USDC on Arbitrum and want to send it to a wallet on Base, Optimism, or the Ethereum mainnet, I can simply transfer it over. It will be destroyed on one side and minted on the other, making it faster and more secure. This is a huge way to provide secure, interoperable digital dollars.

Related reading: "Circle launches cross-chain transfer protocol (CCTP), making USDC a multi-chain digital dollar."

Therefore, in addition to introducing USDC to the chain, we are also protocol developers, building new protocols to make it safer and easier for people to use these digital dollars on the network. So yes, we are excited. We launched these new chains last week and also launched more routes for CCTP, all to make this the most useful and secure digital dollar on the blockchain network.

Laura Shin: PayPal recently launched a stablecoin, which is a giant in the payment field. How does Circle plan to compete in this area?

Jeremy Allaire: First of all, on the day when PayPal and Paxos launched stablecoins, I congratulated and appreciated them, because it was a good partnership for Paxos. I think it's great to see mainstream payment companies accepting USD stablecoins, which indicates that the regulatory environment around stablecoins is clear enough and big companies are entering this market. With regulations in place, we will see an open, free, and competitive market, and the market will also have a secure baseline to rely on, and you will see more competition. Not only in the United States, but also globally, as stablecoin regulations are gradually being introduced, I think this is a positive thing from a holistic perspective.

When it comes to competition, what I focus on is not so much our competitors, but rather what we are doing that is valuable to people. I believe that part of the reason why USDC has been so successful is because we are a market-neutral infrastructure company. We do not compete with merchants or retail users, we do not have a consumer wallet, we are purely a market-neutral infrastructure company. We see USDC as a practical tool for the internet and hope to collaborate with many different companies to build it.

I believe that PayPal also has many excellent partners, but they have a franchise to charge merchants for credit card payment fees and have a large number of end users. Therefore, many people see this as competitive. However, we have established good partnerships with many companies that may see each other as competitors, such as Robinhood and Coinbase. We have established partnerships with Block, Stripe, Visa, MasterCard, MoneyGram, and many other companies that rely on and use USDC in different ways.

I believe that our neutral position in the market is very important. We have seen examples like Mercado Libre, a company with 200 million users. PayPal has over 100 million users, and our excellent partner Coinbase has 100 million users. USDC is supported by Binance Wallet, which has 100 million users. Therefore, we have a wide coverage and will continue to increase our excellent partners with broad coverage, which is the most important thing.

Then our strategy is completely different. We are building a developer platform, infrastructure platform, and protocol layer. This is the way we want to develop. So we feel good about our position and believe we can continue to occupy a very important position in the market, but we also welcome competition.

The Risks and Opportunities of the Silicon Valley Bank Incident

Laura Shin: Earlier this year, Circle faced a life-or-death moment when $3.3 billion in reserves were locked up in Silicon Valley Bank, which subsequently collapsed. Since then, USDC has been losing market share to Tether. What strategies did you implement to address this situation?

Jeremy Allaire: Okay, there are many parts to this. First, it's important to understand how our infrastructure works. Our proudest achievement is our transparency in market infrastructure. Therefore, we disclose all the banks we work with and provide detailed information on every bond and treasury bill we hold, down to the serial number and date. Currently, we hold about 94% of our reserves in a SEC-registered and regulated structure called the Circle Reserve Fund, which is managed by BlackRock. If you search for the stock code USDXX, you can see everything and learn about the security of this fund. It's a compliant registered infrastructure that no one else in the market has, so we have a very high level of security and transparency.

The second point is to think about what happened. I think there have been some very dramatic events in the entire industry. Obviously, we are unique in this regard, with our own specific bank risk exposure being a large listed bank with a market value of $170 billion. Within 48 hours, the bank experienced a run on the bank unrelated to cryptocurrency, which occurred after the disclosure of huge losses on their own balance sheet. Goldman Sachs failed to raise funds for them. So, I'm glad to tell you in detail what happened here, but it's a shock that affects the entire US financial system. And there are still banks that fail regularly for similar reasons. But on the day before SVB Bank collapsed, they were still a very good A-level financial institution. So, except for some hedge funds that shorted them, it was shocking to others.

What I want to say is that we have been seeking to continuously improve the level of USDC's underlying market infrastructure. We have done some things, one of which is to establish a strategic partnership with BlackRock and set up a Circle reserve fund. In the first quarter of this year, we have transferred over 80% of our reserves to the fund. Now we still maintain about 20% of cash so that we can always meet the most extreme daily liquidity needs that may exist.

Related reading: "Conversation with Circle CEO: Review, Reflection, and Outlook after the Crisis".

For companies like Circle, we have been following regulations and doing things in the right way since day one. We are very transparent and have all the capabilities in risk management. We cannot choose, hey, JPMorgan, would you like to hold our reserves? Things don't work that way. If you are Microsoft, yes, you can decide which bank to deposit your cash assets in, but that kind of freedom does not exist. However, we have made great progress in improving our ability to use what is commonly known as Global Systemically Important Banks (G-SIBs) as the infrastructure behind USDC. In fact, we have just started doing this for USDC cash in the week or two before SVB collapsed.

Therefore, despite all of these events, we are actually very fortunate that we can sweep everything into the world's safest G-SIB. You can now view our authentication certificate, and all cash is in the world's safest global system and within this trusted reserve fund structure. As a result, we actually have the safest and most transparent digital dollar on the internet, with nothing reaching this level.

So, regarding what we are doing, we are just continuing to do what we have always been doing, which is to improve the level of market infrastructure, increase transparency, and so on.

Another thing I want to say is that the de-banking of the entire industry is happening and this impact is still ongoing. We have made significant investments in establishing a global USDC liquidity and settlement network and are partnering with high-quality banks in every major region of the world to create and redeem or provide USDC liquidity in local markets. Therefore, you no longer rely on US banks to do this. We are making huge investments in market infrastructure and the reason why banks are willing to work with us is because we are a compliant, transparent, and risk-managed company.

Like some of our competitors, no one understands any bank, it's just a huge mystery with liquidity issues and unclear actual exchange. What I mean is, it's scary and no one knows anything except for public statements, which makes it very tricky. This series of huge events happened in about eight weeks, and the reaction in other parts of the world is that it's unsafe in the US, having funds in an institution of a US bank system that has gone bankrupt is unsafe, and working with companies regulated by US institutions is unsafe. Therefore, what we see is a trend of fleeing, while other companies will advertise that we are not exposed to US affairs. But currently, there has been significant progress, and the Federal Reserve is developing a regulatory framework for banks dealing with cryptocurrencies, clear rules have emerged around stablecoins, and some major financial institutions are deepening their work in this area. Therefore, ultimately, this trend of seeking security will become a reality.

Another thing to note is that we also have a cyclical business. When interest rates are zero, a large amount of capital flows into various fields, including the cryptocurrency field, creating an environment where if you have dollars, you can engage in various investments and other activities in the blockchain ecosystem. You see the huge growth of stablecoins, from which we benefit. Now you have seen interest rates rise sharply, at a speed unseen in decades. Therefore, the opposite situation arises. If you have digital dollar assets and you know you can get a 5.25% return elsewhere, then if you are a customer who can use the US banking system and traditional financial system, you will do so, which is obvious.

If you take a look at the stablecoin supply in April 2022 (when the first rate hike occurred), and then look at the rate hike, there is a direct inverse correlation between them. However, we are actually in an interesting position where Coinbase and Circle have relatively good banking businesses, and we actually offer a way to exchange for free to banks at a 1:1 ratio, meaning we have a traditional financial layer. This is why people like USDC and why they trust this product in part.

But this also makes us the object of exit. Exiting is more difficult for some other products, but it is actually quite easy through USDC. So we are affected by this, but what I want to say is that the broader impact is macro-cyclical, that is, in a high interest rate environment. Yes, we are creating a lot of revenue, and we have just publicly disclosed our full-year and first-half revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) for this year. This is very considerable.

Despite the circulation issues we have, we have also seen high year-on-year growth and cash flow, which is part of the macro cyclical nature. Therefore, I believe that in the long run, this is about establishing the best infrastructure, the most compliant regulatory infrastructure, the best banking infrastructure, the most transparent infrastructure, doing things correctly, making all of this work, making all of this work for any fintech company, any financial institution, creating great things for developers, and everything else will follow.

When interest rates fall, macroeconomic cyclical problems will arise. When you enter a neutral interest rate environment, how people use their dollars will change. It is worth noting that banks have lost $1 trillion in deposits since interest rates began to rise. You can see the chart. This is data from the Federal Reserve Bank of the United States, the FRED database. You can view it from April of last year to now. Banks have lost $1 trillion in deposits. Money market funds have gained about $800 billion. So, the same phenomenon is also happening here.

落实监管势在必行

translates to

Implementation of regulation is imperative

Laura Shin: At the end of July, many people expected a stablecoin bill with bipartisan support to receive Republican support in the House Committee, but it did not receive Democratic support. During that time, you provided some suggestions to the House Financial Services Committee to improve the bill. Before we discuss your specific recommendations, please tell us your thoughts on this bill.

Jeremy Allaire: First of all, this bill did receive bipartisan support in the committee, although the support was not widespread. It did not receive the support of ranking committee member Waters, but five Democrats joined Republicans in voting to move it out of committee. I think this bill has made a lot of progress, and I'm very familiar with the issues and politics here. This is legislation that everyone wants to get done - the Fed wants it, Treasury wants it, Congress wants it, the White House wants it - it's a top priority set by the highest levels of the administration, that we need to implement stablecoin regulation in the US. So, it's a national priority and people are working hard to get it done. I want to remind everyone that the US is a global leader and led the way in achieving consensus on stablecoin regulation among the G20. Everyone at this table, all these countries, agreed to establish stablecoin regulation, reached a principle consensus, and then they went back to their respective governments and said, okay, let's get it done.

Hong Kong, Singapore, Japan, and the European Union have already completed, and the United Kingdom is about to complete, what they promised to do. The legislative process in the United States may take longer, but everyone hopes to complete it, so the possibility of regulating stablecoins is high. However, I don't think the specific bill passed by the committee will be the final bill signed into law, as there are still some key issues that are very important to the government and the Federal Reserve but have not been resolved. Therefore, many issues are related to the role played by the Federal Reserve. Currently, the bills coming out of the committee are basically based on the standards set by the Federal Reserve. They say, here are all the requirements, and then they define them. But I think there is a debate about whether the Federal Reserve has the power to decide who can obtain stablecoin licenses. Or if a state, like New York, issues a stablecoin license to someone, does the Federal Reserve have any joint or dual regulatory role? This sounds bureaucratic, but it is actually an important issue related to state power, federal power, and power balance, but the problem is these issues.

But overall, what I like about this bill is that it creates a clear path for both bank and non-bank stablecoin issuers, and it delineates the roles of state and federal governments. It sets very specific and very high standards for prudential supervision requirements, including reserves, transparency, risk management, and all necessary matters. It actually creates legal certainty for the US dollar stablecoins to become part of the global financial system, as part of the US dollar financial system, which means that both public and private companies will know how to deal with this issue, and financial institutions will be able to hold it like cash or collateral. Therefore, as this situation develops, it will unlock a lot of mainstream applications.

So there are many things to like about this bill, and it will be interesting to see how it progresses in the Senate. We should also keep an eye on the situation in the House. But we remain optimistic that the United States will ultimately make the right decision and uphold and protect the interests of the dollar on the internet. As I have said many times before, the future of currency competition is technological competition, and it is precisely technology on the internet that has driven this point home. The question is whether you want to unleash open networks, free market competition, private sector innovation, and private sector technological innovation, which is the way competition has been done throughout American history. This is also why America's internet and technology sectors are so strong. They have to make a choice. Do you want to compete in this way, or follow those who are trying to establish a currency monopoly system in dictatorial regimes?

Laura Shin: Yes, I noticed that there is a particular suggestion in your proposal that caught my interest, which is to request a modification of the bill to allow stablecoin issuers to use Federal Reserve account services. I believe your experience at SVB influenced this request. How receptive do you think this idea will be?

Jeremy Allaire: In fact, many years before the Silicon Valley bank crisis and when we founded the company 10 years ago, a fundamental premise of our company was that we needed to move towards a fully reserve banking system. I think this is, to some extent, an economic philosophy inherent in things like Bitcoin, such as the philosophy of the Austrian School of Economics, that you cannot have partial reserve with Bitcoin. What I mean is, you can do what Sam Bankman-Fried does, if you have a database, you tell people you have a receivable, you can do that. But physically, Bitcoin cannot have partial reserves, and the idea of a fully reserve banking system is something I have been passionate about for a long time.

After the Great Depression, when bank failures spread throughout the United States, a similar economic philosophy emerged about how to deal with these collapsing banks, which was heavily debated at the time. Two options were discussed very seriously. One was called the Chicago Plan. This was a group of famous economists, including Irving Fisher of the Chicago School and many others, who advocated for separating the payment function of currency from lending and requiring full-reserve currency. It is still sovereign currency, meaning it is still the government's obligation, but it is fully reserved and banks cannot create currency on their own. They cannot have partial reserve, and lending can only be done with fully reserved money. This was a big debate, with the focus being that it would lead to a less risky financial system, with inherent risks being smaller and tending towards less prosperity and depression, although it may lead to fewer economic recessions.

Another viewpoint is from the perspective of banks. They believe that we should be able to have partial reserves, but we need to create an insurance pool. We will have an insurance pool, which is essentially a pool that we all participate in. If one fails, we can extract their insurance to pay for the cost of failure. However, we can engage in this risky activity because of the establishment of the Federal Deposit Insurance Corporation (FDIC). So I think at that time, commercial interests prevailed, and this issue has been re-examined ever since, during the savings and loan crisis of the 1980s and the financial crisis of 2008. This has piqued my interest in all of these issues, and it is also the reason why I entered the cryptocurrency field, to understand how the fractional reserve banking system works, what is central bank currency, and how we can improve this system. Before I learned about Bitcoin, I was interested in all of these issues.

I have always hoped for a fully backed model in US dollars. I believe that if you have the technological superpowers of blockchain and the internet, and have this incredible programmable currency that can spread at the speed and efficiency of the internet, then its ideal foundation should be a fully backed currency, a government debt currency, and cash or short-term government debt held in the Federal Reserve, such as Treasury bonds. If you have this, then everyone will know that this is something as close to cash as possible, something as safe as possible, and they will be willing to use it widely as a medium of exchange, which is the goal we are striving for. We are very close to this goal, the only problem is that the cash portion we hold must be deposited in commercial banks. I have always been nervous about this, and it turns out that this is indeed a cause for concern.

So now, we are fortunate enough to have almost all of our cash stored in the safest global system's important bank, which means it has government support behind it. So we still have a very secure place, but I believe that in the proper design of digital dollars and privately intermediated digital dollars (which is what we are discussing here), the facilities of central banks can be utilized.

Laura Shin: Will Congress think this is a good step and include it in this bill?

Jeremy Allaire: I don't think we will see this in the bill because banking industry lobbying groups are very serious about opposing it. The reserve asset reserve requirements largely ensure the safety of reserve assets, even up to 98% safety.

Laura Shin: Another suggestion you made is that the bill should clearly define what constitutes a legal USD stablecoin, as well as what you call "counterfeit" stablecoins. To be honest, some of your previous comments seemed to imply Tether without mentioning the name. So what kind of definition do you hope to see for this legal USD stablecoin?

Jeremy Allaire: If we quote Federal Reserve Chairman Powell literally, his view is that stablecoins are created by the US dollar, and it is the responsibility of the federal government to define what is a legitimate US dollar currency. What is considered a US dollar tool in the global financial system? I think, especially if something is deemed equivalent to cash, from an accounting perspective, from a balance sheet perspective, everyone thinks so, then there should be a very, very high standard here. If you claim that yours is one dollar, but you have not met the standards and requirements to become a digital dollar legally, then you should not impersonate one dollar there. That's pretty much my point of view. Therefore, my personal opinion is that there needs to be a consistent and prudent standard for these legal stablecoins worldwide.

In the G20 jurisdictions, which are mostly central banks, they have come to the same conclusion and their laws are also very similar. So I believe that over time, we will definitely live in a world where if you provide a digital currency, a legal digital currency, you will have to accept this strong regulatory regime, otherwise you will not be able to use it. I think this is the direction that is happening now. This may take two to three years to achieve, but it seems very clear.

Laura Shin: A country that is worth paying attention to is China, which is focusing on blockchain technology and central bank digital currency. They have quickly launched the digital yuan. What are your thoughts when you see the comparison between these two governments in dealing with stablecoins and central bank digital currencies?

Jeremy Allaire: I don't think there is a clear regulatory stance on stablecoins in China. As far as I know, there are no specific new rules for stablecoin issuers in China. But I'm not surprised by this. I think if you look at the current situation, the priority for most jurisdictions' governments is to implement stablecoin regulations as soon as possible. Therefore, the regulations for the Euro stablecoin are becoming a model law, and it will take many years before the European Central Bank launches the digital Euro. Since June of this year, Japan's stablecoin regulations have been in effect, and it is not even clear if Japan will have a CBDC. Therefore, including the United States, the priority is to ensure that private sector digital currency plans have safeguards and rules, and that there is a fair competition market for technology innovators, banks, non-banks, and others.

Therefore, I believe that as every major jurisdiction around the world regulates private sector innovation in this field, China has no choice but to unleash its creativity and technological competitiveness. Now, privately intermediated RMB stablecoins may actually be more attractive to businesses and users from other countries than an actual CBDC, as you may want a buffer zone isolated from the Chinese government.

I think that a large company engaged in cross-border transactions with China may not want the government's system to enter its own technical environment. Therefore, private intermediaries may be supported by central bank digital currencies. In the long run, I believe that the United States will also move in this direction. We will see upgrades to the wholesale core technology infrastructure of central banks, and then private intermediaries will be integrated into it. But this will mainly be a rapid and continuous innovation cycle related to stablecoins and open infrastructure and technological innovation, which will become the so-called "retail" and directly contact enterprises and end users. Personally, I think that similar situations may also occur in China in the future.

Laura Shin: Do you think these developments will happen fast enough in the US to maintain the global reserve currency status of the US dollar?

Jeremy Allaire: Well, I think the United States needs to take proactive action now. One of the best things the US can do now is to aggressively promote competitive digital dollars on the Internet. I have made this point in my testimony and have also made this point face-to-face with many people in Washington. But this is a very clear thing to do because it is about your mind when you are competing for users, businesses, households, and others in the world when they make decisions when they open their computers or smartphones. I think the US and the dollar are still the most flexible and attractive reserve currency in the world, and it is still the safest asset in the world. And if the US is willing to support some of the changes needed for the security and technological competitiveness of the dollar, I think this situation will definitely continue.

Laura Shin: So, besides your previous suggestions on the stablecoin bill, do you hope the United States will adopt any practices from other jurisdictions in regulating stablecoins?

Jeremy Allaire: What I have seen in some places is a direct channel for stablecoin issuers to access central bank clearing facilities. For example, in Japan, there are reciprocal arrangements for various forms of stablecoins issued abroad. And, I think it's also very important that we can get similar treatment, so if I'm a Japanese company or I'm in the Japanese capital markets, as long as there are regulatory equivalencies in terms of various security measures, Japanese regulators will recognize tools like USDC in their markets. So I think this is a preliminary idea that we see from other jurisdictions that has not yet been clearly addressed in US stablecoin legislation.

This is a difficult question, but it will be iterated around. Ultimately, because these are digital assets moving on the internet, they can appear in any digital wallet. It's just a matter of where the private keys are and who owns them. I think the issue of cross-jurisdictional issues must be considered, and I hope this issue will be given more attention here in the United States.

Laura Shin: You tweeted that there are tools in the cryptocurrency industry to unlock better KYC processes to address issues such as anti-money laundering. How should we understand this?

Jeremy Allaire: Yes, for example, there was a recent massive data breach where all KYC information was made public. How did this happen? If you are a financial institution, according to the operation of anti-money laundering rules and KYC rules, when you interact with another financial institution, you must exchange customer personal information, whether it is an individual or a company, you must exchange this information. Therefore, all these different financial institutions, whether they are start-up financial technology companies, large banks, securities firms or other market participants, are spreading your personal information extensively. So your personally identifiable information (PII) is broadcasted again and again, appearing in honeypots everywhere. Of course, there are now SOC standards, security standards, and protection standards, but ultimately, as an individual, your personal information is widely spread.

And cryptocurrency is cryptography, where innovations in cryptography constantly occur, enabling proof without sharing information. Zero-knowledge proof is the most common method. However, there are other types of cryptographic proofs where you can have a certificate, which is a verifiable credential, like a voucher. Then, you can show this voucher to someone, and this KYC voucher is issued by a compliant, rigorously standardized company. And I can rely on this voucher without you having to provide all personal information.

That is to say, we can use cryptographic proofs and digital credentials, these encryption credentials, to allow people to protect their privacy information more securely during interactions. It also allows for selective disclosure, the most common example being, why does my daughter have to legally tell the bartender her address and name when she walks into a bar? That doesn't make sense, right? So why can't we prove that we are of legal age? Why can't we show a credential from our digital wallet that proves we have reached a certain age? And I have already proven through biometric authentication that I am the holder of this credential. All of this is related to cryptocurrency, right?

So I am very interested in various types of encryption credentials, non-fungible tokens, zero-knowledge proofs and other technologies, which have the potential to become mainstream. We can better prove our identity while protecting our privacy, and financial institutions can even exchange proofs without creating huge honeypots. However, this will require financial institution rules, such as anti-money laundering policies formulated by the US Treasury Department, or standards required by the Financial Action Task Force (FATF), a consortium jointly decided by all governments.

Laura Shin: You have mentioned many times the regulatory measures you hope to see in the United States. If you have any specific information you would like to convey to regulators and legislators, what would it be?

Jeremy Allaire: I think there are several issues, such as the competitiveness of the US dollar, national competitiveness, and industry and market competitiveness. Although it is easy to see companies that engage in fraud or Ponzi schemes and say that they are all garbage, the reality is not so simple. So we are now on the edge of a very powerful framework, which is very beneficial for the US, the US dollar, and industry competitiveness. I am very firm on this point.

Another thing is that, globally, not just in the United States, blockchain technology is always seen as a financial technology. I believe that policymakers need to understand that what we are talking about is a general internet infrastructure, computing infrastructure, and data infrastructure. This is a very, very important general infrastructure that is important for many industries and fields. Therefore, how we treat this infrastructure needs to be independent of just saying that it is a financial regulatory issue, because it actually is not.

I found that sometimes, the policy under consideration is to lock everything in one furnace, or to incorporate everything into the perspective of financial regulation. This is not a good position, and I don't think it's accurate either. Therefore, I encourage policymakers and their staff to truly better understand the computer science of this network technology, because this is where a lot of value is generated, not just because someone got an airdrop token or because people feel that something is wrong.

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