The Delphi Podcast Host and GP of Delphi Ventures Tom Shaughnessy sits down with Jeremy Allaire, Co-founder and CEO of Circle, a payments and treasury infrastructure for the internet and issuer of USD Coin (USDC). The two discuss building successful companies in new technologies, the regulatory climate for stablecoins, the future of Circle and much more.
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(00:00:00) – Introduction.
(00:00:27) – Jeremy’s background.
(00:07:31) – How to scale companies in new technologies quickly.
(00:12:26) – Remaining flexible on the product and business plan.
(00:15:01) – Biggest lessons from Jeremy’s first two companies.
(00:18:01) – Time management as an industry leader.
(00:21:12) – Deciding to double-down on USDC.
(00:30:36) – Making the call to drop losing business divisions.
(00:34:54) – Team involvement in making key business decisions.
(00:36:36) – The future of Circle.
(00:45:32) – Regulatory concerns for USDC.
(00:54:05) – Chances of complete government crackdown.
(00:58:09) – Are government crackdowns bullish for Bitcoin and Ethereum?
(01:00:26) – Regulation in the early internet days.
(01:05:58) – Jeremy’s thoughts on competition from decentralized stablecoins.
Hey, everyone. Welcome back to the podcast. Today, I’m thrilled to have on an industry giant. I have Jeremy Allaire, the co-founder chairman of Circle. Jeremy, how’s it going?
Great, Tom. It’s awesome to be chatting.
Jeremy, I feel like we haven’t spoken in so long, and in the mean time, you’ve grown Circle to have over 30 billion USDC in circulation. It’s quite the journey.
Insane. Tell me, Jeremy, for those who don’t know, tell us about your story I guess before Circle, how you got started in crypto.
Yeah, sure. So, I think maybe most relevantly, I kind of went down the rabbit hole on the internet really early, in like 1990, and became really, really obsessed with the idea of an open network built on open protocols and opensource software, and was really quite into all of that before the commercial web. Before the web existed, even. And then in the early ’90s, when the very first web browsers were emerging, I got very excited about the idea that you could basically use this open decentralized permission list protocol, HTTP, to enable anyone in the world to build online services and distribute content, and actually got even more excited about the idea that a browser was sort of the ultimate light client, and that you could build interactive software applications where the only thing the person needed was a browser, and then all of the programming and computation and data, transactions data, et cetera, would happen as people say now in the cloud, but basically on servers.
And so, I helped with the original development of a product called ColdFusion, which was the very first commercial web application server as a programming language that allowed people who were conversant in scripting and HTML to actually build software apps that could be deployed into browsers. Did that, that grew to millions of developers, hundreds of thousands of businesses around the world, grew fast. Built a whole family of web development products, HTML design products, infrastructure products, like fundamental internet infrastructure type of stuff, and tooling, and then we went public, helped lead that company as a public company for a couple years. That was Allaire Corporation.
But it was built on the idea of open networks and open protocols and how you could build kind of a more inclusive global universe. And then we merged with a bigger company called Macromedia two years after I was public. I became chief technology officer there. Macromedia was one of the biggest internet software companies. Worked on technology around Flash, if you remember Flash, and Flash Player, and development tools, design tools, other things, and really the focus then was how could we… Broadband was just emerging. It was the very beginning of broadband. 2001, 2002. And we were sort of saying, “How can we upgrade the internet to provide a much richer kind of experience for software, and media, and communications?”
Worked on products that were sort of peer to peer and other forms of communications protocols, video delivery protocols, built some of the first audio video, helped with the launch of a number of audio video things, and I got very excited at that point about I could sort of see that this open internet model, and this idea that anyone could kind of connect a machine or device and deliver things, would find its way into television and video. We put video technology in Flash in 2002 and it became the most widely available runtime for video on the internet. And I could see that that was going to lead to kind of a transformation of television distribution, media distribution, so I ended up leaving and then incubating and starting another company called Brightcove in 2004, and we basically built an end-to-end video platform that allowed everyone from a brand, to an independent video artist, to television companies, and media companies, and movie studios, and others to actually start doing monetized television distribution online.
Back in 2004 it was pretty early, but that grew, and now is a… I took that company public and thousands of media companies use it. Major brands use it. It’s a platform for that. Again, kind of coming back to now I’m getting into why I got into crypto, because fundamental kind of premise here was open protocols on the public internet that anyone can connect to with any device transforms how software distribution works, content distribution works, communications, television, all these things. And I’ve always been interested in that arena and how that happens, and then for me, after the financial crisis my original interests, which were in kind of global political economy, international macro issues, which had been things that I had studied earlier in college, got really restimulated after the financial crisis.
So, I found myself like a lot of people reading extensively about central banking, international monetary system. That became a real area of interest to me in 2009, 2010, and 2011, and I had heard of Bitcoin, but in 2012 got a lot more interested in it, and I had kind of just started going down the rabbit hole. I think for me just the connection point here was it became very clear to me that what Bitcoin was doing was solving a problem which existed for the internet as a whole, like a missing infrastructure layer of the internet. A way to represent value on the internet in a decentralized manner, just like all these decentralized infrastructures that had enabled information, and communications, and knowledge sharing, and television distribution, all these things to happen.
I could see that this was sort of the kernel of that happening for value exchange and got very excited about it. We can talk more about the origin of Circle itself, but that’s sort of my backdrop kind of getting into this space.
No, no. It’s a hell of a backdrop. I want to go more into Circle and more into your crypto views, but I would be remiss not to talk about your past companies for a little while. You founded Allaire Corp, which had ColdFusion, so it’s a web app development company. Everyone knows Brightcove. I covered telco media in a past life, so it came up all the time. But you’ve created such large organizations at the beginning of such large movements, right? What’s the process there? How do you get so bullish and scale so fast on technologies that are so new for their time?
Yeah. It’s a really interesting question, like I’m always kind of looking at things that I think… You know, the big transformations tend to be when there’s multiple overlapping technologies, and so I’m sort of constantly looking at what are different streams of technologies and how are they likely to kind of interact with each other to compound. And in every one of these things that I’ve worked on, it became very, very apparent that there were these other mega trends in technology that would compound certain things. So, the idea in 1994 that the web was going to be the operating system for software apps and content was definitely not what people thought. That was definitely not what people thought.
But to me, it was so obvious that an open architecture like that, combined with what was happening, which was this kind of proliferation of personal computers, and then the commercialization of the actual internet service provider market, would make that happen. And there were other things like commodity servers. Servers used to be really hard to run and you had to be a UNIX system administrator, but Microsoft Windows NT servers made it possible, like anybody who could use a Windows computer could now run a server. Looked at all these things and said, “Yeah, this is going to really proliferate.”
And I won’t go through every example, but fundamentally I kind of look for those things, and things that I think are going to really solve or enable a really fundamentally different outcome for society. And so, I gravitate to the things that I see the logical implications of it kind of extrapolated out, and I sort of see what that looks like. And then I get just really inspired by it and I want to go after it and realize it. And I think with what we’re doing with Circle, we had a very clear vision early on. I have my Series A materials. It’s fascinating to look at the original kind of white paper, as it were, like the strategy docs and the Series A presentation.
What I would say is there’s a multiphase vision for this company. We’re still in the first phase of it. And I think a lot of the things that we envisioned becoming possible in spring of 2013 are now just being realized today, eight years later. And so, sometimes you can see something and you’re a little too early. Sometimes, you come in kind of too late. You kind of want to be somewhere in the middle. I think the interesting thing about the Circle story is we were definitely early for the executing on the idea of a protocol for dollars on the internet. 2013, it was too early for that. 2017 was a better time to really start that, which is when we started Center and built USDC. So, we started that at the right time, but we were pursuing how to solve that problem of taking fiat from the legacy fiat system and transacting it like digital currency. We were trying to do that at the start of the company but doing that on top of Bitcoin had all kinds of limitations that we ran up against.
So, we were in some ways too early, but then we also had I think built a lot of really significant capabilities as a company that allowed us, even though we were early on that, to kind of pivot into other areas that generated huge amounts of revenue for us and growth during different cycles of the crypto market. So, it’s interesting. I feel like we basically started the company at the right time, because a lot of the things that we now are able to do today are based on technology, operations, licensing, reputation, on things that we built up over our first say five years.
Yeah. It’s hard to describe to people new in the space what crypto was like in 2013, let alone 2015, and then 2017, but you kind of answered my next question, was you’ve built major companies that have IPO’d, that have changed the world, and you’ve done it at such an early stage, so my question for you was how much of the business plan, how much of the product do you know that you’re going to have when you start these, versus how much of it is flexible and kind of up in the air a bit?
Yeah. I think my feeling on this is you can kind of describe, you can see the mountain top, staying how far away you are in your journey, you can see the mountain top. You know what it looks like. You can see the beauty that’s there. And it’s really fucking far away.
It always is.
You know it’s going to be a treacherous journey. You know that you’re going to go walking up a path and it’s going to be like, “Shit, we hit a chasm. We need to go down again and then we got to go up another path.” The metaphor of climbing a mountain is a really good one because you can actually see the mountaintop and you can intuitively feel inside what that is and know that that’s what you’re marching towards. And it’s really important to have that clarity and have consistency in that clarity and that vision, which I believe we really have. But also realize that the paths that you’re going to take to get there are going to be highly situational, and in this space, as you know, that can be based on technology changes, which are very significant and rapidly moving, some slower, some faster; how this is treated by governments, the overall kind of macro landscape in all of this.
There’s so many of these exogenous factors and you have to kind of find your way through all of those, which is difficult. I always take for granted that yeah, there’s going to be many iterations, many pivots as people like to say, but pivots are smart. If you’re climbing the face of a rock on a mountain, you don’t know. You’re like, “Okay, what do I do here? Oh, shit. I can’t do that. What do I do here?” Adapting is a huge part of building resilient companies.
Yeah. No, I’m with you. In crypto it’s like the mountain is moving, the weather is changing, your distance is changing every five seconds. One last question before we go into Circle, and this is probably a dense question, but I have to ask you. Your first two companies, so Allaire and Brightcove, what were the biggest learnings you think you took away from running those corporations, or co-founding them? I mean, for CEOs in the space, for co-founders, what are the large lessons or biggest hurdles you overcame? Because they’re quite the story in themselves. Could do an entire podcast on each one.
Yeah. There’s so many. With Allaire and my first company, my brother, myself, and other co-founders who were involved, we were really young, so we were in our kind of early to mid-twenties, and that was an awesome time to start a company as someone at that age. I feel really excited about that. And when I look around at crypto founders, there’s tons of crypto founders in their twenties, right? Tons. And it reminds me of that-
I feel old at 27. I get it.
Yeah. Okay, yeah. That reminds me of that version of myself. And I think this is very much like 20/20 hindsight, right? I think we actually had a much bigger opportunity than we realized. And I think we could have taken on a lot more capital and scaled much more rapidly as a company. But we grew steady, up and to the right, profitably. We were unfashionably profitable as a public company for two years. And our valuation was punished because we weren’t high growth enough. It wasn’t like that thing.
You were paying off dividends.
I learned a lot about how growth versus profitability, what does it take to kind of really go after a market hard, those were some of the things. I learned a lot about M&A. We did a lot of acquisitions. I learned a lot of the pitfalls and positives and other things. I learned a lot about people, the kinds of leaderships, culture. There’s a lot that I learned from there.
But I think one of the big takeaways was you got to kind of go after it a little harder. But as young guys in our twenties, I couldn’t credibly go as much and kind of scale out. And the amount of capital that’s available now is like insane compared to what it was in the ’90s, right?
You guys actually had to do road shows and stuff probably back then.
Oh, yeah. Yeah. Yeah, absolutely. I still have to do road shows.
That’s true. That’s true.
Zoom shows. Yeah.
Yeah. No, I totally understand that, and I guess just one last personal question for you, just being a leader in the space. How do you manage your time efficiently? It’s something I struggle with all the time. I think everyone in the space does. We have 3,000 productivity apps to get us through and we’re wasting time on those. What do you think you do to really make sure your time is valuable, people know that, you’re using it the right way at Circle, past jobs, et cetera?
It’s a huge challenge. I think you have to get really disciplined about saying no, basically, and it’s really challenging, because I’m a generous person with my time. I like to make myself available. But when you really sit down, you look at your week ahead, and you say, “What are the most important things that I have to get done? What are the really important things I have to get done that are going to move the agenda of this business or this project?” It’s pretty easy actually to figure out what you should and shouldn’t be doing. And you know, I have people that help me. I have someone. I have an assistant, which is not an end all, be all, but I think it is really important. I think there’s some people that are like, “I don’t need an assistant. I don’t need someone to do my scheduling.” But I think having people around you, whether it’s an assistant or someone on your executive team, who is really focused on what are the objectives, what are the results, how are we accountable to those, keeping people driving against those, it gives people kind of guideposts, which is really, really important.
No magic bullet there. You have to constantly groom and curate the things that you have. And there’s overall frameworks, like we use OKRs. I think OKR is a really good framework for at a broad level and then those get driven down, all the way down to the team and individual, and that isn’t like a perfect thing. Because things come up, you have to change, you have to adapt, but I think the most important thing is say, “What are the most important things that have to get done in the next week or two weeks?” And then look at what you have in front of you. And if there’s stuff on there that doesn’t make sense, just cancel it. Just cancel it, right? There’s endless recurring meetings people have, right? You have all these recurring meetings. It’s like do you really need those recurring meetings? Do you really need that this week? Is there something really important to have on it?
And I think especially these days, where you just get stuff thrown in and you’re hanging out in the Zoom, and everyone’s multitasking.
Just recurring and then bam, there goes your year.
Yeah. Anyway, those are some of the things that I do.
No, that’s a strong answer. Plan ahead on Sunday, say no, get an assistant if you need to, and really be understanding of your time. All right, cool, Jeremy. We can switch to Circle now that we have your life story. Let’s dive in. I spoke to you a couple years ago. We didn’t do a podcast, but… really pushing the bounds. It seems like you had sort of not a recovery but maybe a refocus at one point where you doubled down and said we’re going to focus on USDC, we’re going to focus on this. Can you tell us a bit about that decision-making process back then and how you kind of focused back on it?
Yeah, absolutely. A couple things that are I think important is like origin vision of the company was that sort of it would become possible to have protocols on these public open networks, blockchains as we call them now, but on these public networks that would allow one to represent a dollar or a euro and transact it over these public networks in a direct way, and essentially to inherit the capabilities of cryptocurrency but applied to a dollar. So, to kind of have a hybrid model of taking central bank money, or the importing that, and then enabling it to function on a public network in the same way that HTTP is like a public information network. And that was one core idea.
The other idea was that once that happened and the technology got scalable, that the programmability of that form of money, and to us we were sort of thinking, “Hey, if you could make dollars almost like a native form of data on the internet, and it became programmable, and the compute for the programmability was on a trustless infrastructure where people could write contracts to interact with funds,” that was so inspiring to us and that over the long run we thought, “Okay, if you have a protocol for dollars on the internet and those dollars and other fiat tokens could be programmable, you could actually reconstitute from the ground up huge parts of how capital allocation work, the nature of not just payments but also capital markets.” And that was the thing that got us really excited.
And so, early on we tried to solve that problem by building on top of Bitcoin, and back in 2013 that was a pretty good bet. There was a robust developer community. A lot of people in the community were excited about how do you make this scalable, how do you make this extensible, how do you introduce smart contracts? And what happened was really frustrating and there was a huge schism in the crypto world between kind of the Bitcoin is Bitcoin, don’t touch Bitcoin, it’s doing what it needs to do, and the people who were excited about this idea of programmable money, smart contracts, issuing other assets on top of this, and that really led to not just a literal fork in Bitcoin, but it led to a kind of a forking off in technical communities. And Vitalik himself was like, “I have all these ideas about where to take Bitcoin but the Bitcoin community wasn’t receptive.”
And so, these new platforms started to emerge, but it took years, right? So, from 2013 until basically late 2016, several years, there wasn’t an alternative. We built a whole banking infrastructure on top of Bitcoin and it enabled us to… We got all the licensing. We built a risk platform, a treasury infrastructure, custody infrastructure, all the things that we needed. Got all the licenses, banking partnerships, everything else, and you could tunnel dollars, euros, and pounds over the Bitcoin network, and we were using the Bitcoin network as a settlement layer, but it was terrible as a settlement layer. It didn’t work and we were like, “This isn’t going to work.”
And so, we were like, “Okay. Well, we have to kind of like let go of the Bitcoin part of that.” Which some people really hated, because we had built a really seamless way to basically take a debit card, and transact, and send money directly to a Bitcoin address that became Bitcoin instantly. We had built a liquidity engine that enabled instant crypto and we had a risk engine, and a treasury engine, and a trading engine that could kind of do that, and so we had this really cool capability. But we basically said, “Okay, this isn’t solving the problem we aimed to solve.” But we kept the core infrastructure and we built a trading business on top of it, which is a legendary trading business called Circle Trade, which was very well timed, leveraged that infrastructure and all the counterparty relationships we had to build the first or second largest trading desk in the world for 2017 and 2018.
So, that was a huge business for us, but in late 2016 we basically said, “Okay, we have to redesign this architecture.” And we made a decision to redesign it on top of Ethereum. And we actually, if you go back to 2017, you can find a blog post that talks about we’re starting a new opensource project to enable fiat token payments using Ethereum and it was codenamed Spark, but we didn’t say much more than that. And over 2017, as Ethereum matured, we started working on what was then USDC. And actually, in the fall of 2017 we introduced this… We created an entity called Center, and it was just the subsidiary of us at that point, and the idea was to kind of create a standard, contribute the IP into opensource, and eventually release that.
But meanwhile, though, we rode the crypto market cycle, right? So, we rode our trading business. We opportunistically acquired Poloniex, which was a massive exchange at the time, but we closed that deal and it was just really bad timing. I mean, basically the combination of a lot of regulatory heat in the U.S., the sort of rapid growth of offshore Chinese exchanges that were super, super aggressive and not really paying attention to U.S. law at all, and then the crypto winter, which basically kind of hit-
That was rough.
… in the spring of 2018. Right after it closed. So, it was like okay, we had something that was generating a huge amount of cashflow and then basically became a drain on many, many levels. And so, meanwhile though, we launched USDC, and it was really well received, and it was 2018 was when the sort of first regulated dollar stable coins were coming into the market, and there was a real perceived need. But for us, most people were looking at stable coins as, “Hey, this is a way for hedging an arbitrage and ways to deal with trading,” which was true. And that was what we considered the bootstrap use case for this. But for us, it was, “This is our vision. This is our founding vision of building a protocol for kind of this hybrid digital currency model.”
For us, this was like really, really key, and important, so we got it launched and over that year, from September 2018 to September 2019, we did a ton of work to light up the ecosystem, and we focused on DeFi protocols. We focused on wallets, exchanges, custodians, all kinds of different players, and we got hundreds of companies to start supporting USDC. We had a great partner with Coinbase, who made it really easy for retail users to get it. We had a great institutional offering that made it easy for institutions to get it. And it really started to take off. And so, a year into it, we were like, “This has very clear product market fit.” And not only did it have product market fit, because it had jumped ahead of all the other regulated stable coins, but like ecosystem adoption was flourishing, and all these companies in the ecosystem were coming to us saying, “Hey, could you give us these other capabilities? We need fiat. We need more seamless infrastructure to connect up to our own services.”
And so, we had to make a number of key decisions, but in around actually this time two years ago, it was very clear that… And that was the kind of the heart of the crypto winter. It was like these trading businesses are either break even or losing money and USDC, while it’s not generating, we’re not monetizing it really, it was clearly had great product market fit, and so we executed a number of transactions to basically sell the trading businesses and put 100% of our capital behind building out a whole family of products and services around what we had been doing with USDC. Yeah.
Jeremy, it’s an incredible story. I guess my question for you is in hindsight it sounds like simple and easy, like USDC growth, trading business exchange, [inaudible 00:30:44] let’s get rid of them. But in the time when it happened, I feel like it’s very hard to say, “Hey, let’s cut this,” versus, “Hey, let’s improve it. Let’s hire people. Let’s scale it.” People created things. They’re driving them forward. How does the decision-making process actually happen to cut those things in your business that weren’t doing well?
Yeah. You have to just face reality and just be like, “Look, is there a path,” like with an exchange that’s kind of boxed in in what it can do, and you’ve got a Binance, which is just like gobbling up the universe. Is there a credible path to do this as a company in the United States, to compete in the alt coin market? Was there a path? And it was very clear. No, there’s not a path. And so, then you have to figure out, okay, how do you make the best of that? And you find a strategic buyer.
Similarly, we had a nice retail app, Circle Invest, which we didn’t see a path to really, really scale that out. Now, we could have, I think, if we said, “That’s our focus. That one thing is our focus.” We could have. But it was very clear that we didn’t have unlimited capital. We had enough capital to do these things and we generated capital from transactions that we did. But you know, you have to live within the laws of physics, and in late 2019, in the heart of the crypto winter, capital formation was not the same as it is today.
It was dead.
Yeah. It was really, really, really tough. Yeah, so we just had to live within reality, live with the physics. And I think the other thing, and this gets back to I think part of why this story is so interesting, is we stayed really anchored to the fundamental mission and vision of the company, and we stayed really anchored to we started this company to realize this idea of building a new kind of global digital currency bank. And that’s going to be built on this hybrid model of fiat digital currency kind of connected to blockchains, and programmable money, and what that could be. That was the sort of founding vision of the company and we were realizing it. And my intuition, and it was not clear to everyone at the time. My intuition was this is going to happen.
This gets back to the earlier thing about seeing things before other people see them, which is my view is like next gen blockchains are arriving. This is going to become scalable, cost efficient. This is so clearly the right model for how payment transactions on the internet are going to work. I have very high conviction. We have a product market fit. We have a really strong early mover advantage. Let’s just go for that. And galvanized the company around that. And it was a difficult time. It was a very difficult time. And managing through that, all of that complexity, and investitures, and then keeping people motivated, and getting them focused on bearing down on the new product innovation, and what that can be, definitely one of the hardest things I’ve ever done in my career.
It’s admirable. The amount of changes you did is incredible.
Probably the biggest learning experience I’ve ever done. Doing the hard things is like… That’s when you really, really grow. And so, I grew a ton, and it was amazing. Amazing experience. Amazing experience. Yeah.
Sorry. Just writing that down so I make sure I say that as the quote. But no, it’s super admirable how much you guys went through and how much you kind of led through that. I guess my last question for you on those changes was is there any way to keep… So, you have people running divisions, and maybe they’re not that profitable. Maybe they’re not growing. Is there any way to incentivize those people to come to you and say, “Hey, Jeremy. I love my job, but look. This isn’t growing. I love Circle. I’d love to stay here,” or do you get the sense that everybody’s kind of just trying to keep their segment going regardless of the realities and that’s your job?
No. I would say in fact what we did with launching this platform services, API services, this broader family of things, it was product leaders and business segment leaders that were working on other things and so on, and we just said, “We’ve got intuitions about stuff here, but go figure that out and take your best and your brightest and go figure that out. And come up with a plan.” And I give a huge amount of credit to the leaders, the product leaders, engineering leaders, business leaders who were like, “Okay, how do we go from USDC as it is today to a broader set of things that we can do that people are going to want and that we can monetize in other things as well?”
And it wasn’t like all me at all. It was very much coming from those core folks and it was people who’d worked on a lot of different things in the company.
No, that’s awesome. I love that you’re throwing around the credit. It’s super important. Switching back to Circle, you got a whole new set of growth plans now, right? 30 billion in issues, largest stable coin. We fund all our deals in USDC. We yield on USDC. We pay people in USDC. It’s just an institution at this point, right? What’s next? Is it a MultiChain future for USDC? Is it new initiatives? What’s phase two for you?
There are a lot of things. Yeah, USDC is at 31 billion now, which is amazing, because it’s been incredible growth. I think it comes back to kind of just maybe just checking in on where are we in this and I think it’s fair to say we’re still really in the early phases of the adoption of this. And while 30 billion in circulation and a trillion in transactions, all this sounds like a lot, it’s still super early. We think about the total addressable market for digital currencies like USDC is the size of commercial bank electronic money, which is over $100 trillion in the world today. And so, there’s a long way to go in terms of the amount that would say be in circulation, and used, and I think for us we’re right now in this really pivotal moment where we’re going from the early adopter use cases for this into more mainstream use cases.
I actually had a Twitter thread about this today, which is just one of these questions people get. What are the use cases for USDC? And I have a few different answers, but one of them is like, “What’s the use case for a dollar on the internet?” Which is like anything, right? And we literally can talk about that in reality, which is there are people who are using USDC to make micro payments for scarce digital intellectual property. And at the other end, there’s people who are settling large scale capital market transactions worth $500 million in a single USDC transaction. And everything in between. And so many different use cases. But at the end of the day, we’re moving from this early adopter phase into a more mainstream phase, and by a more mainstream phase I mean that this starts to get used in a far broader range of commercial applications and regular way commerce applications. Paying people and dealing with international payments.
But we think we’re on the cusp of solving problems in what I call consumer-to-business payments, and right now, USDC is not used a lot for consumer-to-business payments, because the technology hasn’t really allowed for it. We haven’t had scalable blockchains that can transact very inexpensively. But that was the core vision was that eventually you’d have scalable blockchains where you could transact it at a very low cost. And now, with third gen L1s, and L2s on Ethereum, you can into many thousands of transactions per second. You can get transaction costs that are sub-a-penny. And so, now the architecture is such that you could actually start to really build competitive consumer-to-business applications with real value.
But there’s these classic kind of chicken and eggs, right? You need consumer experiences that provide digital wallets for users that they want to use for everything from peer-to-peer applications, to business payment applications, to personal finance applications, and so there’s sort of this race for these next gen crypto wallets, as well. And then you’d have traditional digital wallet players like Square, and PayPal, and Revolut, and others who are saying, “Okay. How do we become more crypto native? How do we enable these things?” And even Facebook, who’s ultimately going to do something here, I think we’re getting really close at a technology level and a user experience level to solving this problem of this is actually going to be the medium of exchange for commerce on the internet.
That’s when this goes from 30 billion in circulation to hundreds of billions in circulation, so that’s one big arc that I see. Another is as this becomes a much more trusted dollar market infrastructure, it’s already a trusted dollar market infrastructure in what I call the crypto capital markets. The crypto capital markets is like this is the best thing ever, it’s reliable, it’s trusted, it’s liquid, it’s redeemable, it’s audited, it works on the chains that I want to work with. If you’re in capital markets in crypto, you’d be like, “I will never go back to the international bank wire system.” It’s just like never, right?
It’s like apparent to people who are in crypto capital markets that this is a far superior dollar market infrastructure compared to traditional commercial banking. But the key is when does that start to crossover into more mainstream finance? When do people start to be able to fund their Robin Hood accounts and use it in their Robin Hood apps, or when does a major financial institution start to use this as an actual dollar settlement leg in significant transactions that they do? So, the sort of maturation into… I don’t want to say TradFi, but it’s a little bit of TradFi, but the maturation into that space is also really significant.
Which ties to the third big bucket, which is DeFi today is still nascent, right? 100 billion total value locked. Again, step back, equity and debt capital markets, $350 trillion. Okay, so super small. Super small. That’s got a lot of growth. And I think this model of on chain capital markets is super profound, and is absolutely going to be bigger, and bigger, and bigger. There’s a lot of things that have to happen for that to happen, but the scaling out of on chain capital markets to me is also one of these things that’s going to rapidly contribute to this going from, again, 30 billion say in circulation to hundreds of billions in circulation. These are the kinds of things that are pulling on it.
So, in terms of Circle specifically, we want to enable the businesses that want to build on this, businesses that want to use this. We want to get more and more businesses to really think about a digital currency bank account, really. I’ve got a Chase account, I’ve got a City account. I want to have a Circle account and I want to be operating with that, and I want to use that as a mechanism for my working capital, I want to use that as a mechanism to generate yield, and returns, and increasingly just do more of what I need to do in corporate and commercial banking. And then if I’m a startup, or a builder, or financial institution, or fintech, I want to have really robust APIs that let me integrate this into what I do and provide that like a transaction bank basically does.
And so, we’re really aspiring to build a global equivalent of like a global commercial and transaction bank entirely built around digital currency, public chain infrastructure, and the like.
No, I love that answer. And I love your tweet thread, too. I saw it this morning. I think it was like 20 or 22 examples or something like that.
Yeah. There’s a whole bunch. And that was just from like two or three days. I was just like, “Okay, let me just take a look.” Because I was getting this question and I had an all hands meeting. I was like, “I’m just going to go take a look.” And then we used it in all hands, because it was actually like the three-year anniversary of USDC, and we crossed 30 billion, and I was like… Just where we started, where are we now, look at all this diversity of what’s happening. It was just a good indicator of how much is changing. And one of the things that I like to say, and I briefly touched on this in the Twitter thread, is stable coins are… They’re inherently a network effects business. The more people who have a stable coin, the more utility of value it has, and the more people who have it, the more people want to transact with it, and then the more people want to stay in it.
Which then, again, people start applying it in other cases, which then brings in more people, and more use cases, and it has a network effect to it. It’s like protocol adoption. It’s like the more people who have the protocol, the more people who want to use the protocol, which drives more in, and so it really is a network effects business. And I think basically that’s what we’ve been seeing over the last 18 months, is a very real network effects business taking hold.
Yeah. No, I would definitely not disagree with you. I think the thing that’s on everyone’s mind right now is just regulation, like there’s just… We’re seeing dens that are out there. We’re seeing a lot of actions. We’re seeing a lot of letters going around. I’m trying to get a good sense of how USDC plays nice but also pushes the innovation here, right? Because you guys are an institution. You’re necessary not only for DeFi, but for every company that wants to kind of take place in the space. How do you see regulation playing out in the sense of I guess how strict do you think it will be and how much it will damper or cut innovation and growth of the crypto space overall?
Yeah. I have a lot of thoughts on this, obviously. I think the first is there are so many different areas of Web 3, so many varied areas of Web 3 and crypto finance that it’s not like one regulatory thing, right? You’ve got, again, just so many. This is like the internet itself. There’s just this huge range of things that are happening and it’s remarkable. But there’s so many different areas and I think with respect to stable coin specifically, this is a fast evolving situation. And I think the first is when we started the company, and then later when we launched USDC, we were very clear that this had to be a regulated activity. And it was and it is a regulated activity. I think we’re operating under very well established banking and payments law in the United States. Laws that have to do with money laundering your customer, but more importantly with money transmission laws, which are governing consumer protection, the reserves that have to back a monetary instrument that is used in money transmission.
So, there is a regulatory framing that exists. That was the regulatory framework that it was possible to operate and launch this under in 2018. Now, our view has always been that if this grows to be much larger in scale, it’s very likely going to become something that is regulated at a national level. Not just in the United States, but in the U.K, or in Singapore, wherever you go. And it was sort of a question of when, not if, in our minds. But we went out of our way to say, “Okay, there’s not yet a real regulatory framework around this. Let’s build a whole set of self governance around it.” Governance around information security, compliance standards, the administration of the protocol, reserve standards, all these sort of models that we didn’t have regulation. We said, “Okay, let’s define a set of self governance and start doing that.” With the ultimate goal of there being common standards on this.
And that was what led us to create Center and Center Consortium. Now, what’s happened over the past couple of years is major financial regulators around the world have said, “Holy cow. Stable coins are here. They’re coming. They’re getting bigger. We got to do something.” And it’s not we got to do something like, “We got to shut this down.” It depends on what comments you read at any given time. You’d think, “Oh, this is the regulators want to shut this down.” I don’t think regulators really think that way. I think there may be different forms of thinking. Some regulators and policymakers will say, “This just feels super, super risky, and we got to protect society from these risk.” You have others that say, “This actually could be incredibly innovative and massive in scale. If it’s going to be that scale it needs to have some guard rails around it if it’s going to be systemically important or something like that.”
So, you just have a lot of perspectives there. And a lot of that’s been driven through very structured work that happened with the top financial regulators from around the world over multiple years through the Financial Stability Board, which issued a bunch of recommendations on how to think about policy in this. And then the U.S. Treasury put out a big report in December saying here’s some policy recommendations for stable coins, which we welcomed that. And in fact, at the time in December, I sort of said, “Hey, looking forward to picking this up with the Biden Administration when that comes along.”
Now, meanwhile, the growth has accelerated massively, right? Where we were in December, there’s three billion USDC in circulation on December 1st. We’re 10X that now. It’s not December, so I don’t know what we’ll be by December. The growth has been really massive, and so that’s brought a lot more attention, and I think that the really relevant thing is when something does become this big, and we’re not just looking about where it is today, but by anybody’s imagination in two or three years, if this is internet scale, if there’s a billion people interacting with on chain digital currency and blockchains and the like, if there’s a billion people, which I think there can be in that timeframe, you better darn figure it out, right?
That’s not going to be an unregulated activity. And the existing money transmission kind of emoney type of models probably aren’t sufficient, because you’re talking about at that point many hundreds of billions of dollars. The consumer protection considerations are a lot higher. Its interaction with the broader financial system is much greater. And so, I look at what’s happening with the presidential working group, which is Chairman Powell, Secretary Yellen, Chair Gensler, the head of the OCC, the head of the FDIC, all these folks who are looking at this and their staff, they’re looking at this and they’re saying, “Okay. This is here. What are some kind of things that we think need to be in place for say the United States government to be comfortable with this being a massive part of the financial system?”
And they’re going to have a bunch of recommendations. They’re going to come out in the coming days and my guess is that they’re going to be recommendations that Congress needs to consider. I think there will be recommendations that the big, existing regulators are going to have to go and research more. And then it’s going to be an opportunity for industry to really contribute because I think coming back to your question, we can’t lose the fundamental innovation here. We can’t put the genie back in the bottle. And the fundamental innovation is open networks, permissionless innovation. It’s a multichain future. It’s building on decentralized finance infrastructure. It’s all these things. And building an open standards and open internet of value exchange, that is the fundamental innovation, and I think just trying to say, “Hey, this has got to operate the same way the existing banking and payment system works,” is going to leave a huge amount on the table and is going to hurt the United States. It’s going to hurt the competitiveness of the United States.
There’s going to be a lot of dialog and I view the work with regulators as not something to be avoided. I view of it of something that’s to be embraced to really do the work, because I think genuinely, people want to get things right. They may be uncertain. There may be a lot of misinterpretation or misunderstanding. But you got to do the work. If you don’t do the work, you’re not going to build something that changes the world.
No, it’s a fantastic answer, and I agree with you. It’s worth embracing. I guess two questions for you. You could take this whichever way you want. What percentage chance do you put it that the government comes in and completely cracks down to a degree that makes doing business in the United States just totally unreasonable? Where people just straight up completely leave. I mean, people have already left, but do you put it at a high chance that they come in and just straight up level the playing field on innovation here with regulations?
I don’t think so. No, I don’t think so. Look, I think there’s going to be a lot of hard work by a lot of people in industry and in government to figure this out. My broad view is that interestingly, there’s actually a lot of bipartisan support for the idea that this is a major area of innovation and we need to not quash it. I think there’s also a lot of bipartisan support for this is awful, we need to shut it down. It’s one of these really bizarre areas where you’ve got like very strong bipartisan support for and very strong bipartisan support against. But that actually tells me something.
What it tells me is that this is complex, it’s nuanced, there’s a lot to it, there’s a lot to work through, and it also tells me that this isn’t like… There’s no unilateral anything that’s going to happen here. I think this is going to go through the machinations, the sausage making of policymaking in this great country. That may be awful to some people, but I think that is what we’re going to see, and you know, I think this industry is as strong as ever. It’s as big as ever. It’s very well capitalized. It’s accelerating. It’s doing a ton. And it really has to get its shit together in terms of education and engagement at every level of society and the government if people want to bring this forward and realize all these ideas. The solution is not to put your head in the sand and hope this stuff goes away or run away. It’s to take it on.
People want to figure this stuff out. And I am cautiously optimistic that over the next couple of years that we’ll see significant legislative initiatives brought forward that try and outline a comprehensive approach to digital assets in the United States. I’ve advocated for some ideas around this for many years. I think you’re seeing… Coinbase is going to put forward proposals. Industry associations are going to put forward proposals. And it’s going to be a lot of work, but I think we can come out the other side with a framework that allows for, again, the open internet of value to flourish. And it’s not just about money and finance. This is the thing, is Web 3 touches information, privacy, content, intellectual property, software, it touches so many different areas, and I think that’s part of what really needs to happen is this has to get up leveled.
This isn’t just about trading crypto, or tokens, or stable coins. This is about a whole new infrastructure layer for the internet and preserving the possibilities of that. Again, cautiously optimistic. But yeah, there’s definitely risks of negative regulatory consequences, without a doubt. There are real risks of that, as well.
No, no. I’m with you. And I guess my last question for you on the regulation side, do you agree with some of the more extremist views that a government crackdown is actually bullish for something like Ethereum and Bitcoin? I’m obviously of the opinion I don’t think it is, but what would you say to those people?
I think there’s sort of a kind of purist view of having a completely autonomous, decentralized economic infrastructure that operates outside of any supervision, of any government, anywhere in the world. That’s the kind of crypto anarcho, crypto anarchist, or anarcho libertarian ideals, and a lot of the internet, and the internet ideals, and the fundamental philosophy of many pieces of the internet are anchored in that, and I think it’s a really critical piece of this, which is there are first principles. And I think the first principles have to be preserved, right? Open, decentralized, permissionless both IP and operational resilience, and non-sovereign forms of value, those are first principles that have to be preserved. And I think they are foundational to a new set of global economic infrastructure.
So, on the one hand, I’m very sympathetic to the need to preserve those first principles. If something came along and said, “You can’t have a permissionless crypto commodity powered, decentralized protocol, that’s ridiculous, because that’s like trying to ban math, basically. And opensource, it’s like banning math and code, right? You can’t do that. It is a genie out of the bottle. It is this thing that exists. And I don’t think a government crackdown that said you can’t do that, that’s not lawful, would be a win for crypto. I don’t.
No, no. I’m with you. And one other question for you here. I’m not sure what regulations were proposed, or went through, or what the regulatory framework or schemes were back in the early internet days. But as a founder who went through it, was there any push come to shove there and how did that shake out?
Oh, yeah. There was massive. You have to think about in the early days of the commercialization of the internet, there were massive entrenched industries who did not like the idea of the internet.
Good old newspapers.
There were very significant parts of the policymaking community who were deeply against the idea of open information exchange. There was very serious consideration and legislative proposals that said you need a government license from the FCC to have a website. That’s kind of where some people were thinking about this. It’s like it was like that’s public communications, and that’s what the government oversees, and anyone can’t just be able to broadcast, so to speak.
You had a lot of antagonism around the openness of the internet. There were huge efforts by the national security establishment to try and make it illegal to export crypto. Crypto is core to the internet and securing the internet, but basically public key cryptography, they wanted to make public key cryptography military grade technology that you needed export controls around. The internet wouldn’t have happened. It wouldn’t have happened, like what we know of, if that had happened. There were ideas like that.
And you still see those fought today. The battle over encrypted communications is a national security battle. And the battle over these issues in crypto finance is very real, as well. These are national security considerations. And so, I think this is one of these things where society has to decide that open, private, global interoperable technologies are superior forms of organizing society and superior forms of organizing economic activity. And if that happens, if people and firms basically decide this is just a better way for us to operate, then at the end of the day, policymakers do serve at the will of the people even in authoritarian regimes. Because if people are like, “This is so powerful, I want to use this,” then they figure out how to deal with it. The great firewall. Whatever. They figure out how to deal with it.
But I think that’s the key here, and this is like this pivotal moment, where the utility value of crypto technologies for all these different use cases in Web 3, and in crypto finance, the utility value has to really take hold in a really meaningful way and create a lot of value for people and firms in the next couple years. That’s what has to happen if we want to preserve an open internet of value exchange. It has to be proven out that this is a far superior mode of operation for economic activity. And if that happens, then I think you’re going to see a policy environment which is far more accommodative to this because it will be clear that this is an upgrade in how society and the economy functions. And that’s what happened with the early commercial internet. That’s what I think is going to happen here, as well.
It’s kind of funny, and I agree with you, but it’s kind of funny or it’s ironic that you have to literally keep building in an unclear regime to prove it out to that regulatory regime.
Yeah. You do. You do. I do this every day. I’m trying to figure out how to light up consumer-to-business payment use cases and get the ecosystem to figure out how to solve the problems how to do that, so that people say, “Holy cow, doing a USDC payment is like faster, cheaper, better than a credit card payment.” And you know, you got to solve these problems. These have to be solved. In some ways, this is maybe a message to your listeners, as well, which is like so much of the activity gets focused on how to make money, how to build trading strategies, what’s this, what’s that, but this has to get grounded increasingly, and I think it is, in solving real world problems in commerce and finance. And I think there is more and more of that, but that’s the critical piece. If you could solve real world problems in a 10X better way, the kind of proverbial 10X better benchmark, then you win.
And I think so clearly, so much of this technology is like 10X better. USDC is a great example of that. If you start “banking” in USDC, you’re like, “Oh my God. This is so much better than anything else.”
So much easier.
Yeah, but there’s a lot of building blocks that have to get worked on to get it there.
No, I’m totally with you, and I love the comparison to the early internet days and continuing to innovate. My last line of questioning for you, Jeremy, is just on I guess the competition. You guys have clearly surpassed MakerDAO’s Dai, or I think it’s just Maker’s Dai at this point. I might be dating myself a little there. There’s a graveyard of algo coins, like ESD and DSD. There’s UST on Terra and a bunch of others that are taking off there. And I’m kind of wondering, I guess, one, what you think about them, but more importantly a lot of the theses for competing stable coins is that the government will crack down on them and they’re immune, and then two, some of them have issues solving the demand side, so just demand for the asset outside of the supply games you can play. What are your thoughts on the competition, whether it be algo stable coins, or whether it be other centralized forms?
Yeah. I guess I have multiple thoughts on this. I think there’s sort of short, medium, and long term. I believe that a model that can have a asset-backed stable coin that is connected to the existing financial system, that can take advantage of all of the capabilities that public chains bring, programmable money, all the benefits in commerce, and payments, and financial services delivery and others, I think that’s humongous, and I think that in the short to medium term, the average business or kind of financial application is going to want to depend on those assets that are actually connected into the existing financial system in some way.
So, I think we’re going to live in this hybrid world for quite a while, and that was one of the principal premises behind USDC. And I think we’ll see proliferation in other asset-backed, fiat-backed stable coins around the world. I think we’ll see robust trade settlement, FX settlement, other markets built up on this, and I think there’ll be a regulatory framework that makes this something that’s comfortable for major companies, small businesses, average households to feel comfortable interacting with. So, I think that’s going to grow and grow really quite big. I think at the same time, the concept of synthetic, price stable digital currencies is a super compelling concept, as well. And I’m from a long-term perspective, I think that’s a huge, huge opportunity, and I think over the very long term we’ll probably be using various kinds of synthetic price stable global digital currencies. Even as a global unit of account, a way to conduct commerce.
But for that to be something that is acceptable from a tax authority perspective, and from a financial system perspective, we’re a long ways away from that. But I’m really encouraged by the work that goes on there. I don’t look at it just as, “Hey, we’re doing this so that we can avoid the government and have this be outside the reach of government.” I know there are people who are focused on that from that perspective. I’m interested in it just from a long-term monetary theory perspective, long-term international monetary system perspective. What eventually could be desirable for large scale money on the internet in the future? I don’t have a timeframe that I think that that will manifest itself, but I think I’m very bullish on that over the long run.
Jeremy, this has been incredible, man. I think everyone in the industry loves that you’re a key leader interacting with D.C. and helping to move this forward, and your experience starting multiple companies and now driving USDC, which is absolutely crucial for not only DeFi in the space is both admirable, and I’m a huge fan, so really, really appreciate your time today. This has been incredible.
No problem, Tom. Really enjoyed the conversation.