Stablecoin Power Shift? Dollar Dominance, AI, and Europe’s Big Question (EP.301)

0:00 Because we've got to create the flywheel, so you've got to create the usage and we're in a bit of a chicken and egg. People are saying, oh, there isn't enough liquidity so we can't use it. Well, if you're not going to use it, there won't be liquidity. So it's kind of how do we break that chicken and egg? This is Money Never Sleeps. Sharp rips, big ideas and real insights from smart people. I'm Pete Townsend. Let's go money. Never sleeps, pal. So we've got Garrett Cassidy on the show, and it's so appropriate that he is on the show for the new era of Money Never Sleeps, Sharper, Faster video lead, and that this is the first cut of the new era. Now you're a tech star as alum, you're an exited fintech founder, mentor, advisor, independent director, and also you're one of the first people I spoke with about fintech way back in 2013 when you and Gary Laden dropped into my office to get my take on a fintech accelerator that NDRC we're running here in Ireland. So great to have you on.

1:00 Wonderful to do this. First one with you, Garrett. Yeah, no, great to be here. And to add to all that, I'm recovered from 20 years in French markets and banking as well. So like, like yourself. So yeah. You've got the scars. Yeah. Yeah, Absolutely. Absolutely. No, we both do. We both do. So listen, you and I have been talking a lot about stable coins recently, especially last week when we were in Amsterdam for the Techstars ABN Amro Future of Finance Accelerator Demo Day, which was an awesome event. Shout out to Allard Look Singer for leading the charge with that program. And we had a few conversations afterwards. But you found something that you wanted to pick apart a bit with regards to a story that you saw on stable coins in the last couple of days.

1:47 Tell us about it. Yes, So in the FT this week, Martin Wolf has written a written a really interesting piece on stable coins. Really his headline is why we should worry, why the world should worry about them. But I think that that the underlying pieces why the world should worry about U.S. dollar stable coins as in the dollarization and what some of those implications are. Some some of this can sound challenging and native like we need money on chain, we need on chain money to do tokenization. But I think we need to be honest about some of the challenges that exist. And we also we also need to be open as to what are the different ways of tokenizing. But I think, you know, Martin Wolf obviously comes from a very long line of deep economic thinking and is has a has a very kind of interesting take on the challenge around US, you know, U.S. Dollar stable coins and ask some questions as why is the US pushing it so hard and what does it mean for other countries? Yeah.

2:50 Why do you think the US is pushing it so hard? And is that political rhetoric, or is that the truth of what this could become? I probably do buy a lot of what Martin is saying, which is this is about geopolitics as much as economics. It's dollar dominance. It's protect, sorry. It's protecting. Obviously dollars already pretty dominant, but it's protecting dollar dominance. Obviously there is the, there isn't the other narrative which is, which is genuine around, you know, US payment systems are old, are slow, are challenging Remittances, you know, are expensive. Cards are expensive, much more expensive than we're used to in Europe. Umm, but fundamentally it's like, why? Why is it being pushed?

3:37 Well, there is a dollars dollarization agenda. There's also a potential underlying U.S. Treasury agenda. You know, borrowing from the world. I kind of step back from all this and think you know, you have European sovereignty, right? And to say that if the world is using U.S. dollar denominated stable coins and stable coins have well 99% of stable coin value is pegged to the US dollar. And what I think about 2/3 of the value, the 300 billion plus now in stable coin value is backed by U.S. Treasuries. Now we have some other assets that are backing some of the stable coins, but primarily it's it's AUS treasury play, which is great for the US macro seen in one way shape or form and in many ways shapes or form. But I just don't see 99% of the stable coin value being represented by the US dollar when we're at 2 trillion worth of stable coins.

4:40 Yeah, I just don't. I don't see that. Yeah. And I think there's, there's an interesting 1 here and it is one that the article pushes as well, is that the other regulators and central banks need to be careful. And this, this is kind of an interesting point because Bank of England released some stuff recently and there is a lot of pushback and we're all going, what are you talking about and why are you doing this? And then you reason actually there is a, there is a valid reason for sovereignty and there's lots of challenges with my car in in Europe. And one of the ones that gets pushed hard is the limitation on non euro stable coins. There's a huge push from some of the big international stable coin issuers for changes to that.

5:24 But actually I think it's 1 outside of the US. We need to ask ourselves off, is that the right answer, Pete, we've had this conversation many times. We need liquidity in other markets, in stable coins because you know, we don't. We do. And otherwise, like I think we'll come back to emerging markets, whatever about the use case in emerging markets, which has another challenge. If you're in euro zone or UK or Japan or other major economies, they have functioning currencies, functioning payment systems and those currencies need to be on chain as well. So, yeah, and, and and we can't just, yeah, a lot of the financial markets trade in dollars, but they don't all trade in dollars.

6:09 And my, our friend Dave Birch, who was who was with us last week, he gave me the missing piece of the puzzle. I think for me and to go from emerging markets, right, and that the guys at Castle Island Ventures wrote a very good report. It was last year with Artemis and we covered this on on a podcast episode in the past. And to say that listen, in emerging markets, stable coins are working in the US dollar stable coins. Obviously the majority of folks in emerging markets that are using stable coins use Tether and they're accessing that through finance primarily. And the problems that stable coins are solving, U.S. dollar, stable coins are solving in those emerging markets are that people can't trust their banks, they can't trust the currency, they can't trust the government.

6:54 And so they prefer to live their financial lives in U.S. dollar. Now, that is still a small drop in the ocean in terms of global GDP and global value of assets, but it's solving real problems. And the conclusion I came to after reading that Castle Island Ventures report called emerging markets or stable coins in emerging markets was that the problems that stable coins are solving in emerging markets, those problems don't exist in Europe. And let's just take Europe, right? But Dave Birch got me thinking about this. If AI will become the dominant user of stable coins, which is the expectation, and that there are other problems in the Western world or in developed markets to solve. People getting ripped off and insurance people having £292 billion in the UK for example, sitting in savings accounts earning nothing.

7:47 So your AI agent, your bot won't stand for that. It will look to solve those problems and try to get you some yield on your savings and try to get you a better insurance deal. And stable coins are the only way to do that efficiently because stable coins are programmable and they don't wait for the banks to open on Monday because you can near 24/7 instant fast cheap settlement. And AIAI won't stand for that. It won't wait. It will just go. It will go. And so in a roundabout way, we're coming back to if stable coins are the dominant way that AI transacts and AI will transact and 99% of them right now are in U.S. dollar are is European economic sovereignty or currency sovereignty threatened by people then using U.S. dollar through AIUS dollar stable coins?

8:41 That's I. That's the question for me. Right, where we had it. Yeah, I think there's there's two bits to unpack in what you said there. The first one actually before we come back to developing Mar developed markets like Europe or UK is emerging markets. So one of the other interesting things in the article was the risk that's being raised around dollarization in emerging markets. Like dollarization in emerging markets is not new, but there's a piece here of do we fundamentally forever undermine those countries ability to have their own economic sovereignty? Because actually, yo, I think yes, there are countries where you don't trust the currency, but actually do we end up in a world where everybody outside the G7 or outside the big currency blocks just uses dollars and their, and their local and their local capital markets and their local central banks just get completely decimated. So obviously there are, I agree it's solving a real problem in some of those markets, but it is also is it also just then perpetuating and, and potentially A aspiring and that's, that's one separate like that I hadn't thought of because I'd be the same as you.

9:46 I'd always go, this is working in certain places where people want to hold U.S. dollars. They need faster payments and even in the US where payments are a bit slow, umm, but we don't have those with money works in Europe. Now coming back to the coming back to the the kind of development to Europe as an example or Europe, particularly UK, it's same issue but probably less amplified. Right now Europe is genuinely worried about payment sovereignty, about payment schemes. Let's ignore currency for a minute. So if you know layer that you lose the currency as well, like that's your that's just somewhere I don't think Europe can go. And therefore, and that was kind of rewinding back. That means you need local domiciled tokenized money. I and I and I want that, I, I want to see if your, I want to see euro stable coin liquidity.

10:40 I think that the one that circle issued is at about 300 million right now compared to 300 billion in the US dollar denominated stable coins. We need more. And I think, but I think it may be a bit easier to get it going. We may, we may be obsessing up there's only 300 million liquidity rather than looking at is the is there sufficient liquidity to get in and out of it? That's a really good point. That's a really. Good point. You know, how much liquidity do we need to actually, because because we've got to create the flywheel, so you've got to create the usage and we're in a bit of a chicken and egg. People are saying, oh, there isn't enough liquidity so we can't use it. Well, if you're not going to use it, there won't be liquidity. So it's kind of how do we break that chicken and egg?

11:22 And obviously there's interesting things the the separate to the article. The really interesting one is the European banks getting together to do a stable coin rather than a deposit toe. Yeah. Whereas the UK banks have gone down deposit token, deposit, tokenized deposits. So it's kind of, I think we're still in that storming, norming phase of where's this going to land. I think it comes back to this that that we are still early and, and I get so excited about these things, but if you have to think back to 2021, we were at 30 billion worth of stable coins in the world and now we're at 300 billion and it's still just a drop in the bucket. And that Martin Wolf is basically saying that stable coins will supercharge the dollar. That'll weaken everyone else's currency.

12:02 It won't fix the Treasury market. It could trigger massive capital flight in emerging markets. It will constrain the Fed's policy tools, expose the world to tethers, questionable reserves and leaves Europe stuck somewhere between sovereignty and competitiveness. OK, so it's still early, Martin. That is my word to you. And and we've got to remember here with the FT, you know, you got to love them. They've been so anti crypto, anti stable coins for so many years. So we're still early. And you know, what I take from this is that it's not just some domestic fintech. It is geopolitical battlegrounds here that people are thinking about, but we've got to explore, we've got to keep innovating, we've got to keep moving towards just enabling people to live their financial lives and businesses to transact business all over the world. And financial institutions do so in a quicker, faster, better, cheaper manner, right?

12:54 Like that's. What we're looking at and I think we've got to as innovators also understand the other perspective of the central banks and why this is geopolitical and why some of the things they do in regulations or talk about where we might go, why are you doing this? And you actually go, well, actually they have something they're trying to protect as well. And it's. Yeah, it's it's like 1996 all over again with the Internet. We got to get that right. And listen, Garrett, thank you for unpacking this with me. Really appreciate it. And what's the best way for people to find you? Find me on LinkedIn is probably the best way you're Garrett Cassidy on LinkedIn. You won't. You won't be hard to find me and Pete, thank you very much for having me on.

13:36 Again, a privilege to be on the first of the new format. Wonderful. Thanks so much, Garrett. See you.