On this week’s episode of Fortune‘s Leadership Next podcast, co-hosts Alan Murray and Michal Lev-Ram talk with Circle CEO Jeremy Allaire about how the crypto crash of 2022 compares to the dotcom bust of the late ’90s, the value of cryptocurrency beyond being a speculative asset, the future of crypto regulation, and Circle’s partnership with the UN to make USDC usable by Ukrainian refugees.
Listen to the episode or read the full transcript below.
Alan Murray: Leadership Next is powered by the folks at Deloitte, who, like me, are exploring the changing rules of business leadership and how CEOs are navigating this change.
Welcome to Leadership Next, the podcast about the changing rules of business leadership. I’m Alan Murray.
Michal Lev-Ram: And I’m Michal Lev-Ram. By now we’ve all heard of the great crypto crash of 2022. $2 trillion evaporated seemingly overnight. FTX crashed spectacularly, spawning so many headlines and other crashes. The price of Bitcoin fell to $18,000 in June 2022, just one year after it reached an all time high price of $69,000. So lots of crashing, and lots to talk about what’s left, what are the pieces here we are left with, right?
Murray: Yeah, and I think we have the perfect guest to talk about what’s left coming out of the crash. He’s the CEO of Circle. He wasn’t spared the pain last year, the amount of activity on his platform was cut in half. But it’s a little bit different than more speculative forms of crypto. The company runs stablecoins, called USDC, that’s pegged to the value of the dollar, and he thinks that’s an important part of the future of this industry.
Lev-Ram: Jeremy’s got some really interesting parallels. Also, you know, he’s been in the tech industry for a few decades. And he talks about how this is kind of similar to, in his view, of what happened in the early days of the Internet, there was relatively low internet traffic, huge valuations, though, and a pretty spectacular crash early on with the dotcom bubble bursting. So it was really interesting to hear his thoughts on the state of the industry, in light of, you know, some of these parallels and in light of all of the really, again, spectacular crashing headlines that we’ve been reading about and writing. He also explained what a stablecoin actually is, and told us more about the unique characteristics of Circle’s stablecoin that they helped develop USDC.
Murray: The other interesting thing about Jeremy that’s worthy of note here is that he, from the very beginning, when he started his company 10 years ago, said out loud that the crypto market needed to be regulated. Now, a lot of his colleagues in that market booed him at the time for doing that. But it seems that after the crash, more and more people are coming to his side.
Lev-Ram: Yeah, and just like with the early days of the internet, you know, more regulation led to a bigger and broader and more sustainable market. And obviously, much bigger companies jumped in, and we’re starting to see that happen now, which Jeremy also talked about. We also had a chance to chat with him about his predictions for the future of the industry, you know, 10 years out, what does it look like? And some really interesting applications. You know, I think for some people, we still think of crypto and, and digital payments as some kind of a dark web, you know, nefarious thing. And he talked about how Circle has been partnering with the UN and with NGOs to provide support for digital payments to Ukrainian refugees, via their stablecoin.
Murray: So let’s get to it. Here’s our conversation with Circle CEO, Jeremy Allaire.
Murray: So Jeremy, last year was kind of a disaster for crypto, generally, you had the evaporation of about $2 trillion in wealth, you had the spectacular failure of FTX. Even your company Circle, which did better than most, lost about half your value? So after all of that, tell us what’s left of crypto. What is crypto gonna look like coming out of the wreckage?
Allaire: I think if you step back, and as someone who’s been working in internet technology for almost 30 years, you have to kind of look at all these, you know, cycles, which is exactly what they are. And you know, in every one of these cycles, you have a phase of, you know, unbridled enthusiasm, extraordinary amounts of capital that flows into investment. And then you have unrealized expectations. And when you kind of combine those kinds of investment cycles with, you know, a tightening set of financial conditions, in particular, when you’re dealing with technologies that are inherently tied to the performance of financial assets, you end up with a scenario where you have essentially huge amounts of pain. And we saw this in the dotcom boom and bust in the late ’90s and early 2000s. And I think if you use that as a, as a kind of comparable analogy, kind of where, where do we see ourselves now? We saw basically, huge amounts of things just disappear. We saw huge amounts of things that saw their value, whether it be cut in half, or cut 80%. But then what you started to see on the other side of it is like the meaningful companies that have staying power, you start to see reactions from, you know, other parts of society—meaning governments, regulators, others, to say, well, this is clearly here to stay, this is really big, let’s get the rules in place for this. So you are starting to see that happen, which is, I think, very, very constructive and positive. And then you start to see the output of the technology investment. And so, you know, it’s interesting, if you look just within crypto, for example, there was another cycle like this in 2017. And then a kind of crypto winter in 2018. And 2019 it was the total doldrums. But actually, a lot of the technology investments that went into 2017, and started to see things built in 2018 were the catalyst for the growth in this next era.
Murray: Yeah, stick with the first part of that for a second, we’ll come back to the regulation question. I get your point about this has been a spur for investment. But what we’ve learned in the process is that crypto is great for speculation, right? There are a bunch of people who made a lot of money, and there are a bunch of people who lost a lot of money, and it was a great speculative asset. But what have we learned about its underlying value beyond as a speculative asset?
Allaire: So I think a few things, I think the first is when we look at what’s taking place today, and we’re obviously within one segment of all this, which is sort of, how do you take traditional money? In other words, you know, the liabilities of government, expressed in a digital currency form these digital dollars, a.k.a. dollar stablecoins. How do you take traditional money, not some new invented money or not some new token that’s tied to some protocol that someone invented, but just, you know, dollar-for-dollar digital dollars, and operationalize those on these networks? And what we’ve seen happen is really exciting. While we’ve been impacted by things like the interest rate environment, people wanting to take money and put it into T bills or other things, just like you’ve seen a huge drawdown in bank deposits of nearly $900 million. You’ve seen a huge increase in people putting that in high-yield money market funds. You’ve seen similar dynamics at work with stablecoins, but at the same time, what we’ve seen is more and more developers, enterprises, financial technology companies, remittance companies that are just building more and more using this infrastructure. And so the benefits for us are fast, global, interoperable dollar settlement and demand for, you know, dollars in the world is actually quite strong. Demand in emerging markets where people have weaker currencies remains strong. And so we’re seeing, you know, companies as far reaching as SAP that’s integrating USDC into the way they can do enterprise payments to some of the leading money remittance companies in the world, making this a core settlement offering like MoneyGram. And, you know, more and more, we’re seeing the biggest payments companies in the world, we saw recent news from PayPal, but you know, Visa and MasterCard have already announced initiatives to use USDC as a settlement technology. And so, the technology has evolved a lot. So where I see things right now is great technology improvements for real-world utility. And, you know, this has been a mantra of ours since last September, we held a big event. And we sort of were arguing very hard that we have to move from this speculative value phase of crypto into the utility value phase. And that utility value phase has to be rooted in real money, and in real technology usability. I think it sets us apart from a lot of other companies who really have been focused on speculative investment, creating trading exchanges, trying to get people to, you know, buy into the latest new token, that’s, you know, largely uninteresting when we think about what we’re trying to accomplish.
Lev-Ram: So, Jeremy, you talked a lot about USDC. And I wonder if you could just take a step back and tell people a little bit more about what it is. And obviously, there are a lot of other stablecoins out there. How do you go about developing one and more importantly, getting it actually, you know used, getting it deployed and getting uptake?
Allaire: Sure. So the basic vision behind USDC goes back to when we founded the company 10 years ago, which was this idea that you could take what we think of as traditional money, which are the obligations of government debt money. And you can represent that in a digital currency form. But where it can be made available on the public Internet, using open protocols, in the same way that we built protocols for email messages, and for exchanging information over the web, or for doing a voice call these kind of protocols that any device could connect to software connect to, and would allow, you know, in those cases, information and communications to flow, we envision something like that for dollars on the internet. So five years ago, actually, yeah, a little over five years ago, we introduced USDC. And it actually was a protocol for dollars on the internet. Technologically, it became possible, it wasn’t possible 10 years ago, it really became technologically possible five years ago to do this. And so how we did it was well, first, we had become one of the most regulated companies in our industry, we had worked with payments and state banking supervisors throughout the entire United States, from sea to shining sea, to get licensed for electronic money services. Similarly in the European Union and the U.K., and that allowed us to issue what are considered stored value electronic money, just like you use when you use PayPal or when you use cash app, or you know, when you use a money transmission product in the legacy kind like, say a Western Union transfer, but basically these electronic money units, which are regulated. So the first myth is that these are unregulated. We’ve been regulated for a very long time, but we worked with regulators to get this product launched and instead of it being, you know, tied to a specific company or tied to a specific wallet, it was generally about With the internet as something that anyone could transact with, And that’s contributed to to, to the growth that we’ve seen over the past five years. And it’s now as a medium of exchange on the internet, we’ve done over $11 trillion in transactions. And I would say, it’s super early days, right? This is like talking about how much traffic went on the internet in 2002. And then imagining 20 years later, how much traffic goes on the internet. This is still, in my opinion, a very early stage technology. But it’s kind of getting into what I like to call its broadband moment. It’s getting close to its broadband moment, and a lot of things contribute to that.
Murray: Jason Girzadas, the CEO of Deloitte US, is the sponsor of this podcast and joins me today. Welcome, Jason.
Jason Girzadas: Thank you, Alan. It’s great to be here.
Murray: Jason, our ideas about work, where we work, when we work, how we work, all of those have continued to evolve since the pandemic. Is that a problem for business? Or is it an opportunity for business as a massive opportunity?
Girzadas: It’s a massive opportunity. Although I think the answer is less clear. It is a profound set of challenges, to be sure. But in the end, it’s an opportunity to create a workplace, particularly in the face of more long term systemic talent, workforce constraints and limitations that brings out the best of a workforce so people can be their genuine self at work and can have heightened levels of productivity and feel supported and all that they do. But I don’t think the models are clear. And we’re seeing lots of experimentation. Whether that’s around hybrid and what does it mean to actually co-locate in what degree of co-location matters, it’s also a function of how does technology get embedded into the workplace, such that employees and workforces feel supported and enabled, and then also the cultural elements related to diversity, equity, inclusion, and feeling supported to be your genuine self at work? It’s the combination, Alan, of all those factors that we didn’t companies will innovate around and find novel ways to bring together that will be highly desirous of leading talent and will be a differentiator in terms of businesses using their workplace and their work processes to win in new and different ways.
Murray: Jason, thanks for your perspective, and thanks for sponsoring Leadership Next.
Girzadas: Thank you.
Lev-Ram: So we brought up the word regulation quite a few times there. So I think we should just dive in. And it seems like, sounds like Circle’s believed in the need for the company and for the market to be regulated for a long time, which is not in was not necessarily the popular opinion in the community, in the crypto community. So wondering if you could just give us a little bit of a deeper dive in, you know, why you think U.S. legislation is going to regulate stablecoins in particular, and sort of what you’ve been pushing for, specifically?
Allaire: Sure. So it starts with actually 10 years ago, when the U.S. government actually started to regulate this. So the Treasury Department issued rules that said, if you’re going to sit between the banking system, and these virtual currency technologies, you have to be regulated as a financial institution, and you have to be responsible for knowing your customers, policing transactions, dealing with the risks of terrorism, sanctions, evaders, all these things. That was law 10 years ago. And so that then put in motion a whole series of requirements for any firm that wants to be sitting between the banking system and blockchains and digital assets. So that was the starting point was this kind of money transmission regulation, and money service regulation, which was a big deal and, and sort of set a foundation is what made it possible for us to launch USDC ultimately, because that is it falls under that regulatory regime. Now, what’s really happened in our space is, over the past few years, you know, that there’s been this rapid growth in stablecoins. And global regulators have looked at both stablecoins and sort of the broader kind of crypto markets. And you can think of those as two separate things. There’s these trading markets that’s best represented by things like finance, or Coinbase, or these kinds of trading sites. And then there’s stablecoins, which is a payment system innovation. It’s a money innovation. And so, you know, several years ago, the global regulatory community, you know, got concerned that wow, these actually could get quite big. And they can be used really broadly and be very tightly integrated into the existing financial system. And so there was a real call for regulation. And it was actually the United States that led the way. The United States through the G7. And then through the G20. There’s a group called the Financial Stability Board which supervises, or I should say sets, the policies for all G20 financial regulation said, here’s a set of recommended policies for every member of the G20 to regulate stablecoins, and they all agreed to that actually two years ago. And the U.S. government sort of said to Congress, we need to do this. This is urgent actually, that was the words of Janet Yellen, it’s urgent that Congress act and establish regulations, because there could be runs. And there could be, you know, your real losses. And, you know, there’s been huge issues that have happened actually, that the risks had borne out, actually with the collapse of things like Terra, and that whole kind of Ponzi scheme. But the impetus was there. And what we’ve now seen since those recommendations came in is that almost every major member of the G20, has established, or is establishing regulations for stablecoins, the Japan, the U.K., the EU, Singapore, Hong Kong, the UAE, and the United States, very close in Congress to establishing a law for payments, stablecoin issuers such a Circle. So there’s this huge progress on that.
Murray: Yeah, so that gets us something you said last month that I want to ask you about. I mean, it was almost like a nationalist challenge, you said that the U.S. has a choice to make whether it wants dollars to be the foundation of currency on the internet, or whether it was one of those other countries you mentioned to lead the way instead of the U.S. What do you mean by this? Why is it so important? Why should we care?
Allaire: Well, the United States benefits greatly from the preeminent role, the dollar. The dollar allows for cheap borrowing for households and firms. And for the government, it creates a preferential environment for global trade for the United States. It creates a mechanism of soft power around the world. And there’s been this kind of dollar hegemony for quite some time. But that is very much under threat right now. It’s difficult to go a week without hearing about new alliances that are being formed to create alternative payment systems. We know about, you know, totalitarian regimes, such as China that have a vision for surveillance money, that is tightly government controlled, that they’re issuing and trying to build. And so the competition over money is becoming a technological competition. And the technological competition is, the question I like to ask is, you know, what do you want the currency of the Internet to be? Do you want it to be the digital dollar? Do you want it to be a different Euro or digital yuan? And for the United States, there is both the active threat that it needs to manage on this. And there’s the opportunity, which is to unleash in a rules based free market system with good, you know, regulation, free market competition, and allow this to thrive and actually unleash the technological forces of market capitalism on the world, and then have digital dollars through this technology revolution sweep the world and become the foundation of the next generation of commerce and finance in the world.
Murray: And what does the US have to do to take advantage of that opportunity? What are you asking for?
Allaire: So very specifically, the United States needs to establish a federal set of rules, essentially, a federal regulatory regime for payment stablecoins, a.k.a digital dollars that are issued by private sector firms that provide safety and soundness by holding one for one assets on like banks that rehypothecate money and take risks with money. So creating a kind of full reserve digital dollar system that can then work on on this, this kind of constantly upgradable infrastructure of the internet. And that is that is happening. And so it’s building the regulatory perimeter with a strong federal regulatory standard. That’s the you know, the Federal Reserve actually can set, so that everyone in the world who uses one of these, whether it’s from Circle, or PayPal, or the next company that wants to do this, that everyone understands what these are. That they can be treated as you know, the equivalent of cash on a balance sheet, in someone’s cash in someone’s corporate activities. And then we can unleash that.
Lev-Ram: So and in the meantime, And while there’s hopefully this progress happening on the regulatory front, we’re seeing more and more traditional finance players jumping to this. What are your thoughts on that? I mean, do you think that companies like Circle are better positioned to lead the way there? Obviously the traditional finance institutions have a huge, you know, customer base and a lot of sway as well. But what’s your take on the role that they’re playing right now?
Allaire: Yeah, I think it ties back to what we were just talking about a little bit, which is the fact that we just had a stablecoin bill voted to the full House. And the fact that this is like, it’s sort of down to some nitty gritty issues that are being negotiated between Congress and the White House. And so that gives a lot of people a signal that this is happening. And so as you get that clarity, major companies are going to start to come in. And that’s a great thing. And that’s exactly what the US government should want, it should want major companies that are coming in. And for us, obviously, we’re not a startup anymore, we’re 10 years old, and we’ve got a pretty significant sized business today. But you want to have that competition coming in and having clarity is there. So my expectation is, there’s going to be more of that. And it’s not just in the United States, we’re seeing that in every market. Japan has new stablecoin laws, there’s big companies, the biggest internet companies, the biggest FinTech companies, the biggest banks, they’re all in the process of figuring out how to launch stablecoins, just as an example. You’re seeing the same thing in the EU that has model launch stablecoins. So you’re seeing this happen. Now, in terms of how I think about our position. We think it’s really important, especially for these kinds of, you know, kind of protocols for money that are really building blocks of infrastructure for people to build on top of. We think it’s really important that you have a kind of credibly neutral market infrastructure. And that’s how we think about ourselves, we think about ourselves as building protocols, APIs, building blocks that are credibly neutral. We’re not biased by a given blockchain or a given exchange or a payment business that we run. We want everyone to be able to use these things.
Lev-Ram: And real quick question for you: One of the interesting applications for this that we came across is the work that you’ve been doing with NGOs and the UN to make USDC usable by Ukrainian refugees. Can you just explain how that works and how it came about?
Allaire: Yeah, absolutely. So, you know, fundamentally, the promise of this is that you can enable, you know, anyone in the world that has a mobile handset, to be able to, you know, receive, and send and transact in safe digital dollars at the speed of the internet, at the cost efficiency of moving data on the internet, which is nearly free. So that’s the promise. And so the promise has always been there, that this can drive real financial inclusion, that this can lower the cost of remittances, which are an extraordinary tax on the people who most need the money, but also can actually open up better forms of humanitarian aid. So we have a whole initiative called Circle Impact, a big part of that is partnering with global NGOs to make it easier for those NGOs to distribute digital cash to the people who are most in need. And so we’ve we’ve formed a number of partnerships to do that we’re working with multiple UN agencies that the UN High Commissioner for Refugees, we’re working with a number of other very top tier international NGOs, basically enabling them to use USDC to direct digital cash payments to people with handsets, they know who those recipients are. That’s Ukrainian refugees. That’s, you know, women in Afghanistan, it’s doctors in Venezuela, it’s earthquake victims in Syria and Turkey. I mean, these are really important things. And the global aid communities, I think, are very excited about this, because cash is so prone to corruption, and theft, so much of the money never makes it there. And this gives them a way to do that. And then we’ve partnered with global cash out providers like MoneyGram, so that you can actually take the digital cash and turn it into local currency, cash wherever you are.
Murray: Jeremy, that’s, that’s a great transition to my last question, because I want you to take us 10 years forward, you’ve already said, maybe these kinds of transactions are 5% of the market, the dollar market or whatever. But what is the world gonna look like? How is the world going to be a better place 10 years in the future because of what you are doing today? Paint us a picture of the value of society of this.
Allaire: So there are a number of things. So the first is that just a lot of the ideas that we have about how money moves around are going to change, and they’re going to basically feel a lot more like the internet, which is, we don’t think about long distance telephone calls anymore. We don’t think about sending letters, we, we have ubiquitous access to all the world’s knowledge instantly, at no cost, we have the ability to kind of directly connect and have a video communication with anyone, the same thing is gonna happen for money, the idea of a cross border payment will sound as absurd as a as a cross border email sounds today. So basically, you know, money will move at the speed of the Internet, basically, for no cost. It’ll just work with any device, any piece of software, or any piece of hardware anywhere. So that’s really powerful. And I think the implications for society are significant. When we unlocked information publishing, and free global communications, the net world output of communications and the net world output of information went totally exponential like million X. I actually believe if we can actually make the movement of money work the same way, the velocity of money will explode as well. And when you have high velocity of money, that actually correlates very specifically to increased economic activity, increased economic opportunity.
Murray: I actually think it’s very exciting. But I gotta tell you, I said the last one was the last question. But it just one, one quick follow up. I live in Greenwich, Connecticut, I’m surrounded by a bunch of gigantic houses that were paid for by people who take a toll on financial transactions, they just get a little bit of every financial transaction and it adds up to a lot of money. If your vision is right, that toll taking should be reduced. The houses in Greenwich should be smaller. Do you think that’s where we’ll end up?
Allaire: Absolutely. I don’t know if the houses in Greenwich are going to be smaller because it seems like that community figures out a lot all the time, but I think yes, the tolls will shift. I mean, it’s just like, you know, the unit economics of media and communications and publishing and, and retail, they all change. They all really, really changed and products got 10 times better, that is going to happen. Now. I also think that the net world output of economic payment activity will grow. And so it actually will create, Law of Large Numbers, or create some very significant, you know, scale businesses as part of that. And, and I think also, you know, there’s a really key part of the financial system, which is extending credit, which is sort of, you know, essentially what I call the time value of money, people who need money now who don’t have it, and people who have money now who don’t need it. And I think that this high velocity, digital currency money with the programmability of things like smart contracts on blockchains, is also going to unleash really, really powerful new ways for how credit gets delivered to the people who need it to the entrepreneurs who need it to the businesses and households that needed on a global scale.
Murray: That’s great. You got you’ve got me excited. Now let’s get out of this crypto winter and move into the crypto spring and, what do you think, Michal?
Lev-Ram: Crypto Summer, I don’t know,
Murray: Crypto Summer.
Allaire: When this gets really big, people won’t call it crypto. You know, we don’t say “the web” really much anymore. We just talked about the internet or whatever the major, you know, technologies we’re using are and so I think success is when that’s invisible.
Lev-Ram: Jeremy, thank you so much.
Allaire: You’re welcome. My pleasure.
Murray: Great to be with you. Thank you.
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