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Owl Explains: How Stablecoin Regulations Will Change the World Economy
Recorded: April 9, 2025 Duration: 1:00:30Space Recording
Short Summary
In a recent discussion, experts Amy Kim and Laura Navaratnam explored the evolving landscape of stablecoins, highlighting significant regulatory developments in the U.S. and Europe. They emphasized the importance of clear definitions, the impact of new legislation, and the growing market for stablecoins, which is poised for substantial growth as regulatory frameworks become more defined.
Full Transcription
Hey, everybody. Welcome to our live stream. Today, we're going to be covering the topic of stablecoins, and we have two excellent people to do that. The first is they are, and also do a little bit of
education on the current regulatory status of stable coins in the US, the EU and the
UK. We couldn't have two better people to do that. So let me let them introduce themselves.
Amy, over to you first.
Thanks, Lee. And it's great to be here with you both.
I'm Amy Kim.
I head global crypto policy and government relations for PayPal.
And Laura.
Hi, thank you so much for having me.
I'm Laura Navaratnam.
I am a director at Gatica Horizons, which is a fintech consultancy, and I also support the
Crypto Council for Innovation as their UK policy lead.
Awesome. And both of them just gave very short introductions as to who they are.
I've known both Laura and Amy for a long time, and their resumes are long and detailed and exceptional. So we're in
really good hands today with both of them. So let's kick things off a little bit and talk about
what exactly we mean when we say stablecoin. One of my big bugaboos is people throw out words and
don't define them and so often my definition is different
than other people's definitions.
And so let's level set here.
Amy, when you hear stablecoin,
what is it that you're thinking of?
Yeah, I'd say, I mean, in my view,
it's a crypto asset whose value is tied
to some underlying value.
So, for example, in PayPal's case, it's tied one-to-one to U.S. dollar denominated reserve assets.
There are other stablecoins that can be tied to a commodity like gold or other things.
And we've seen some that are algorithmic or tied to other
crypto. So there's a variety of different kinds. We're focused on stable coins that are tied one
to one to cash or cash like reserves. So when you say one to one for every outstanding stablecoin, there is an actual value held in reserve to
100% of those outstanding tokens or liabilities. Great. And Laura, let's go over to you. When
you hear stablecoins, what is it that you're understanding? So I'll definitely start with
where Amy left off there.
And one of the reasons I gave a short bio is because I never know at what point in the conversation to drop in that I'm a regulatory sympathizer, having spent eight years at the FCA.
And actually, it's been really interesting to reflect on how that definition has changed over time. when I was looking at crypto asset policy and stable coin policy back in the FCA in 2019, 2020,
it encompassed everything, all the way from, you know, one to one fiat backed stable coins, all the way through to entirely algorithmically controlled stable coins. And the, you know, the
line we say at the time was, the term is ironic, because they're neat, they're not stable, and
they're not coins. Actually, as you've seen the taxonomy progress and and that's a great thing you know i think that we we always needed to have a
much more nuanced framework around exactly what we're talking about with stable coins and many
jurisdictions have now come to define it much more closely to how amy articulated it like a stable
coin needs to be able to be used for payments. It must be backed one for one. So I
think we are seeing that transition. There is still a question about what are these other
categories of so-called stablecoins? And I think regulators will come to grips with them in due
course. But I do think that bifurcation has been very helpful in terms of getting regulators to be able to think about policy more deeply.
That's great. And just for those who don't know, the FCA is the UK financial services regulator.
And Laura led their fintech initiatives for quite some time as well. That's how she and I first met.
So this was great. I'm really glad
I asked that question because I expected one or both of you to say, oh, it's a fiat linked
coin. And neither of you said that. So I think we sort of ultimately got to that's what we're talking about. But at least from my perspective, let's focus a little bit
on fiat-linked stablecoins as opposed to stablecoins that are linked to gold
or some other physical commodity, as Amy mentioned. So, Amy, here in the US, there's been a flurry of activity in Congress around stablecoins.
The SEC just put something out conveniently enough for us for purposes of this discussion.
So maybe give us a little bit of your understanding of what's happening in Congress and what the SEC
just said recently?
Yeah, I mean, I think kind of the big picture is that there's an understanding that stable coins can and should be used for payments. That's one of its great use cases
and one that I guess we feel uniquely positioned to help build. The work in Congress and at the SEC has really been going on for several years,
a number of years, to try to put in some guardrails to define primarily how much reserve
assets should be there, the quantity and quality of those reserve assets,
so that to ensure that they're available to token holders when they want to redeem.
And so that's the fundamental issue. I think everybody agrees on that. It's kind of all the
nuances around those things. But so in Congress, there's been two areas that kind of capture stable coins in particular. But one is specifically the Genius Act and the Stable Act.
Genius Act is in the Senate. And then it's kind of corollary. The Stable Act is in the House.
With the change in administration in January, we've seen really an enormous shift in approach
to crypto assets. And I think that's given some additional boost to pushing these bills
forward. They've both passed out of committee in the Senate and the House. And so the next
step for them would be to be considered by the full Senate
and the full House to vote.
And then after that would come what's called the market structure bills.
Those deal with.
How to treat
buying and selling or trading activity for crypto assets,
how to divide that between the CFTC, which regulates commodities and the SEC,
which regulates securities and some of the rules
around how that would work.
So that's kind of the next step.
And then the SEC has been doing a lot
with their crypto task force.
and just recently issued that guidance around stablecoins.
It just recently issued that guidance around stable coins.
So, you know, a lot of, I think, important movement.
From my perspective, you know, guidance is always helpful.
The industry has been asking for that.
I'd like to see as much clarity created legislatively
because that, and on a bipartisan basis,
because to me that would stand the test of time, you know, in a way that's much better than
guidance, which as we've seen can be changed, you know, depending on the views of each
administration. And so it's a lot more beneficial and helpful for businesses to kind of plan for the future if they know that these are the rules and these are the ones that we're following.
And therefore, we can operate in that manner.
That's super helpful, Amy, and a good summary of sort of the state of play here.
Laura, over to you. So my understanding is that in the European Union, under the marketing crypto
assets regulation, there's already regulation of stable coins that's been in effect for some time
now. Can you talk a little bit about the way Mika, the marketing crypto assets regulation,
deals with stable coins? And then also give us a little insight into what's
going on in the UK. Yeah absolutely, so you know Mika has been has been live for a little while
now and does the great thing about Mika taking a step back is that it provides a kind of baseline
framework for pretty much all aspects of of crypto assets it doesn't just deal with
you know fiat backed stable coins so from a from the perspective of providing certainty
and clarity to industry it has been it has been a great thing um the the criticisms of mika are
that it is it is fairly a fairly risk averse regime the bars are are set pretty high
um and it's and it's fairly rigid as a result and that is the issue with having a an all-encompassing
regime designed at a specific point in time um the the flip side to that is to do something
more more modular so you pick different kinds of tokens you pick different use
cases for example and you regulate in that way now that was the way the UK was going um it has
decided not to do that anymore and do this kind of all all-encompassing approach as well so whilst
we have Mika and you know the the different bodies are continuing to iterate on that from a baseline
so there are some aspects that are continuing to be improved upon and amended you know issues like
staking I don't think were fully contemplated when when Mika was designed and Mika was very
much a reaction to some of the market events of the time so things like Facebook's Libra at the time
so we have to remember the the context in which these things were designed and I
often hear people criticizing Mika but forgetting that that kind of historical context
so yes there are there are things and idiosyncrasies within it that I know industry is looking to change.
And ultimately, it will still come down to how different jurisdictions interpret the various aspects.
So you still will end up with a bit of a patchwork because case law will play out and different jurisdictions will make different judgments potentially on the same issue.
So there will be some some natural differentiation um but all that being said firms wanting to you know custody issue
stable coins in the in the eu they know where they're starting they have a good baseline um
so really meka is kind of the standard that everyone else is looking to uh and and that's
that's kind of the the statement that is often quoted
around second mover advantage.
We can see what's happened over there,
whether that's in the US, whether that's in the UK,
and actually say, well, we like these bits,
but we don't like those bits.
I think what's going on in the US
is really interesting right now.
They've come to the table very quickly,
seem to be showing a lot of momentum, a lot of of impetus the UK has been fairly silent for a while in terms of
concrete policy as I said there was a real there was a real momentum at the beginning of last year
we had a an FCA discussion paper on stable coins issued at the end of 2023 but but I think for a
number of reasons including a change
in government and a change in approach we haven't had any concrete recommendations yet we've we had
a an FCA roadmap at the end of last year which basically sets out the path to these pieces but
we don't actually have a proposal for stablecoin legislation as of yet. That being said, I actually
think if we were doing this conversation in two weeks time, we'd probably have it.
I do think it's probably that imminent. We need legislative changes to happen first,
happen first and then hopefully we will see a consultation paper from the FCA and at that point
and then hopefully we'll see a consultation paper from the FCA. And at that point,
we can really start to get into the nitty-gritty on how this actually is going to work in the UK
context. But it is really important that the UK does start to move forward and at a pace with
this for risk of being left behind by regimes that are existing like in the EU or regimes that are existing like in the EU or, you know, regimes that are being very, very quickly
developed like in the US. Yeah, that's very interesting. And Amy, I just want to focus on
one point that Laura made about Europe, where sort of right now they have this standardized view
across all of Europe, but that there will be differences that will arise based on interpretations
in the different jurisdictions.
Obviously, here in the U.S., we have the federal level and the state level. Can you talk a little
bit about the dynamics there with respect to stablecoins? Yeah, I mean, you know, that started
with states actually regulating stablecoins first. Some of them treating it as typically
under the money transmitter statutes or in New York through its bit license. And so the concept
of holding reserves one for one is really based in part on how money transmission is handled.
So now one of the issues that is in the federal
legislation is how do you deal with that state experience and that state role while trying to,
you know, create a federal standard. And so, you know, the way it's evolved is that the federal
legislation really sets like, you know, federal standards for quantitative and qualitative
requirements for those reserve assets, publication of, of, of those, you know, of that breakdown
in, in the reserve assets, having a third, an independent third party review those,
those assets and other things so that, you know, that it's, that it's, there's a baseline
in the United States. But they do recognize that there is the state experience in helping
innovate, foster innovation, you know, overseeing and regulating the space. So
both bills recognize what's kind of called a state path so that you can still be
regulated on the
state level if that's your option. But you still have to, you know, the states need to have
statutes in place that are commensurate with those federal standards. And there's a requirement that
those states have to be certified by the Treasury Department. So it is a, I think it's a nice
the Treasury Department. So it is, I think it's a nice way to incorporate both concepts and still
have meaningful, you know, set meaningful standards so that consumer expectations
will be consistent, you know, regardless of whether someone's regulated by a state or at
the federal level by the OCC. Yep, that's very interesting. And yeah, I do think they've cut the line pretty well there.
I know that there's been in the past lots of tension between the state regulators and the
federal regulators. A number of states have sued federal regulators in the past over things like the FinTech Charter and other related proposals.
So I think Congress is sensitive to those issues and wants to make sure that they appropriately
accommodate the states while still creating sort of a foundational level layer of regulation that all stablecoin projects have to meet. So yeah, I think that's,
but it's a tough balancing act. Laura, was that part of the debate in Europe? Were there some
member states in Europe that wanted MECA to be stricter and other member states in Europe were maybe favoring things that were
less stringent and Mika represents a compromise between those different types of member state
views? Oh, I mean, absolutely. And this is the beauty and the challenge of having a collective
like the European Union, right? There are so many different political uh you know
cultural historical factors at play here um so it's you know it will never be the view of one
single member state and because this has been you know this has been designed through multiple years
this is not a you know again this is something people forget and
policy isn't made in overnight it's not made in six months it takes years it takes years to design
it takes a similar amount of time to implement so you know you will see change in in member state
leadership you would see change in in leadership and composition of of the parliament of the
commission so there's lots of you know those pieces are all changing in the background.
And the market is also changing.
Like we have to remember this, you know,
the stablecoin market alone has grown exponentially in this time period.
I mean, we're looking at what today is,
I'm trying to think about probably our 220 billion is the stablecoin market cap at the moment.
I mean, and of which, you know, a big, a big chunk of that is Tether.
Now, Tether was probably a tenth of its value, even just two years ago.
So you need to think about the growth and regulators can only meaningfully regulate what is here now and what they reasonably expect to be there in the future.
But they can't. They don't have a crystal ball at the same time.
So, you know, that's another one of these factors like they Libra had presented itself as a as the first and only kind of genuine use case that they were concerned about, which is why so much is is linked to that.
they were concerned about which is why so much is is linked to that um it is hard to you know
change the the direction of the container ship when it's when it is so large and so cumbersome
um but you know at least it provides that that kind of baseline that is though the advantage
that many other countries have over you know complex organizations which is basically what it is in the EU and this
kind of state versus federal complexity that you have in the US you know and this is where the UK
should have a massive advantage we don't have any of this we have the FCA which regulates everybody
and the Bank of England which lays over the top for prudential regulation of systemic organisations. So actually,
the complexity there is cut away. And yet, we don't seem to have done any better and any quicker.
So, you know, even though there's a lot less competing factors. So it really is interesting.
And I think a lot of it does go down to kind of political, a combination of carrot and stick,
there needs to be political will, and a focus on a goal and an opportunity and a little bit of fear, you know, of what will happen if we don't move.
Right.
So I'd like us to take a little bit of a detour right now.
We've been talking about sort of stablecoins generically,
fiat-linked stablecoins generically.
I've recently read that something like 98% of all fiat-linked stablecoins generically. I've recently read that something like 98% of all fiat-linked stablecoins
are dollar-based stablecoins, US dollar-based stablecoins. I know we've seen efforts for
euro-based stablecoins and yen-based stablecoins and a few other jurisdictions. What do you all think about is going to happen in the
future on this? Will we start to see many jurisdictions currencies becoming stablecoins?
Do you think that many jurisdictions would rather opt for a central bank digital currency than
to have their currency the subject of a stablecoin. What's everybody's thinking on that topic?
Well, so just to start with that, the U.S. dollar denominated stablecoins part.
I think you've seen that because a lot of early stablecoin activity was trading activity.
And most trading in crypto space is done in US dollar
pairs. So you don't see as many other currency trading pairs yet. I think as payments grows you know, it grows and it becomes more widely used, you will, you'll start to see that,
you know, I think you'll start to see the growth in the EU and pound denominator, you know,
especially as those regimes kind of get up and running and yen denominated as localities want
to use those currencies to buy goods and services denominated in those currencies. So I think that will grow in that way. On the CBDC side, you know, it's interesting. I feel like we're kind of
in a transition moment, you know, with a lot of the geopolitics and things going on. And I mean,
at the moment, the EU seems much further along on a CBDC and perhaps as a reaction to what's going on in the world,
but they seem to be much closer. So you may see a euro-denominated CBDC, I think, sooner than
others. And that certainly can be used for payments as well. So again, I feel like we're
in transition in so many ways in the crypto space.
A lot of tailwinds instead of headwinds, which is a wonderful change for those of us who've been doing this for some time.
But, you know, I want to make sure we go in the right direction. So I think that's going to evolve.
And Laura, I'm sure you have views on on the the CBDC side of things
too yeah I mean absolutely and and maybe this is having spent so long in a in a consumer protection
regulator like my my mind on this question often goes to the the sort of the the end user particularly
in a in a payments context you know what what do consumers want and what do consumers need um and i think that that
kind of mixed use payment ecosystem is where all jurisdictions are going to continue to diversify
and i think to the to the benefit of consumers you know amy's kind of uh articulation of a
transition period i think is absolutely right and that's not just from a kind of industry perspective
or a regulatory perspective i think that's from a consumer perspective like there are so many geopolitical things going on
in the world at the moment that are in are impacting real people and yeah we those of us
have been in this in this space for a while we talk about crypto and stable coins like everyone
in the world knows exactly what we're talking about um you know they don't um but conceptually a a you know a mechanism that
allows them to you know transact cross-border that can do things fast that can do things more cheaply
like that is something that lands really firmly with consumers um and i think that kind of
diversification will be incredibly helpful for markets now whether, whether that is CVDCs, whether that's FiatLink
stablecoins, whether that's both, neither, something else is still kind of to be decided.
But there has to be a feedback loop in this, right? We can't have regulators always defining
the direction of the industry. Like there needs to be a focus on what is the the need and the use case for for
end consumers as well and that's kind of the point I always try and pull back into some of
these conversations like what is the and it's interesting on the CBDC side the the privacy
point has really landed in the minds of policy makers as a concern for consumers but we need to
keep testing that and and checking in because actually some of the
programmability and the concerns that individuals might have around privacy is the real power of
cbtc's and so they're they're two sides of the same coin but we need to make sure that as the
kind of world around us continues to change that that is indeed still the view of the people because
if we are the if we're kind of closing down a route
as policymakers and as industry,
that could actually be a huge benefit,
then we are ultimately, you know, doing society a disservice.
If I could, sorry, Lee, if I could just,
go, go, go.
I was saying just two things there.
I mean, the first is, you know, our perspective
along those lines is that consumers should have choice in how they want to pay.
And so having those options available, then, you know, they'll choose the one that suits their needs the best.
So that's the first side of it. And then the second is when you think about what consumers, you know, what benefits consumers,
also to keep in mind that what could benefit businesses as well,
as they pay for invoices, as they have cross-border payments, especially small or medium-sized
businesses, this technology, like you were saying, it's faster, cheaper, less counterparty risk when
you have those going on. That's a significant benefit too. So there's individuals,
individual people that we're looking out for, but also businesses can also take advantage of these um that's that's a significant benefit too so it's you know there's individuals you know individual
people that we're looking out for but also businesses can also take advantage of these
um the benefits that this technology brings while still um paying for goods and services
um that you know i think that's an important thing to remember too and sometimes
i think we don't see that as much in that conversation but i think it could be quite a
it could be a real game changer i I think, too, in that environment.
No, absolutely. And, you know, both in tandem will contribute to better economies within any jurisdiction, right?
So the two are kind of symbiotic in that sense.
The only thing I would add, I think you both make a lot of really good points.
The only thing I would add is, you know, we all forget how global stable coins are these days and how they are.
USD stable coins are globally accepted for payments. You know, I have a friend in Singapore who pays the housekeeper in USD because the housekeeper is from Sri Lanka.
And, you know, instead of trying to figure out the difference between Singapore dollars and Sri Lankan currency, which I don't even know what it's called.
Right. It's just easier for both of them to to pay in in a u.s dollar stable
coin um and and there's there's thousands more examples like that so the ability to open up
more global commerce through the use of stable coins i also think is something that um maybe
doesn't get discussed as much as a lot of the other points
when it comes to what the goals are here.
Can I also just double click for a minute on the privacy point? You know, Laura, you mentioned how
it's such a big point in the CBDC discussions, and certainly here in the United States, we've seen that
really be the pervasive point around the debate. And it probably will mean that we don't have a
true US dollar CBDC for quite some time, if ever. But I don't hear lots of people running
around talking about privacy for stablecoins. And, you know, stablecoin issuers, obviously,
the questions are a little bit different and the way things work are a little bit different,
but they're not so different that the privacy point should be completely lost.
I wonder what you two, what views you two have on this question.
Well, I think that's a really interesting observation and actually speaks to kind of culturally.
Does that mean we are happier to trust a private organization than we are to
trust a government because that kind of is what that that feels like um i mean and i again i think
when you look at the u.s conversations around uh privacy cbdc stablecoin they are very different
to those going on in the uk which are again different to what's going on in the eu although
there's a much more comparison and I think that conversation resets itself once
you go to other jurisdictions. It does very much depend on, in my view, the kind of use cases going
on in that country and some of those kind of natural societal trust structures that already exist. And again, it's very difficult to talk about those things in isolation.
When we're trying to think, well, why is this such a hot button issue in the US?
You can't take that outside of kind of cultural context.
I don't think the same issues apply in the conversations around stable coins, to be honest.
But Amy, very, very interested to hear your views on that as well.
No, that sounds right.
I mean, I think too, I mean, governments just have more inherent powers, right?
And so if the government is aware, you know, we all have bank accounts, for example, or
other relationships with financial services providers, and they already have access to
that information.
The government doesn't have that in real time, day to day.
You know, they have certain powers to subpoena it or a tax time, you know, certain information is shared.
But to have that in real time on a daily basis is it would be a change and a shift.
And they have they do have other powers, which, you know, I know bring up the example of China and others.
But I think that also definitely plays into the concern around privacy and how to protect it if a government were to be issuing something that they could track.
Yeah, I think that's a very good point.
And more to come on this, I'm sure.
And as I think you both know, there's many types of privacy enhancing technologies that are getting used these days on chain and off chain.
So it'll be interesting to see what steps people decide to take to try to preserve their own privacy.
decide to take to try to preserve their own privacy. You know, there are plenty of
messaging applications out there these days, and it seems to me that I have different friends who
have different preferences about which messaging application to use based on their view of which one is more private or less private.
And, you know, all of these things require a huge amount of research if you really want to know the answer.
And so I think, you know, I, like a lot of other people, are sort of like, just give
me the easy thing here i'm like i have enough other things to worry about
um that maybe i will spend a little less time worrying about this the flip side of it is i i
met somebody recently who is very obsessed with their own privacy to the point where you know
they register for conferences not under their own name and they don't give
out their phone number, their email address, and all of this other stuff.
And so everybody, to the earlier point, Amy, that you made, but also Laura, you made, everybody
has their own tolerances.
And by making sure that there's choice available, people who have
different tolerances can make the choices that they think are best.
And I think on that, I'm really excited to see some of the developments that are going
on with zero knowledge proofs, for example, because I think that could be some excellent
technology that can not just in the context of
of CBDCs but more broadly like if you're thinking about identity which you know registering for
conferences right you you are concerned about certain aspects of your identity that can go
through to all different levels of society so actually I think there's a bigger question to
address that's not about crypto and stable coins and CBDCs.
I think it's about our own comfort in this new global age where everyone can know everything about anyone.
And is that OK? And thankfully, the technologies we are creating now have a way to mitigate against that.
now have a way to mitigate against that.
I think that's exactly right.
And I want to touch on the digital identity question.
You know, one of the things that is the case for stablecoin issuers is they need to conduct
some kind of know your customer when they're doing initial issuance. And to my knowledge, there's not a huge number of real digital identity
solutions out there that have been broadly accepted.
It's certainly not broadly accepted by regulators.
But I wonder, have you two heard, has there been progress made on that subject?
I think so.
I don't know that I'm the right person to kind of talk about that,
but I do agree with you that that is a critical piece in crypto
and outside of crypto to help you engage in financial services
in a confident manner.
And I know that the government has done work on this over the years.
They continue to do work.
But I do think that having some mainstream adoption
in this area would be critically important
to help in growth.
Yeah, I agree with Amy.
And maybe I'm in the wrong conversations, I don't know.
But I've never quite worked out what that block is
to get us there you know in
the UK we have circled this for so long and I think this it's it's the same in the US and never
quite cracked it um I'm not sure I'm not sure why and maybe that's a very naive thing for me to say
I'll hold my hands up but I agree with Amy like it is something we really do need to to kind of
progress on for for a number of reasons. Yeah, I think that's right.
Well, anyway, I took us on a little bit of a detour there for which I apologize.
Although, you know, I do think that the questions of payments and identity do a lot go hand in hand.
And, you know, I think with credit cards, people feel a level of comfort that they don't have to worry about who their counterparty is.
That that might not be the case if the payment was made in cash or by some other means.
So but anyway, let's shift gears a little bit here.
gears a little bit here one of the questions that has always intrigued me about stable coins is sort
of what's the difference between a stable coin and a tokenized bank deposit um and uh you know
i sort of think of uh uh my bank account as a glorified form of stable coin right i expect that
glorified form of stablecoin, right? I expect that if my balance says $1,500 that I have $1,500
there, even though I know that the bank is not earmarking $1,500 for Lee Schneider's account,
right? They've probably loaned out 70 or 80 or more percent of that, and they're counting on the fact that I'm not going to try to withdraw all $1,500 all at once.
So really, bank accounts are not as well, not backed one-to-one the way that stablecoins are, at least the ones that we've
described. But it'd be interesting to hear from you two sort of how you're thinking about
the relationship between the stablecoins and the great rise in the amount of stablecoins that are
out there and bank accounts and whether you see those two things as being in conflict or complementary or
just completely unrelated to each other. No, I think they're important innovations
that we're looking at grow in the digital asset space. But I think, Lee, you pointed out the
exact right distinction, which is stablecoins and legislation that's being created
requires at least 100% of the reserves need to be held to match outstanding customer liabilities,
which is essentially to match the outstanding tokens in the world, which a bank account doesn't do that. You maybe
have, you know, that's a complex calculation, but you may have a significantly less percentage
held in reserves and commercial banks then use that money to facilitate credit. I mean,
that's an important function in the economy and that's what we want to see.
But those are two different things and making a deposit more risky.
And so the way to hedge and mitigate that risk is to have FDIC insurance up to a certain amount.
The banks have a master account with the Fed.
They've got access to the discount window.
You know, different structures are in place to make sure that those deposits are are safer as results of some of that.
We have authentication and credit facilitation. So when you talk about a tokenized deposit, I think that plays into it.
You know, if you if you tokenize a deposit, you to me that a deposit holder is a customer of the bank. So that would be more of a,
maybe a bank, you know, settlement function. If it leaves the bank, I'm not sure what that becomes
then, if it needs to become a stable coin at that point or what happens to it, you know,
what the liability of the bank is to the new token holder who's not a depositor.
So that's the, I think that's a question
we're still working out, but I think they can absolutely work together. You know, other stable
coins that are out there, again, it's consumer choice, like we were talking about before,
and there will be, you know, depending on what your needs are, you're going to choose a payment
method that you feel the most comfortable, that works the best with your structure and all those things. So I think they can work together.
And certainly, you know, we're kind of talking about it. I think stable coins are kind of like
e-money or kind of, you know, some of the other types of private funds out there.
Tokenized deposit is kind of like commercial bank deposits and the CBDC is an
electronic version of banknotes. So, you know, if you think about it that way, and I know there's
nuances there, that's a little simplistic, but it does help see that these can all work, they do
work together today in their existing forms and we're digitizing those and helping helping facilitate
commerce yeah i mean i absolutely agree with everything and i think you both really hit the
nail on the head and the only the only thing i can i can add on i think is you know it's it's
interesting because i think amy you've touched on here actually commercial bank money because of the
of fractional banking is not as
safe as some people might believe it is um there is risk inherent in the system um and there are
tools in place to try and mitigate those risks but i do think it's interesting as many jurisdictions
are developing their regulatory regimes for stable coins they are setting such an incredibly high bar for stable coins which does
seem to be higher and more risk averse than that they have for for commercial banks you know and
just in the UK you know the whilst obviously the the proposals have been very much a discussion
stage we don't have those consultations yet um you know we're looking at one to one short term treasury like it's very it's it's very it is very risk averse.
And there is a question around, well, why? Why are we holding stable coins out to?
And we will remember the Bank of England systemically important stable coins again, which is a frankly impossibly high bar to meet for any commercial issuer. Like why? Why is that the
case? And I don't have, that's just a rhetorical question to throw out there.
Well, I mean, I do think Amy made a couple of points that sort of fill in some of the blanks there, but I think your question is right overall, Laura.
But, you know, if the stablecoin issuer is not a bank and doesn't have access in the US to the
Fed discount window and FDIC insurance and other things like that, I know that there are equivalents in the UK and in Europe as well, then you're relying on
trusting the stablecoin issuer to hold the money. And so having higher minimum balance requirements,
so to speak, probably makes more sense from that standpoint.
But to your point, does it need to be 100%? I don't know. That's probably a question for
the risk people who study this stuff, not for dumb lawyers like me.
I would say, Lee, though, too, that even though you're relying on that issuer
to have those reserve assets in place, I mean, the other piece that you're seeing
is this review by an independent third party to also attest to that fact.
And then they're regulated by a regulator who also is looking for that.
So, you know, you do put in some checks and balances,
just like, you know, to do put in some checks and balances, just like, you know,
to ensure that that's the case. Yeah, no, absolutely. So I do want to just spend a minute
or two talking about the SEC's interpretation from last week, what the division of corporation
finance said was basically that fiat-linked stablecoins backed one-to-one
are not securities for U.S. law purposes. And I sort of found that interpretation to just be a
logical conclusion of the no action letters that the SEC has released over the course of a number of years, starting back
in the first Trump administration, where there were a couple of no action, several no action
letters issued. And if you go back and look at all of those, every one of those is basically one
type or another or variation on the theme of stablecoin. They're not quite necessarily one-to-one backed, but they are pretty close to being one-to-one backed.
And so I didn't find it all that surprising that Corp. Fin made that announcement.
made that announcement, I did find it a little surprising that it took them so long. But
I did find it a little surprising that it took them so long.
then obviously, there was a period of time where the SEC was not so interested in issuing
interpretations and was more interested in starting enforcement actions, which as Amy,
you pointed out earlier, that period seems to be behind us, thankfully. But Amy, I'd love to get any impressions that
you had about that. And Laura, I'd love to hear from you sort of whether or not there's
any debate in the UK about whether or not stable coins would be securities.
I mean, on the US side, I think it was helpful. I mean, on the U.S. side, I think it was helpful.
I mean, even though there may have been no action letters,
I think the activity that the SEC was engaged in made it unclear
or worse for a number of folks in the space.
So having the guidance out there is very helpful.
Again, what I was saying, just kind of to draw on what I mentioned before, it's much better to
have that in legislation because just depending on who's in government, that view can change.
And so both the STABLE Act and the Genius Act make that clear that payment stable coins are
not securities, which I think is a very helpful thing. Legislation hasn't been enacted yet, so
of course guidance is extremely helpful and it definitely gives a sense of the views of the SEC
and how they're going to move forward in the future. So again, very helpful, but I and that the legislation I think would be even more helpful on that topic.
And so to answer your question very simply, the answer is no. But I'm thankful that you asked the question because I think there is a lot of confusion, given how important the security versus commodity question is in the US.
important the security versus commodity question is in the US it just isn't a question in the UK
and because our regulatory framework is so fundamentally different it's not the way we
approach things we have the the financial services and markets act FISMA which is the underpinning of
all financial regulation in this country and we have a regulated activities order which sits
within that so we are very much a kind of activities-based regulator. We have specified investments on top of that.
But, you know, whether it's a commodity, whether it's a security,
it's always going to fall within the purview of the FCA, always.
If it's also considered to be systemically important,
it will also be regulated by the Bank of England.
And then you will go into the various pieces that fall over the top of that.
So because we have quite a streamlined approach to how we regulate, we don't need to kind of
worry necessarily about those entry level questions. So really, just because a stable coin
is a financial instrument, it's in FCA world and we don't even have a question.
It's in FCA world and we don't even have a question.
So, yes, the tricky thing is here, and I think it probably works similarly in the US as well,
is that the regulatory perimeter of the FCA is set by Treasury.
So the FCA can't just one day decide it wants to regulate crypto.
That's not how it works.
It has to be set in legislation.
And again, this is one of the challenges I often push back on when people do criticize the regulators they can't regulate
what is not within their what is what is outside their perimeter essentially now we have had um the
the major changes um that have been made to fisma have happened so the custody initiatives of stable coins has been
brought into the regulatory perimeter but it's it was we've kind of had layer one if you like
there are still several pieces of more detailed legislation legislation SIs those kinds of things
that need to be laid before the FCA can push ahead with actually consulting on more detailed rules and the reason that the difference
there so a discussion paper tends to be a higher level kind of conceptual paper that looks at broad
ideas and how one might regulate a consultation paper has a legal instrument attached to it so
you would it would be incredibly risky for the fca to issue a consultation paper including a legal
instrument without the legal basis already set at least in draft so you know going back to the
very beginning of the conversation when i said oh i think we might see something soon we are awaiting
those legislative additions from treasury once we have them i think that gives the fca the the
grounding it needs to push ahead with some of
these policy pieces so when people say well why you know Sabre Coins why has the FCA not come out
with its consultation paper yet that is the reason it doesn't have the legislative basis to do so yet
so this live stream has proved incredibly useful if for no other reason than I finally understand a little bit more about the process in the UK after having, after dealing with method one and method two and
all kinds of other stuff for the UK.
Now, now it's all becoming a little clearer for me.
So thank you.
Thank you for that, Laura.
So this has been a really interesting conversation so far.
We're coming up on the top of the hour and the end of our time.
So I thought maybe what we would just do is each of the three of us would cast our eye forward and make a few predictions.
So Amy, for your predictions, I would like you to predict, number one, when we're going to get past stablecoin legislation
passed in both houses, and number two, whether or not that stablecoin legislation is going
to be tied to the market structure legislation that you mentioned.
And why don't we just do a number three as a complete gas?
When do you think we're going to be at half a billion dollars worth of U.S. dollar stablecoins?
I was hoping it would be totally off topic.
Like, what should be better?
Well, you can answer that one too.
Well, you could answer that one, too.
You know, so I would like to see stable claim legislation passed probably at the beginning of next month.
I think some of the things are a little bit outside of our control, you know, as to what's going on in the world and how that might impact when they decide to bring the
legislation forward. Will it be tied to market structure? I know there is some desire to do that.
My personal view is that makes it harder. I think market structure is more complicated. And even people who are very smart securities lawyers or have been in the space for a long time and agree that certain outcomes need to occur, have different views on how that should happen.
And so, I mean, even when you've got people going in the same direction, it can be difficult to come to agreement on some of those, you know, particular what's the security, what's not and how to make that determination.
And plus you have new people in Congress, so they're getting up to speed.
It's across different committees like agriculture versus financial services and banking.
And, you know, so you've got all of that in the mix.
So I do think that would slow it down,
whether that's the best way to do it or not.
I leave it in the good hands of our leadership,
but I do think that would slow it down a little bit.
I know that the White House does want to see
all of this passed by August.
And I think that would be fantastic.
I think that's aggressive,
but I don't want to hold it back. If it can accomplish that
in a meaningful way, I think that would be a wonderful outcome.
Once you have that, I think that this, you know, for stablecoins,
you'll see a lot of growth, I think, in the space. I mean, even when you think about it on the global level, because right now we do have, I mean, New York DFS does regulate stablecoin issuers.
For example, PayPal has a BitLicense. So there is that regime in place. But once you see that
the federal government has helped to set the standards, I think that's going to signal globally that the U.S. is, you know, hitting the ground running.
So I think that's going to, you'll see growth. Now, certainly, again, that can't control what's
outside of our control, you know, the markets and things. I mean, you're seeing a lot of impact in
crypto asset markets as well as, you know as NASDAQ and the traditional financial markets.
But I do think we'll see significant growth once those pieces of legislation are in place.
Okay.
So you did an excellent job dodging my third question.
So no, I'm just teasing you.
Look, it's a hard question, right? But I think you're pointing the direction,
which is there's a big unlock
once we get federal legislation on stable coins.
And that should speed the growth.
Laura, you already predicted that in two weeks or so,
we're going to have something from Treasury.
So I'm not sure how many other predictions
I can hold you to.
But what are you seeing sort of by the end of the year?
Do you think that FCA will have its stablecoin regime
pretty much set by the end of this year?
And then, you know, you can also duck my question on the 500 billion,
but you could also give a projection there.
So I think by the end of the year I think we will have all facets of a crypto asset regulatory framework public in this country so I
think we'll have a good number of consultation papers we may even have some policy statements
and the I mean the reason I say that and with a fair amount
of confidence is because if the fca is going to meet the roadmap that it outlined last october
everything needs to be out by the end of this year because they want the regime to be operational
at least in part from the end of 2026 so really they do have to they do have to motor. That's why we have the prediction is that the stablecoin consultation paper will be out this quarter,
as will a discussion paper on staking, lending and prudential treatment of stablecoins as well.
So there are lots of different pieces that need to come together by the end of this year.
And then the real challenge is going to be getting all the policy finalised by the end of this year and then the real challenge is going
to be getting all the policy finalized during the course of next year and the transitional
arrangements I people don't think about that end bit because you know the sexy policy up front is
more interesting but actually we've got these pieces running in parallel at the moment if you
are you know undertaking current asset activities at the moment you need to be registered under the mlrs in the uk now the fca has already confirmed it will run that process
basically until the go live of the new rating so you're you're kind of going from here into this
what what's that going to look like are you going to have to be re-do a reauthorization will there
be some kind of new pathway how long will that be be? It's really fascinating. And I think there's a piece that people need to engage on in that.
I'm not going to duck your question. I'm going to answer a variation of it because I don't like all this dollar talk, like a little sterling over here in the corner.
And there are GBP issued stable coins waiting in the wings.
You know, I advise one of them.
And I think the quicker we can get concrete policy out there on how these guys are going to be treated and what it's going to look like,
the quicker we can have a more varied and a more competitive market in the UK on a global stage.
a more competitive market in the UK on a global stage you know it's the regulators are kind of
caught in a bit of a catch-22 situation at the moment because they they are making decisions
on registrations on on a case-by-case basis in many ways because that's what they they have to
do but they don't want to prejudice themselves further down the line or indeed set a precedent for new firms coming in.
So I think there is some kind of grit getting in the wheels when you're having some of these new products and not just within stable coins,
but generally coming through the MLR registration process and the FCA is sort of going, oh, well, we know we've got some policy coming out on that in a few months time.
Do we just try and press pause on that? so it's all it's very at the moment um so i think we will see as soon as that consultation
paper comes out a real healthy growth and a positive growth in kind of gbp issued stable
coins and i think that's i think that's a really good thing. So you also see a big unlock here in the UK when the legislation is finalized.
Something is better than nothing.
I'm not saying we pursue a regulatory regime at all costs, but without anything to iterate
from, the UK is going to be left behind.
Yeah.
Well, look, I really appreciate the two of you joining me for this conversation. I loved hearing your viewpoints. It was great to have a little compare and contrast on both sides of the Atlantic Ocean.
Owl Explains. It's our project where we provide resources for regulators and policymakers on
blockchain and crypto. Feel free to check it out at owlexplains.com. And we are having our first
Owl Explains Summit. It's actually going to be in London, and Laura's kindly agreed to be one
of the speakers. And we've got an excellent opening keynote speaker
who I can't quite tell you who it is yet,
but hopefully we'll have the announcement next week.
So very excited about that.
Anyway, that's gonna be May 22nd in London.
The larger Avalanche Summit will also be taking place
in London, May 20 through 22. So Laura, I look forward to seeing
you in person there. Amy, if you want a ticket, I'm giving away free tickets. So feel free to hit
me up if you need a quick trip to London. And to all of the people who listened in today, we thank
you for your time and attention. And we hope to see you all in London as well. Thank you all.
Thanks so much. Thank you.
