Dialogue with Circle CEO: Building the most compliant and regulated infrastructure will lead to everything else

Video Title: Circle's Jeremy Allaire on Where Stablecoin Regulation Is Headed
Host: Laura Shin, Host and Journalist at Unchained
Interviewee: Jeremy Allaire, Founder and CEO of Circle
Translation: Qianwen, ChainCatcher

In this episode, Laura Shin and Jeremy Allaire engage in an in-depth conversation about Coinbase's investment in Circle, the regional adoption of USDC, lessons learned by Circle after the bankruptcy of Silicon Valley Bank, how to respond to the stablecoin launched by PayPal, US regulation of stablecoins, Circle's tenth anniversary, China's upcoming CBDC, and more.

Laura Shin: Recently, Circle has been in the spotlight. You dissolved the Center Consortium (the autonomous alliance jointly managing USDC) and Coinbase invested in Circle. What was the reasoning behind this decision?

Jeremy Allaire: First, many years ago, we invented USDC, which was first introduced to the world over five years ago. When we created USDC, we had a vision for a fiat currency protocol. At that time, they weren't widely referred to as stablecoins, but they could operate on the blockchain, allowing for the construction of interoperable value exchanges on these open networks. Therefore, we had a series of ideas, and we believed these protocols would benefit from standards established around them. At the beginning of our journey, it was crucial that we could work with other industry leaders to establish these standards, which also allowed us to share in the success brought by protocols like USDC.

In 2018, we were fortunate to partner with Coinbase. This was a very important strategic collaboration for both companies to drive the growth of USDC in the market. In this broader context, Circle issued USDC, and we are a regulated electronic money remittance company.

But most importantly, at that time, while there were regulatory provisions regarding what remittances are and how companies like Circle should operate, many aspects of stablecoins lacked real regulations, such as how to hold reserves, how to manage cybersecurity, and all related necessary governance and enforcement issues.

Thus, we established the Center Consortium to self-manage and govern around stablecoins and to issue increasingly relevant policies. A lot has happened over the past five years. One, USDC has become one of the most important digital currencies and digital assets in the world, and our company has grown from a small firm to one generating over $1 billion in revenue.

But the key point is that legal changes have also emerged over the past few years. Governments around the world have indicated they will regulate this area, viewing stablecoins as part of what I call a prudential regulatory framework, which is the regulatory framework that major regulators like central banks and payment systems want to establish. So, I believe the essence of this change is the shift from a self-governance model to a government governance model.

As a result, we collaborated with Coinbase to explore how to ensure Circle can continue to build and innovate, and as an issuer or operator, do what we need to do while complying with the emerging regulations on stablecoins and their issuance globally, ensuring we can adhere to these guidelines. Additionally, we can continue to provide strong economic incentives to make this work as successful as possible.

Therefore, our move is to ensure that Circle has complete sovereignty over the development and operation of USDC while ensuring we can respond to the new stablecoin laws emerging globally.

Laura Shin: My understanding is that the Consortium model is a very crypto-centric model that was suitable when USDC was still developing. But now, the dialogue has changed significantly, with regulators and legislators paying attention to this issue, so there is a need to shift to a model that can adapt to existing regulations. The news about this arrangement has sparked some speculation, with some believing Circle is preparing to be acquired by Coinbase. As CEO, what is your focus? Is it going public? Or is it being acquired by a company?

Jeremy Allaire: Undoubtedly, we are moving towards independence. Over the years, we have received help from many strategic investors. For example, recently, BlackRock invested in us. Having equity in the company ensures consistency in product and value. I hope that Coinbase, in addition to generating revenue through USDC, can also play a role in our long-term success; I see this as a win-win situation.

This year marks the 10th anniversary of our company, making it an interesting year for us. But when we founded the company 10 years ago, I made it clear to my investors and employees that achieving the company's vision would take decades. Now, there are over a hundred billion stablecoins in circulation, with a significant amount of trading occurring, but they are just beginning to penetrate the financial system. Therefore, there will be a massive market in the future, not just concerning currency circulation, but representing and storing currency in this form; there are $25 trillion in electronic tokens worldwide, in various formats.

As for the utility of programmable money and the utility of frictionless exchange mediums, we are just beginning to see their value. So, I want to say that despite our substantial revenue and profits, we are still an early-stage company. When I think about what I am striving to do and the company we are trying to build, I envision a decades-long strategy.

Laura Shin: You recently announced that Mercado Libre, the largest e-commerce and payment company in Latin America, will adopt USDC. What impact do you think this will have on Circle?

Jeremy Allaire: Mercado Libre is a fantastic company that has paved the way for modern commerce. In Latin America, they play a very important role in payments. This actually reflects the growing demand for global digital currencies in regions where local currencies are not performing well. The first phase of this project will launch in specific countries in Latin America, followed by broader expansion.

When we study the adoption metrics of stablecoins, we often say they are used for DeFi trading, for arbitrage traders, or speculation. But our vision is that this fundamentally provides a means for those in need to store value in dollars and offers a highly efficient cross-border payment mechanism, which is crucial for mainstream companies. Mercado Libre has around 200 million users, which is a huge number. Therefore, we are considering how to increase the number of wallets that can transact in USDC; this partnership is highly significant. For example, Coinbase has over 100 million wallets that can transact in USDC, and MetaMask has 30 million users.

For the growing number of wallets, traditional fintech companies, commercial companies, digital wallet companies, and the next generation of account abstractions and smart account wallets being created, this will be a killer application, making all these things usable and providing more ways for people to use USDC.

Laura Shin: I want to ask about how Mercado Libre will use USDC. For example, if I am in Chile and I buy something on Mercado Libre, will the price be displayed in Chilean pesos, and will it also be shown in USDC? Are users aware of or accepting this method?

Jeremy Allaire: I am not familiar with the specific details of the user experience. What I do know is that their customers have a significant demand for holding and transacting in dollars. Therefore, this is indeed a very powerful way to transfer more of the customers' value into digital dollars. Then stablecoins, or more specifically USDC, will play a role; they are interesting because of their broad coverage and interoperability.

I want to live in a world where I have a digital wallet, I am in the Philippines, but I know someone in Brazil, or I know someone anywhere, and we have an open network to transact directly through peer-to-peer interoperability. That is where the real power lies, and I believe collaborating with Circle will ultimately unleash tremendous potential.

Laura Shin: You mentioned on Twitter that 70% of USDC usage comes from outside the United States. What do you think are the driving factors behind this? Is it that people want to store value outside of a dollar-dominated currency system? Or are there other considerations?

Jeremy Allaire: First, the entire blockchain ecosystem is highly globalized, with a lot of activity in the market. If you need a reliable, convertible digital dollar, USDC is a good choice, and it aligns with the overall growth of international markets. Of course, we also see a significant increase in demand for dollar value storage coming from emerging markets like Latin America, Africa, and Southeast Asia. In these places, we see many startups launching new products and forming partnerships with these large global companies.

Why should the U.S. government care about dollar stablecoins? Because, in fact, it makes the digital dollar a powerful export product for the U.S., enhancing the country's soft power and solidifying the economic interests of households, businesses, and the government itself. Therefore, the ongoing adoption of dollar stablecoins (especially those that are well-regulated and compliant with laws and oversight) aligns strategically with national economic interests and foreign policy interests. Of course, this may be controversial to some, but it is a fact.

Laura Shin: Please tell us more about the new programmable wallet Circle recently launched.

Jeremy Allaire: USDC itself is a protocol; it exists as a dollar protocol, and any developer can build on it and add plugins. This has already happened; all DeFi wallets, custodians, and various products and services can integrate into this protocol, knowing they can safely store, trade, and settle dollars for their users. Therefore, the success of USDC is largely built on collaboration with developers, working with developers who are trying to create value because they need a reliable stablecoin. As a company, we can do more.

Last year, we invested hundreds of millions of dollars to acquire a company that we believe has outstanding technology in blockchain deployment, smart contract management, wallet handling, and wallet security. For example, Amazon built its e-commerce infrastructure and then said, "We will take the underlying infrastructure and allow developers to build on it." This way, web developers can easily implement online applications, leading to the birth of Amazon Web Services.

If you are a startup or a large company looking to build an application integrated with blockchain, you certainly want to avoid worrying about managing infrastructure, security, operations, and compliance, which are all very tricky issues. You just want to focus on providing a delightful user experience, which is a significant demand that has emerged in many discussions about blockchain development and developer ecosystems, and it is genuinely important.

The most crucial question is how many developers can easily build an application integrated with blockchain and allow their users to securely hold (whether NFTs or stablecoins) and make payments? Today, very few developers can do this. There are about 100 million developers in the world who can write software, but only about one-fifth can develop on blockchain. We must significantly change the ease with which these developers can build, operate, and run such applications and services.

Therefore, for us, this is a massive opportunity that aligns perfectly with our work on stablecoins, whether for business applications, financial applications, or consumer applications. All these applications need to use currency and transfer currency. We can make this experience seamless and leverage blockchain infrastructure, EVM, and other abstract technologies. We can make all of this so simple, thereby increasing the number of useful applications. If we can increase the number of useful applications and connect them to our protocols (like USDC), we can enhance the network and its utility. If we can achieve this, we can create a lot of value.

Thus, this represents a new revenue source, priced very affordably, allowing users to enter and use it directly. And it is genuinely self-service. Therefore, it actually goes back to my original intention, even though many people may not know, my career began with building developer platforms, programming languages, and some of the most popular web development tools in history. This was back in the Web 1.0 and Web 2.0 eras, so I really enjoy these types of products. I believe this is a very important moment.

This also signifies Circle's transformation from focusing on stablecoins to aspiring to become a platform-oriented enterprise.

Laura Shin: Circle plans to issue on six new blockchains. Is this demand-driven, such as seeing developers or DeFi builders needing this, and how did you make these decisions?

Jeremy Allaire: First, there are clearly hundreds of blockchains in the ecosystem, and we cannot launch native USDC on hundreds of blockchains, not to mention that many blockchains are dead. At the same time, there are numerous innovations happening with L1 and L2. Given the actual number of applications I just described and the actual number of users of these applications, we are still in the early stages of maturity.

However, it is likely that in the coming years, you will see adoption levels presented in a power law curve. You might see perhaps five different layers, with L1 and L2 accounting for 80% of the market share. Innovation and competition are fierce, with entirely new architectures emerging, but there are still many challenges to solve regarding privacy, security, scalability, etc. We want to be part of that. We will continue to experiment on-chain. Meanwhile, the other products we are developing are aimed at helping users build multi-chain applications. Therefore, our web3 services and smart contract platforms will also be multi-chain.

Additionally, we are working to solve interoperability issues, which is a massive problem. Currently, there are multiple first and second layers, and we have a poor transfer method, which is cross-chain bridges. The process is that USDC is locked, then wrapped, and the wrapped USDC moves across these bridges. This method is slow and exposed to hackers, which is why many high-profile hacks have occurred on cross-chain bridges.

In fact, USDC is the most used asset via cross-chain bridges. Therefore, we built and launched a cross-chain transfer protocol called CCTP, which allows users or developers to build applications that can transfer USDC from one chain to another without bridging. There is no need for locking actions or paying any extra fees, such as paying liquidity providers for token transfers.

We can do this because we are the issuers of USDC. This means that if I have USDC on Arbitrum and I want to send USDC to a wallet on, say, Optimism or Ethereum, I can send it directly: the USDC on one blockchain will be burned, and the USDC on the other side will be minted. This is faster, safer, and does not require funding and efficiency. Therefore, this is an important way to provide secure and interoperable digital currencies.

If I am an end user, I have a wallet, and I really do not want to care about what layer 1 or layer 2 is. I just want the process of sending and receiving USDC to be secure. As a protocol developer, we are building new protocols to make it safer and more convenient for people to use digital currencies on these networks. Not long ago, we launched on these new blockchains, and we also introduced more routing for CCTP. All of this is to make it the most useful and secure digital currency on blockchain networks.

Laura Shin: Circle recently faced a life-and-death moment when $3.3 billion of reserves were locked in Silicon Valley Bank, which later collapsed. Since then, USDC has been losing market share to Tether. What strategies have you implemented to recover from this loss?

Jeremy Allaire: I think it is essential to understand how our infrastructure operates. One point we take pride in is that we have the most transparent market infrastructure disclosures. We disclose all the banks we work with, and we provide detailed information about every bond and treasury we hold, down to the serial number and date. In fact, we now have about 94% of our reserves held in a fund managed by BlackRock called the Circle Reserve Fund. If you search for the stock code usdxx, you can see all the information daily. Therefore, you can know exactly how secure it is. This is a compliant registered infrastructure that no other company in the market can achieve. Thus, we have extremely high security and transparency.

The second part is to think about what happened. I believe the industry will inevitably experience some very dramatic events. Of course, our experience is also quite unique because our specific risk exposure came from a bank, a large publicly traded bank with $170 billion in assets, which experienced an unusual run on deposits within 48 hours. But this has nothing to do with cryptocurrency. When the run occurred, it was disclosed that their balance sheet had suffered massive losses. Their financing from high-profile investors also failed. That was a shock that impacted the entire U.S. financial system, and banks are still collapsing due to similar reasons. However, until the day before SVB's collapse, it was still one of the highest-rated financial institutions, which was a massive shock for most (except for certain hedge funds that were shorting them).

We have been working hard to enhance the infrastructure under USDC, which means having more banks that allow USDC transactions. For example, during this crisis, three banks collapsed in just ten days. Two of these banks were critical infrastructure for almost all companies in the industry, so almost overnight, over 5,000 companies worldwide saw their needs impacted. Consequently, regulators are also putting increasing pressure on banks. These companies include cryptocurrency and digital asset companies, e-signature companies, etc., and they seemed to have vanished.

Before this, we created the Circle Reserve Fund and established a strategic partnership with BlackRock. By the first quarter of this year, we had transferred over 80% of our reserves into this fund. Therefore, in the stablecoin space, for the first time in history, you have a secure, registered, regulated structure that includes all protective measures, maintains transparency daily, and ensures safety. We will also continue to keep about 20% in cash, so we can meet the highest levels of daily liquidity needs at any time.

In the digital asset industry or cryptocurrency industry, you cannot just open an account at a bank wherever you want; getting bank support is very difficult. Circle had no choice; if we were Microsoft, we could decide where to place our cash assets, but that freedom does not exist for us. However, we have made significant progress in pushing for the use of GSIB (Globally Systemically Important Banks) as the infrastructure behind USDC. In fact, we had just started advancing this initiative a week or two before SVB's collapse.

So we are very fortunate that despite these events, we could place everything in the safest place in the world. All cash is in the safest and most important cash custody system in the world, backed by government support. Therefore, from another perspective, we have the safest and most transparent digital token on the internet today, which is unprecedented. We are just continuing to do what we have always done, enhancing market infrastructure, increasing transparency, and so on.

Another point I want to make is that the entire industry is undergoing debanking, and the impact is still ongoing. As you may have heard from many people, this has become a significant issue. What we have been doing is investing heavily to establish a global liquidity and settlement network for USDC. We are forming online banking partnerships with quality banks in major regions worldwide, which will create and redeem USDC liquidity in local markets. So you do not need to rely on banks.

I think this is like market infrastructure and investment. The only reason we can do this is that banks are willing to work with us because we are a compliant, transparent risk management company, not like some of our competitors who operate like a black box.

I feel we are influenced by a notion that is partly due to the multifaceted banking crisis in the U.S. and the SEC's enforcement actions against major U.S. cryptocurrency companies, which concentrated in about an eight-week period. As a result, the reaction from other countries in the world is that being exposed to the U.S. is unsafe, storing money in institutions associated with the U.S. banking system is unsafe, and working with companies under U.S. regulatory oversight is also unsafe. What we are seeing is a behavior of avoiding safety. In fact, other companies will say they will not engage with the U.S., but in the long run, this is unsustainable.

If you closely monitor these issues, you will find that significant progress has already occurred. The Federal Reserve is rolling out regulatory frameworks for banks handling cryptocurrencies and regulations for stablecoins. Some major financial institutions are deepening their efforts in this area. Therefore, the ultimate situation is precisely the opposite. I believe that the final outcome will be a move towards safety.

Another very important point is that our business is also cyclical. When interest rates are zero, a lot of money flows everywhere, including into cryptocurrencies. If you have funds, you can make various investments and other activities in the blockchain ecosystem, leading to significant growth in stablecoins. Conversely, now that interest rates are rising at a pace not seen in decades, if you have $1 in electronic assets, and you know you can get a 5.25% interest rate somewhere, as long as you can access the U.S. banking system (tradefi), you will definitely choose them. The supply of stablecoins is inversely proportional to interest rates.

In fact, we are in an interesting situation where Coinbase and Circle have relatively good banking relationships. We actually provide a method to exchange one-to-one for free with banks. We have a tradefi layer, which is one of the reasons people like USDC and trust this product. Moreover, withdrawals are also easy; withdrawing from some other products can be challenging, but withdrawing through USDC is very straightforward. However, I believe the broader impact is the macro cyclical effect, which is that in a high-interest-rate environment, we generate substantial revenue. We just publicly disclosed our revenue and earnings for the first half of last year, which can be described as very substantial. Therefore, despite our circulation issues, we still see very high annual growth and cash flow, but this is essentially a macro cyclical issue. Thus, I think about this from a long-term perspective, which is to build the best infrastructure, the most compliant and regulated infrastructure, and the best banking infrastructure, doing things in the most transparent way, serving any company, any fintech company, and creating great things for developers, and everything else will follow.

Macro cyclical factors will also exist. As interest rates decline, you will enter a neutral interest rate environment, and the way people use dollars will begin to change. Notably, since interest rates began to rise in April of last year, banks have lost a trillion dollars in deposits, and $800 billion has flowed into money market funds.

Laura Shin: PayPal recently launched a stablecoin, and they are a giant in the payments space. How does Circle plan to compete with them?

Jeremy Allaire: First, on the day they launched, I congratulated PayPal and Paxos because it was a great collaboration for Paxos. It is exciting to see a major mainstream payment company embrace dollar stablecoins.

I think this is a very clear signal that the regulation around stablecoins has become clearer globally, and large companies are entering this market. With regulations in place, this is precisely the world we hope for—a market that is open and competitive. As regulations come into play, the market will also have a safety baseline that everyone can rely on.

Now, regarding how we compete, my last focus is on competitors; I focus more on accomplishing those things we believe are genuinely valuable, important, and relied upon by people. Part of the reason USDC has been so successful is that we are a market-neutral infrastructure company. We do not compete with merchants or retail users. We do not have a consumer wallet. USDC serves the utility of the dollar on the internet, and we hope to collaborate with a wide range of different companies to build on that. I believe this makes us unique. I think PayPal also has many great partners. They have the franchise to charge merchants for accepting credit card payments, and they also have the franchise with end users.

Many people might see this as competition, but it is not; we have established good partnerships with many companies that may compete with each other, and they rely on and use USDC in different ways. But we maintain a market-neutral stance. What excites me is that we have made a lot of progress; for example, 12 months ago, the number of mainstream companies collaborating with us was much lower than it is now. We are also continuing to add influential great partners, which is what matters most.

Our strategy is also different; for example, we are building developer platforms, we are building infrastructure platforms, and we are building protocol layers. This is how we hope to develop. Therefore, we are very confident in our positioning. We believe we can continue to play an important role in certain markets, but we also welcome competition.

Laura Shin: Let's talk about regulatory issues. In late July, a much-anticipated stablecoin bill was thought to have bipartisan support, but it was defeated in the House committee, receiving only Republican support. At that time, you made some remarks in the House Financial Services Committee about what you thought could be improved in the bill. Before we discuss your specific suggestions, please tell us what aspects of the bill you liked?

Jeremy Allaire: I think there are two points. First, the bill was indeed advanced with bipartisan support; there was certainly bipartisan support, but not the support of the chair. Five Democrats and Republicans voted in favor. I believe the bill accomplished a lot; this legislation is what people want. The Federal Reserve, the Treasury Department wants it, Congress wants it, and the White House wants to promote legislation. This is a priority set by the highest levels of government—we need stablecoin regulations in the U.S.

Therefore, this is a national priority. People are working hard to get this done. The U.S. is leading globally, going to the G20 and saying everyone needs stablecoin regulation, and everyone agrees that it needs to be implemented. For example, Hong Kong is doing it, Singapore, Japan, and the EU are already doing it, and the UK is about to legislate. The legislative process in the U.S. is relatively lengthy, but everyone wants to achieve legislation. So the likelihood of relevant legislation being established is very high, but I do not believe the specific bill currently passed by the committee will be signed into law because there are still some important key issues that need to be resolved for the government and the federal level.

So it largely depends on what the FED can do beyond setting standards. How much influence can it exert? The Fed's responsibility is to set the baseline and establish all requirements. But I think there are some details that are contentious, such as whether the FED can veto who gets a license? Or does the FED have any specific supervisory role? Does the FED have any joint or dual supervisory role? This is somewhat like an academic discussion, but it is very important because it relates to the relationship between state rights and federal power and the balance of power.

Returning to your question, overall, one thing I like is that it creates a clear pathway for stablecoin issuance by banks and non-banks. It creates a role for states and the federal government, setting very clear and high standards for prudential regulation and oversight requirements. It has very specific requirements for reserves, transparency, risk management, etc. It effectively creates legal certainty that stablecoins are part of the global financial system and part of the dollar financial system, which means accountants will know how to handle them, whether you are a public company or a private company, and financial institutions will be able to hold them just like holding cash or collateral.

It will unleash a lot of mainstream use cases. Therefore, it has many merits. We look forward to seeing how the bill progresses in both chambers. But we remain optimistic that the U.S. will ultimately do the right thing to uphold and protect the interests of the dollar on the internet. As I have said many times, the future of currency competition is technological competition, and internet technology is the driving force behind this competition. This is essentially a question of whether you want to unleash the potential of open networks, free market competition, private sector innovation, and the technological innovations brought by the private sector. This is the way the U.S. has historically chosen to compete, and it is also why the U.S. is so strong in the internet and technology sectors. They must make a choice: do you want to compete in this way, or do you want to follow the old path of dictatorial regimes, trying to establish a monopoly through money?

Laura Shin: In your suggestions, I am particularly interested in your proposal to amend the bill to allow stablecoin issuers to use Federal Reserve account services. I guess your experience with SVB provided the basis for this request. How receptive are people to this idea?

Jeremy Allaire: In fact, even before the recent banking crisis occurred, our company had a fundamental premise, which is that when we founded the company ten years ago, we believed we needed to move towards a full reserve banking system.

I have always been passionate about the idea of a full reserve banking system, and similar economic ideas emerged after the Great Depression. When the Great Depression occurred, and banks across the U.S. were failing, there was a significant discussion about how to handle these failed banks. Two proposals were frequently mentioned.

One was the Chicago Plan, which argued that we need to separate the payment, use, and lending of money; we need full reserve money, which is still sovereign money, meaning it remains within the government's obligations. But it is fully reserved; banks cannot create money themselves, and they cannot use fractional reserves. Banks can lend, but only using fully reserved funds. This would lead to a safer financial system, reduce systemic risk, and avoid economic depressions.

The other viewpoint was actually from the banks, hoping to implement a fractional reserve system but establish an insurance pool so that if any of us failed, we could tap into their insurance funds to cover the losses from the failure, but we need to bear the risk. This is the origin of the Federal Deposit Insurance Corporation (FDIC).

Then, after the savings and loan crisis in the 1980s, this issue was discussed multiple times after the financial crisis in 2008. This is when I became genuinely interested. All of this sparked my interest in cryptocurrencies. How does the fractional reserve banking system work? How does the central bank make money? How can we improve it? Before I even knew about Bitcoin, I was interested in all of this.

I have always hoped for a model of fully reserved dollars, and if we have the super technological capabilities of blockchain on the internet, if this incredible programmable currency moves with the speed and efficiency of the internet, then the ideal foundation for all of this should be full reserve currency; it should be government debt currency, and it should be cash or short-term government debt (like treasury bills) held by the Federal Reserve. Then everyone knows this is the safest thing, and they would be willing to use it widely as a medium of exchange, which is precisely what we are striving for. We are very close to this goal now. The only issue is that we must keep cash in commercial banks. I have always felt uneasy about this, and the results have proven our concerns were justified.

Now our cash is almost entirely held in one of the safest systemically important banks in the world, backed by government support. We still have a very secure place, but I do believe that through proper design of digital dollars and electronic tokens from private sector intermediaries, which we refer to as digital dollars, we can fully leverage some benefits of central banking mechanisms.

Laura Shin: Do people on Capitol Hill think it is a good idea to write this step into the bill?

Jeremy Allaire: I do not think we will see this in the bill because the banking lobby has quite serious opposition to it. I believe our reserve requirements in terms of assets have played a significant role in ensuring the safety of reserve assets, achieving about 98% safety. This may be a point I will advocate for later.

Laura Shin: Another suggestion you made was to define legitimate dollar stablecoins and what you referred to as counterfeit in the bill. Frankly, some of your previous comments made it seem like you were stigmatizing Tether (though you did not name it). What is your definition when you talk about these "counterfeit" and "legitimate" stablecoins?

Jeremy Allaire: Quoting Federal Reserve Chairman Powell, his view is that stablecoins are the creation of dollar currency. The federal government has a responsibility to define what constitutes legitimate dollar currency creation and what is a genuine dollar tool in the global financial system.

If, from an accounting perspective, from a balance sheet perspective, everyone agrees it is cash, then we should have a very high standard for it. If you claim to be a dollar but do not meet the legal standards and requirements to be a digital dollar, you should not advertise it that way.

My personal view is that all fiat stablecoins worldwide need to have consistent prudential standards. Basically, all the central banks in the major G20 jurisdictions are doing this, and the laws in all these places are fundamentally quite similar. Therefore, I believe that over time, we will certainly enter a world where if you issue a fiat digital currency, you must accept this strong regulatory regime; otherwise, you will not be able to be used. I think this is the direction of current developments, although it will take another two to three years, but the situation is becoming clearer.

Laura Shin: As you mentioned earlier, discussions are taking place worldwide. One notable country is China, which has already launched a central bank digital currency (CBDC). I just want to know your thoughts on how you see the handling of stablecoins and CBDCs by these two governments?

Jeremy Allaire: I believe China does not have specific regulations on stablecoins. As far as I know, they have not yet established specific new rules for issuing stablecoins in China. However, I would not be surprised if relevant laws are introduced. I think, for the time being, the priority for most governments is to quickly establish regulations for stablecoins.

European stablecoin rules are becoming a model law, but it is hard to say when Europe will determine the issuance of CBDCs. Japan's stablecoin rules took effect in June of this year, but it is still unclear whether there will be a CBDC in Japan.

I believe the Federal Reserve has made it clear that they do not plan to issue a CBDC at this time; the priority is on private sector digital currency initiatives. We need safeguards and rules, and we need a market that allows fair competition among technology, innovators, banks, and non-banks. This is a priority, and as every major jurisdiction in the world is monitoring the innovations made by the private sector in this area, I believe China has no choice but to unleash its creativity, technology, and competitive capabilities. Now, for global enterprises and others, privately issued RMB stablecoins may be more attractive compared to CBDCs. For example, would large companies engaging in cross-border transactions with China want the government system to enter their technological environment? Probably not.

Private intermediaries can be supported by CBDCs, and in the long run, I believe this will also happen in the U.S. We will see a comprehensive upgrade of the core technological infrastructure of central banks. Then, private intermediaries will also be integrated into it. But essentially, it remains stablecoins and the rapid, continuous innovation cycles brought by open infrastructure and technological innovation. Then it touches on so-called retail, directly reaching enterprises and end users. I believe similar situations may also arise in the future in China.

Laura Shin: Do you think these developments will happen quickly in the U.S. so that the dollar can maintain its status as the global reserve currency?

Jeremy Allaire: I believe the U.S. needs to take proactive action now; releasing competitive digital funds on the internet is one of the best things the U.S. can do right now. I certainly raised this point in my testimony, and I have personally presented this idea to many people in Washington. This is a very clear action that can be taken because, in doing so, you are fighting for global users, businesses, households, and others who use mobile devices.

I believe the dollar remains the most resilient and attractive reserve currency in the world. It is still the safest asset in the world. I believe that if the U.S. is willing to support some of the changes necessary for the safety of the dollar, this situation will certainly continue.

Laura Shin: Besides the suggestions you previously made regarding stablecoins, do you think there are other jurisdictions' stablecoin regulations that could serve as references for U.S. legislation?

Jeremy Allaire: Some places are proposing to allow stablecoin issuers to directly use central bank clearing facilities, and I have also suggested this to the U.S. government. I think this would be a positive step. Additionally, some regulations in Japan are effectively addressing various forms of reciprocity with foreign-issued stablecoins. I think it is also very important that we can obtain equal treatment for USDC across jurisdictions. This way, if I am a business or operating in the capital markets in Japan, the Japanese regulatory authorities will recognize tools like USDC in their markets. As long as there is regulatory equivalence in various safeguards, I think this is an initial idea we see in other jurisdictions, but currently, U.S. stablecoin legislation does not explicitly address this.

This is a tricky issue, but it will continue to iterate around this issue. Ultimately, because these are all digital assets that can move on the internet, the questions are quite simple, such as where to place private keys, who holds them, etc. I believe cross-jurisdiction is a must-consider issue. I hope the U.S. will consider this issue more.

Laura Shin: You tweeted that cryptocurrencies can unlock better KYC tools to handle issues like anti-money laundering. Can you elaborate on this?

Jeremy Allaire: In the FTX bankruptcy case and the BlockFi bankruptcy case, customer information related to them was leaked. Why does this happen? If you are a financial institution, the way AML and KYC rules work is that if you are interacting with another financial institution, you must exchange your customers' personal information with it, and you must provide this information to all these different financial institutions, whether they are a startup fintech company, a giant bank, or a broker or any market participant. In this way, your personal information is widely disseminated. Of course, there are many interface standards, security standards, and protective standards. But ultimately, your personal information is spread everywhere.

Crypto has many meanings; one of its meanings is cryptography, and innovations in cryptography are constantly occurring, allowing for proof without sharing information. Zero-knowledge proofs are the most common method. There are also other types of cryptographic proofs that can issue verifiable certificates that can be shown to a party. For example, they can say you have a KYC certificate, and this certificate is issued by a legitimate company that adheres to strict standards and knows who their users are. I can trust this certificate without requiring you to provide all user information.

Therefore, using cryptographic proofs and digital credentials allows people to interact more securely without disclosing private information. It also allows for selective disclosure of information. A common example is if my daughter walks into a bar, why does she have to provide her address and name to the bartender? Why can't we just prove we are of legal age? Why can't we show a credential in a digital wallet to prove we are of age? And verify through biometrics that I am indeed the holder? So all of these are closely related to cryptography. Zero-knowledge proofs and this entire set of technologies are becoming mainstream or have the potential to become mainstream, allowing us to prove identity better without sacrificing privacy.

We can even allow financial institutions to exchange proofs without triggering the vulnerabilities we currently face. This requires, for example, that the U.S. Treasury establishes rules for any anti-money laundering policies for financial institutions, or global organizations like the Financial Action Task Force (FATF) set their standards to decide that we want to conduct safer, more private, and more reliable identity checks, thus providing a way to leverage cryptography to solve these issues.

Laura Shin: Last question. Throughout the program, you have presented many viewpoints. What message do you particularly want to convey to regulators and legislators?

Jeremy Allaire: I think there are a few things. Regarding stablecoins, I might sound a bit repetitive. We are currently facing a moment where there are issues of dollar competitiveness, national competitiveness, and industry and market competitiveness. While it is easy for us to have scammers and companies implementing Ponzi schemes and claim that it is worthless, that is not the case. I believe we are in a very strong framework that will have a tremendous impact on the competitiveness of our dollar industry.

Another thing I want to say is that there is a trend, not just in the U.S., but globally—blockchain technology is always considered a financial technology. I believe decision-makers must understand that we are talking about universal internet infrastructure, universal internet computing, infrastructure, data, and infrastructure; this is a very important universal infrastructure. This is crucial for many industries and categories. Therefore, when we treat this infrastructure, we must recognize that it is not just a financial regulatory issue but about the next level of the internet, and we need to treat it correctly.

Policymakers, when formulating policies, sometimes incorporate everything into a financial regulatory perspective. This is not a good position. I think this is inaccurate. Therefore, I believe this indeed requires increasing understanding. Thus, I hope policymakers and their staff better understand the computer science of this network technology because that is where the real value lies.