Nic Carter, partner at Castle Island Ventures, discusses the significance and potential growth of crypto dollars. He explores the role of stablecoins in weaving global financial networks, their use cases in liquidity and remittances, the history and backing of Eurodollars, and the rise of stablecoins in democratizing global dollars. The chapter also touches on yield differentials in stablecoins, stablecoin innovation, and the potential for stablecoins to create an alternative to correspondent banking.
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Quick takeaways
Stablecoins offer seamless cross-border transactions, transparency, and decentralization, making them a valuable tool in reshaping global financial networks.
Similar to Eurodollars, crypto dollars can transact globally and outside traditional systems, implying the possibility of future recognition and acceptance by governments.
The demand for stablecoins is driven by the need for a global reserve currency, tax obligations, and the role of the US dollar in global trade.
The adoption of stablecoins is expanding in remittance, fintech, and mobile money sectors, particularly in Latin America, Eastern Europe, Africa, and Southeast Asia.
Deep dives
Crypto dollars are gaining momentum
Crypto dollars, also known as stablecoins, are growing in popularity and utility. Despite a decrease in market cap, stablecoins are seeing increased usage, including transaction count, monthly actives, and dollar value transmitted on chain. Stablecoins offer the ability to settle transactions digitally and instantly across borders, while also being interoperable and transparent on public ledgers. The demand for stablecoins extends beyond the crypto market, with remitters, global payment systems, and mobile money apps embracing their utility. This growing adoption of stablecoins is significant, as it showcases the value of public blockchain-based transactions and their potential to reshape financial networks globally.
The parallel between crypto dollars and euro dollars
Crypto dollars, like stablecoins, share similarities with the euro dollars in terms of their issuance and usage. Euro dollars are offshore US dollar liabilities issued by non-US banks, and they played a crucial role in global transactions, particularly in the post-World War II era. Similarly, crypto dollars provide a means to transact digitally, globally, and outside the restrictions of traditional financial systems. The growth of the euro dollar market eventually led to its recognition and backstopping by the US authorities. It is speculated that crypto dollars, or stablecoins, could undergo a similar phase of recognition and acceptance by governments in the future.
The advantages and demand for crypto dollars
Crypto dollars, such as stablecoins, offer unique advantages and have gained significant demand. The advantages include final settlement digitally, instant cross-border transactions, global interoperability, and composable transactions. The demand for crypto dollars is driven by various factors, including the need for a global reserve currency for trade and contracting purposes, the ability to denominate transactions in a widely accepted currency like the US dollar, tax obligations in US dollars, and the role of the US dollar as a global reserve and trade currency. While the specific demand for stablecoins varies across regions and industries, their overall appeal lies in providing a decentralized, transparent, and accessible medium for global transactions.
The potential future of crypto dollars
The growth and adoption of stablecoins, or crypto dollars, indicate their potential to become a new form of digital currency with widespread acceptance. While stablecoins face scrutiny and skepticism from certain regulatory factions, their utility and advantages make them an appealing option for users outside traditional financial systems, especially in emerging economies. As the crypto dollar market continues to expand and demonstrate systemic usefulness, it is speculated that governments may recognize and embrace stablecoins to ensure their stability and global transactional value. This recognition could lead to new regulations and backstopping measures, similar to how the US authorities eventually supported and regulated the Eurodollar market.
Crypto dollar adoption and categories of users
The podcast episode discusses the adoption of crypto dollars, specifically stablecoins, and identifies different categories of users. One category is cross-border payment remittances, with both legacy remittance providers and new crypto-native remitters engaging in stablecoin transactions. Another category is fintechs and mobile money companies outside the US, where users are given access to the dollar for transactions or holding, potentially with interest-bearing mechanics. The episode highlights hotspots for crypto dollar adoption, including Latin America, Eastern Europe, Africa, and Southeast Asia.
US regulatory stance on stablecoins and challenges
The podcast examines the US regulatory perspective on stablecoins and the challenges they present. The regulatory outlook includes concerns about loss of control, financial stability, and the potential impact on the banking sector. The episode discusses the actions taken by regulators to discourage stablecoin activity in the US, such as denying custodial applications and issuing warning letters. It also mentions the potential influence of large banks on regulatory decisions and the impact of regulatory constraints on stablecoin innovation.
Future trends and predictions for crypto dollars
The podcast concludes with predictions about the future of crypto dollars. The host expects a significant increase in interest-bearing stablecoins, with at least 25% of stablecoin supply becoming interest-bearing within the next few years. The rise of crypto collateralized stablecoins, starting with ETH collateral, is also anticipated. It is predicted that stablecoin market capitalization may surpass the market cap of Ethereum and potentially other crypto assets. Moreover, the host foresees the adoption of crypto dollars by other jurisdictions and speculates that the US may eventually embrace stablecoins and establish closer ties with stablecoin issuers.
Cryptodollars are the new Eurodollars. What are Eurodollars, though? Well, we get into that in today’s episode with 8-time repeat Bankless guest, Nic Carter. Nic is a partner at Castle Island Ventures, Fidelity alumni, co-founder and board member of Coin Metrics, and a prolific writer of editorials and academic articles alike, Nic is also a believer that the halvening is always priced in, he’s a stablecoin connoisseur, an onchain wizard, and an unlicensed vespa driver.
There’s over $10 trillion dollars worth of Cryptodollars out there and Nic believes that number could grow even bigger. Stablecoins are often called crypto’s killer app, however, Nic thinks we aint seen nothing yet!
0:00 Intro 8:25 Stablecoin Tribe 10:20 The State of Stablecoins in 2023 13:40 Stablecoin’s Product Market Fit 17:16 Stabelcoin Haters 19:00 Growth of the Euro-Dollar Market 21:04 Euro vs. Crypto Dollars 24:30 Federal Reserve History 34:45 Stablecoin Incentives 37:00 Euro-Dollar vs. U.S.-Dollar Backing 43:00 Circle 45:40 PYUSD 46:56 Crypto-Dollars vs. Euro-Dollars 51:15 Why the Rise of Stablecoins? 55:57 Democratic Inclusion of Crypto-Dollarization 59:19 Chart 1:03:05 Tokenized Treasury 1:07:16 Regulatory Idea Maze 1:15:00 Big Banks 1:19:30 Stablecoin Roadmap 1:24:57 Crypto Bullishness 1:28:52 Stablecoin Predictions 1:32:12 Closing & Disclaimers
