The BETTER Way You Should Use NFTs | Converge 2022

Foreign [Music] [Applause] [Music] O'Leary, Mr. Wonderful, we're here in San Francisco at Converge, our first crypto ecosystem conference. Thousands of people are here. It's a great setting, and it's just wonderful to have you here with us for this conversation.

Well, great to be here, Jeremy. I remind you I'm an investor in you.

I am very aware and I'm very optimistic that things are going to work out here.

Well, it's been quite a journey, and actually, maybe a good place to start, I'd love to hear you talk a little bit about your own kind of journey into this space. I've been able to have somewhat of a front row seat to some of that, but it's been amazing to see all the things that you've gotten involved in as well. Just talk a little bit about kind of when did that click and then, you know, what you've been up to.

Well, I'm often reminded that I was a vocal critic of crypto in 2017. There's a clip of you and I actually on television.

You're correct, and that gets shoved in my face and in other orifices all the time. But I change as a fiduciary. So, when rules change, I change, and I have to because the people that I work with and for realize that there's tremendous opportunity in this space. I have come to the realization, just on a categoric basis, that within a decade, this will be the 12th sector because it provides so much productivity, so much transparency, and so much opportunity for all other sectors in terms of financial services that it will find its place.

We're in a difficult area now because we lack regulation, but my whole journey into it, particularly stablecoins, is the frustration I have as an international investor in the absolute inefficiency and cost of moving money between geographies which I do every day. I've detailed many catastrophes where I'm transferring capital and it gets lost for 48 hours, or it gets lost over a weekend, or I can't find what happened to it for three or four hours, and I can't close transactions.

And it turns out that banks were never good at this, and they're still not good at it, right? Well, the realization I had when I actually started working on Circle was that money is essentially record-keeping systems, like it's ledgers, right? Whether it's a ledger at the central bank or a ledger at a commercial bank or the old-fashioned ledgers that, you know, the Medicis or whatever were using.

And you know, the technology, when you kind of peel back the onion and you look underneath, like what is the technology that makes money either move slow or move fast or be expensive or not expensive, is a lot of it is just like this incredibly antiquated, you know, models of keeping track of this information.

And blockchains are a much more open, accessible, transparent, auditable, real-time publicly available infrastructure. And so, it is kind of like once you have that, and you start using it, and you think about that compared to what you deal with in the legacy world, it's like, oh my God, I would very much like to use it for reasons of all those, plus the efficiency of moving it.

And the Le, so you know, something very important happened last week when Jamie Dimon, on the Hill, a manager I have ultimate respect for. I'm an investor in his company, as every fiduciary is. It's a 5 percent weighting in any index fund. It is the best-managed financial services company in the world, one could argue. When he actually, there's no better words than to say, took a shot at crypto in front of every legislator, which was a huge disservice but also a wake-up call to make it blatantly obvious that he was talking his own book.

He can't do what you can do, and he knows that, and at some point, he's going to realize that because his clients are going to say, "I want to use that service, maybe in conjunction with what I do with you," but they're just better at what they do in a payment system. To me, it was a turning point because we're kind of at a low on legislation. I know you're working hard along with others, along with me. There's private investors that go to the Hill. I'm one of them. I mean, when are we going to get some policy on this? Because it was a story 36 months ago that everybody understood we had to wait, but now it's becoming apparent that we are falling behind as an economy on this, and you're one of the guys leading us.

I'm going to reverse roles here for a second. What are you doing to fix this?

Uh, Kevin, it's a good question. I mean, look, a couple thoughts. One, just on Dimon and his comments, I think it's really easy for critics to take a shot at things when a market, you know, market price has changed. There's volatility, all this sort of stuff, and you're seeing a lot of that out there right now where people are like, "Oh, you know, these markets are off,” and so I'm going to, like...

And you're talking about specifically the catastrophes in stablecoins of recent times, yeah. Catastrophes in stablecoin catastrophes and other parts of the crypto markets and other things as well. And so I think these lending companies that went belly up and all this... Yeah, so there's like this sort of stuff, and I think that makes it... People who want to be critical, they can kind of come out in full force.

Whereas certainly doing that, yeah. But I think it's like super. I think it's shallow, and I think it's short. It's not really thinking things through. Do you think he feels the threat of this change to his fundamental service as a bank?

Well, you know, I certainly get inside his head and thinking about this. What I would say is, and I'll come back to your question, is, you know, a payment stablecoin that is essentially like a token representation of cash that is essentially a mixture of cash at the Fed and short-term U.S. government treasury bonds, that is the sort of in some ways like would be the safest digital dollar in the world.

Whereas a deposit at a commercial bank, whether it's JPMorgan or any other, is that's a loan to the bank. And the bank is then lending the money, and you got a claim on it, but it's different. And so I think that the idea of full reserve banking and full reserve dollar payment systems is a really powerful concept whose time has come.

And I do think that is threatening to institutions that have built their payment systems around, you know, fractional reserve lending. And this, so a little bit of a digression, I think coming to the question of, you know, what am I doing about it. I mean, look, we have been advocating in many forums, in many venues for federal payment-related stablecoin legislation.

And I think the good news is that this is something everybody agrees about. So, certainly on a bipartisan basis, who doesn't want to support the U.S. dollar as a default payment system? Support the U.S. dollar; everyone agrees there's a bunch of risks that exist, and we need rules around it. We need to have clear rules so that terrible things don't happen to both end users, customers, businesses, etc. Everyone agrees what those risks are and basically how to address them, meaning the kinds of high-quality liquid assets that should back these, the kinds of reporting requirements, kind of restrictions on what you can do.

Everyone agrees about that. And so the interesting thing is whether it's the Fed or Treasury or Republicans or Democrats, everyone kind of agrees on what needs to be done. And I think, you know, we're really close. We're really, really close like as we speak. You know, people are grinding it out in Washington trying to get to land on a bill that would establish a federal model for stablecoins, which we think would be huge for the U.S., huge for this whole market.

So, we're really close. But, you know, we live in a federalist system. You've got states, you've got the federal government.

Well, I know the bill you speak of. Everybody knows it's public knowledge that this thing's being worked on. And those that are advocates and go to the Hill, you have issues with the states who don't want to play it that way. Everybody knows that, too, so you're going to have to calm them down or whatever.

Yeah, you also, and I'd like you to speak to this because I want the answer, so does everybody else. You've got a turf war going on here, and who's going to regulate this? Is it the Fed? Is it the SEC or another agency? Who should regulate? Let's just stay on stablecoin. The one thing that would make sense to go first, because we're not going to save every token here. We're not going to have a blanket bill for everything. Stablecoins could be very useful right now, and who should regulate it?

Well, I mean, I think, like as you've said, right? You want to be able to use this for payments, yes, and you want it for all the things that you've seen as an international investor, as someone who's building businesses, works in the movement of money for all kinds of professional means.

You want to be able to use this as something that is as good as cash and is accepted as like a digital cash instrument all around the world and that something that is in fact a version of the dollar, just like a bank deposit. It's like a version of the dollar that is the domain of the Federal Reserve.

An eloquent solution because if I felt the Fed, who regulates the dollar, the currency itself, was also regulating this, it would tie the brands together for all stablecoins that we're going to use the dollar. I mean, we're speaking as if you're the only stablecoin. You're not. Many, yeah, there's many. There's going to be more, right? And that's part of this legislation is to create a way to have a clear path for whether it's banks or non-banks, you know, yeah, let there be competition. I'm fine with that.

Absolutely, but let me ask you another question. It is on the minds of the institutional market for a moment. That must by definition be compliant, and that means they have their own compliance departments, as I have. They have auditors, and they have the regulators that they report to.

What's missing here, and your work is not done, is giving us the infrastructure that lets us be compliant in a fashion that's open and transparent and easy for people to work with. Now, you know, I've been using the Circle account for over a year now. It's getting better all the time, the treasury tab, all that stuff. But you're not finished yet.

No, there's, you know, in order, you know, to take cash and say, "Okay, let's move 50 million into this thing and start paying, you know, to manage our fundamental treasury operations," right, fundamental treasury operations because it's a sweep account. It needs more dashboarding, more structure.

Yeah, are you working on that?

Yeah, absolutely. So, one of the exciting things that we have going on here at Converge is we're going to be talking a lot about where we're going with all of our platforms. We kind of have this concept of kind of business banking. What is the future of treasury accounts? What are all the things that you're going to be able to do? It's a huge investment area for us.

So, it should be. We have a vision for what the next generation commercial financial account looks like that is 100 percent digital asset-based and that allows people to seamlessly interact with, you know, counterparties, whether it's in payment experiences or in, you know, dealing with the ways in which people are interacting with DeFi and other things.

And so, we definitely are advancing it. I think, coming back to the regulation question, it’s really critical that, you know, everyone from the CFO to the compliance department, the third-party accountant or accounting firm, etc., that everyone knows what are these financial instruments, where do I put them up in my books and records, and how do they get reported? How do I treat them? If I accept a payment with this from a customer, what is that?

Right? And this, it’s the unglamorous part of all of this. Well, it's the most important. It is actually like foundational.

So, actually, here's an issue that I have, and many institutions have right now. We cannot call our stablecoin, in my case, it's USDC, that does not get placed in a cash sweep on my balance sheet right now.

It is essentially, to my auditors and compliance, a rogue currency. It is because there is nowhere they can go to get the assurances that this is tangible and it should be considered cash.

Yeah, it's, it hasn't broken a dollar, and I argue, "Well, this should be treated as cash." And they said, "Well, show me where. Show me the regulation." So this is the key, and it ties to like who should regulate this and things like that, but it also is, you know, and this ties into the broader, I think, digital asset space as a whole which is we need national definitions. We need to say, "Here's what this is." It's defined at a federal level, and then everyone can say, "Okay, here's the federal statute for what this is, and here's how it's treated if you're holding it and how you're protected in bankruptcy."

It's, you know, here's what we know. It's composed of, because by law it has to be, and so it's a cash equivalent to be sure. You won't care if I keep it in Zurich or if it's sitting in London; it doesn't matter because that's where it's going.

If you got me that, that's where I would be going.

Yeah, I mean the power of this is that this is dollar digital currency that works on the Internet. And so, and yeah, you're going to have, you're going to have lots of digital asset intermediaries that provide products and services everywhere in the world. But they're going to be able to settle transactions with each other at Internet speed and virtually no cost.

Okay, let's talk about another area of disappointment. Again, speaking now as a crypto investor across many, many positions. I've got at least 40 different projects. I'm an investor because I believe in diversification. I don't know with certainty which ones are the attraction.

The ETH merge was a huge disappointment if you're an investor. I mean, you're down hugely on that, and you know it has merit, but it’s not what people thought it was going to be, and it's still misunderstood. But leaving that aside, where I see a lack of adoption now is because wallets are too complicated for the everyman. Totally, it's a mess.

Yeah, and it’s just, it's a problem for you too. I think about this as like for the next 500 million people to a billion people to get involved in this, the crypto of it has to go into the background. So, you know, the things that you need to know, like, you know, what is this long string of texts and numbers?

And like, what if I got that wrong? And I couldn't paste it wrong? And like, what are gas fees? Like, all this stuff, way too complicated.

Like I can tell you, for example, with email, all the underlying like protocols and this and that that makes her email go and makes it work so that when you hit send, it gets to someone else, but no one cares. They just log into their Gmail or whatever it is, and it just works.

It took a long time. It actually worked. It did, right. It took, that was five, six years of iterating and stuff. And I think that this is a critical piece of the next wave of adoption is user experience, making it safe, kind of safety and user experience, whether you're a retail individual or a treasurer inside a company, right? Those have to get kind of solved, and those are the things that will unlock this on a mass scale.

So I 100% agree with you that, you know, we're, you know, we have the Jeffrey Moore's famous technology adoption lifecycle curve, and you've got the early adopters, and then crossing the chasm, and then the early majority.

We're still staring over the precipice of the chasm right now. Like we're the early adopter phase, and you know the leap to the other side, you know, the early adopted phase. People tolerate the analogy of a baseball game. If we're going to get crypto to the 12th sector, the S&P, which I think it will get to, and that will be a very big outcome for investors like me, I'm so nascent in one of these projects, I don't know which ones are going to work, but I only need two or three to work, right? And they'll be very valuable. Where are we? First inning? Second inning? Third inning?

Yeah, you know, it's interesting. Yeah, like at Circle, when we got started. Yeah, I founded the company with my co-founder over nine years ago, and there was my view that it was like a 20-year journey. I had hair when you started the company; so did you probably. I'm aware of that.

Yeah. And I think we had some basic ideas about what it would look like to have a protocol for dollars on the internet that could be open and interoperable and so on. Those are the ideas we had nine years ago, and I thought to get to the place where this stuff works and it's fast and scalable. I thought it would take about 10 years, and so we're kind of on schedule for that, and that's like a, that's like the starting gate, right?

Once you get to that, then you're like, "Okay, now how do you scale this out for all the users?" You really thought 500 million people would use USDC?

Yeah, you can't do that on Ethereum. Well, so I think you can do it on the different scaling models that exist, so Layer Twos on Ethereum are showing a huge promise: Polygon, you know, optimism, Arbitrum, these are all emerging. And then there's a lot of competition in the base, these base protocol layers, layer ones.

I'm glad to see it, yeah. But I'm thinking, but we're at a place though where in the next two to three years you probably remember very well when we had the first, you know, we had dial-up internet and then we had broadband, but it was kind of like, you know, Telephone Company Broadband that was like, "Ah, it was like four times faster than dial-up," right? DSL or, you know, you had these kind of things.

It was, it was shitty. It wasn’t very good, yeah. So we're right in that, we're right in that phase where we're kind of like in the DSL of blockchains and we're getting really close to the fiber optic, and so that's key, right?

Will you, will you pick a platform because there's lots of competitions: Solana, Polygon, you mentioned. Missing a new idea, I mean...

Well, you know, we are, you know, we, we, um, are you going to support them all?

We're adding more and more here at Converge. You know, we've announced adding Cosmos, Polkadot, Arbitrum, Optimism, Near, and there are more on the way. And we've also announced a cross-chain protocol that makes it easier for developers who are building those wallet apps to not have their users to have to worry about it or care so that you can send or receive no matter what.

Because in reality, if you get regulated and are one of the regulated stablecoins, this is where the use case starts to get interesting and for the new user that comes in, that's waiting for lightning speed transactions. They don't want to, I mean, if your credit card took you 47, they don't want to think about it. They don't want to think about it.

So, you want to drag some of those platforms with you to provide that speed? Absolutely, yeah. So you know, I think the important thing is, you know, there are a lot of competing infrastructures. I also use the analogy of, you know, there were 17 mobile operating systems at one point and everyone, you know, Compact, Microsoft, Palm Pilot, Nokia, NTT, Samsung, everybody had some other competing smartphone operating system.

And no one knew at the time which one was going to get the developers and which one was going to become usable by a billion people. Obviously, Steve Jobs got it right, came in, was patient, and delivered something that everyone could build on, and then was cloned, obviously or copied to some degree by the likes of Google.

But I think, you know, do we have the iOS of blockchains yet? Maybe. Maybe it's in front of us right now, but we're going to see that emerge and that's going to be really critical to the kind of scale that we're talking about.

So, let's talk about something else because there's a parallel path developing for blockchain that has gotten a lot of press, mostly negative: NFTs. This first iteration of apes and JPEGs, they have basically been wiped out. I mean, it's fun and it was interesting to see them trade for half a million dollars and then just get wiped out.

But there's also brands out there, and I know this because I work in certain verticals. I'm a huge watch collector, and in the watch industry, the secondary market is much larger than the primary market. Every watch that's made by Rolex is sold, and there's nothing to buy from Rolex right now, just as an example. But there's billions of dollars of Rolexes that have been in the market since the 50s that are trading every day; unfortunately, many of them fake.

And so what that, what that's what the secondary market wants is to use the blockchain through NFTs to authenticate physical assets. Now, in the negotiations we're all having and the discussions we're having, and I want your opinion on this, when these are used to authenticate paintings, watches, pens, jewelry, real estate, and cars, and all these, all property, right?

So what is that? Is that a security? Because I'm going to add a little nuance to it. One of the reasons the watch industry is looking at this, and there's a group of us that are in the horological societies, I'm one of them, we're pointing out to the makers like a Patek Philippe, an FP Journe, a Rolex, right? Every time the secondary market trades your watch, you get nothing.

Yeah, and it's trading at 400 percent higher than what you made it for. You're in the same situation that a rock band watches and happens to the secondary ticket market of a hot show wouldn't you like to get three to seven percent?

Yeah, I mean, it’s such a great powerful thing, but what is that? Now that NFT authenticates the maker, authenticates that that was made in the factory, and then it starts to trade in the aftermarket. Is that a security, paying a utility dividend?

We'll have to see what lawyers think about all that, but, um, but what do you think?

I don't think so. I mean, I think that these are technologies that make it possible to have better records to authenticate property and the ownership of property. I think if you're fractionalizing the ownership, then you're crossing into...

Not fractionalizing; it stays with the piece from owner to owner.

Yeah, I mean, I think the idea that you have, you know, kind of royalties or equivalent, you know, downstream payments that as a piece of property is bought or sold, that the originator of that property can receive, you know, a piece of the payment associated with it.

I mean, you have structures like that, that are certain NFT protocols like the NFTs that get minted can only be transacted and transferred through the protocol, and the protocol itself includes that seniorage, essentially, for the originator.

So there's ways to do it, even at the protocol level, and I think that's more of a commercial arrangement for the buying and selling of property versus a security. There's not, and you're not making an investment for, you know, an expectation of profit.

So it's always the effort of others. If you're buying art, if you're buying art down the road, when, and I'm a buyer, I would want the authentic, I would want to own the NFT that authenticates that piece of work.

Yes, but the state of the artist, should that person be passed, right, would get a royalty because it's trading, and every decade when it trades again at a higher or lower price, they get a piece.

Yeah, to me, that's a commodity that is not a security. Right, right. Yeah, you're dealing with the transactions of commodities.

So we could end up in a place where you fractionalize an NFT as a security, that's right, with a prospectus, or if it's an authentication vehicle, it's a commodity. I think that's where we got to get to.

Yeah, I mean, part of this is just like how do we use NFTs and the utility that comes from them, which unlocks all kinds of different forms of entitlement around ownership, whether it's the creator or someone who possesses it, and entitlements that they might get.

So I think, you know, early days there, but it still has huge, huge potential as well. So let me hear your thoughts on this because guys like Sam Bankman-Fried have tried, you know, Binance has tried. The really big firms to get the message out about crypto, to commercialize the message, and it's been a real struggle because there's a really tight, small crypto community of really rabid fans, if you want to call them.

Right, that's, in my view, starting to hurt this space because a lot of them don't believe in regulation. A lot of them believe in decentralized only. A lot of them are rogue in terms of the way they think. Some of them are founders of these chains.

That's not helping because to get the 500 million you're talking about to use this stuff, people have to feel safe about it. They have to think, "Okay, this is just a better mousetrap," and everybody else is using it.

Where do you sit on the continuum? And I could call you out on this. Are you a founder fundamentalist, or are you, you know, an advocate for full regulation, full transparency? Are you somewhere in the middle? Are you trying to keep everybody happy, which I'm finding is impossible?

Well, I am more in the middle, but I think I've always believed that we're simultaneously building a new internet. We're building a whole new layer of the internet, and it's really vital that there are kind of first principles that can be upheld in what that infrastructure is.

Maybe I should ask the question a different way—more binary, more black and white. Are you for regulation or not?

I think regulation is critical for the financial applications of this. The technology is useful in so many domains, even outside of financial. And so the key is what we don't want to do is over-regulate the infrastructure layer itself because that is, to me, just like trying to regulate, you know, internet protocols.

I mean, for USDC, which is... that makes sense. I can't even use it. Yeah, if this doesn't get... I mean, we're only able to offer the product we do today because we actually did launch it in a regulated manner through the money transmission rules and payments supervisors.

You built it to roll on the regulated highway, but it's not the regulated highway yet because my auditor won't let me call this a cash equivalent, which is extremely screwed up.

Yeah, so clearly, like, it's a constant kind of upgrading of that kind of statutory environment. Yeah, but you know, there is, and you will certainly get some of this in this conference, and thank you for hosting it. I think it’s a lot of influencers and thinkers coming here to... and many will air their frustration, as I will, because this is getting really boring.

Like we got to get something done here, yeah. Talking about... I think that's right. I mean, this is like, and I'll be beating this drum, you know, not just here but all through the remainder of this year, which is like the time is now for Congress to act.

This isn't just going to come from an agency issuing new rules. This requires Congress to act because it's novel and new and we need these clear statutory definitions and statutory swim lanes, and so now's a critical time for the United States to act.

And it is making the United States look ridiculous. The fact that our Congress cannot get together on something that is so clearly going to be a vital part of the way that the Internet economy works for the next, you know, decades.

And so it's a pivotal moment from my perspective. I'm a little optimistic on that of late, the last few weeks, because when I first got to the Hill, everybody was holding on to their bill as if it was their brand, and now there seems to be consensus that they don't care which bill gets advanced, whoever's got their name on it, they're going to support it.

We've got to figure, which I think is a major move as we're going into the midterms to see that, you know, yes, Hagerty and Tumi and Hildebrand, they're all pushing what everyone was going to go.

Yeah, and I think that's very bipartisan. I think you've been a big advocate for that. You've done a good job on that.

Yeah, I also believe that the one thing will just getting stablecoins done. Yeah, it's the lowest hanging fruit.

Yeah, it's the lowest hanging fruit, but it would also signal to the rest of the crypto market, primarily the institutional investor market. I actually think that if you—and this is speculation—that if you got this thing done with just stablecoins and you got it regulated, it would increase the value of a lot of different positions I have.

Including... I'm happy to hear that because they would make the assumption because we're stuck in a 17 to 22 range on Bitcoin, and we're never going to get out of that if we don't get institutional support. It's just going to sit there forever.

It's not a bad outcome for miners of scale; they're making, getting awards at seven to eight thousand, they're trading them at 17 to 20. But it's really getting old and it’s losing its momentum as an idea because it can't seem to get anywhere.

Well, this is a breakthrough moment technologically in terms of user experience, in terms of regulatory, in terms of, you know, people delivering on, you know, the real utility value of all this.

And, I mean, you're, I think you're dialed into all the right themes for what's needed here. I think I think I am, but I hit, I go everywhere where I can make, you know, when I can talk about it to people that will listen.

I'm very fortunate to have a massive platform to speak to, but there's a fatigue in this market now, yeah, and there's a lack of adoption, and there's a lack of wallets that we talked about.

There's a lack of a lot of stuff, and it's really coming to the front now. People are saying we've got to break through this. It's like a giant log jam.

Yeah, well, that is what we are trying to do, as an industry. And, you know, Converge is—we're bringing all the players together. And the big theme is from speculative value to utility value. Like, that's the key.

We've got to grow for you. That’s, you're actually the test case; you are the anchor of that.

Yeah, you are definitely the canary in the coal mine here, and it's a remarkable time. It would be great if you were able to announce some regulation on this thing; it would be a game changer.

Yeah, I'm very optimistic if anybody can do what you can. There’s a lot of people rooting for you, a lot of investors rooting for you, a lot of people that want to use the product that can't.

Yeah, it's really time. And so, you know, let me speak on behalf of the entire industry: get this together. If you liked that video, will you see my next one? Don't forget to click right over here and subscribe.