Circle co-founder and CEO Jeremy Allaire was on the Bankless podcast the other day (via Chris Lewis) and gave a phenomenal overview of stablecoins.
Circle is, of course, the company behind USDC, the largest stablecoin in the world only second to Tether.
Here’s Allaire on the future of stablecoins:
Bankless co-host David Hoffman: Where do you think [stablecoins go] in the next 10 years?
Jeremy Allaire: You can ask anyone who’s ever worked at Circle this question. My view has always been that building an internet financial system that is natively built from the ground up on the internet is a 10, 20, 30-year project. It takes a really long time.
We set out a very specific vision about a protocol for dollars on the internet that could actually be scalable and you could transact at the speed of the internet. You could do it for nearly zero cost and it would be programmable. That was the founding of the company nearly 11 years ago. If you look at where we are today with USDC and this new form of electronic money, we’re basically at the [version] 1.0 vision. We have reached the 1.0 idea, and that’s great. It’s already a scaled network, and it has a lot of reach.
But if you talk about the next 10 years, I think the growth in this can be really dramatic. I think about the market in a couple ways. First, there is a market for electronic cash or electronic money. Today, the market for electronic dollars is a $21 trillion market. There’s $21 trillion of electronic dollars. Most of that is bank risk money.
Bankless co-host Ryan Sean Adams: What is that $21 trillion? Is that money in my bank account, my Wells Fargo account?
Jeremy Allaire: That’s right. That’s M1 money supply. So that aggregates up all of the dollar liabilities that exist in the banking sector. Then you can also include on top of that the amount of dollars that are held in money market funds, which is currently $5 or $6 trillion. That’s the dollar electronic money market. Then globally, that’s about $100 trillion—a little bit more than $100 trillion—because there’s all these currencies and all these banks all around the world.
So the [current market supply of] $150 billion of stablecoins—very, very small right? I would argue that, and this comes back to something I said earlier: A world where basically you have money that inherits the physics of the internet, where you have the speed, efficiency, and reach of the internet. That is what blockchain networks are now providing. When you have money that inherits that speed, the best money is going to want to be, and people will want to be, the safest money. They’re going to want it to be almost like government obligation money. That is going to be the combination of hyper utility, programmability, transparency, and safety. When you put it all together, it’s going to be like a new predator form of money.
I believe that it will become the preferred form of money by households, by institutions, by financial players. It will become a preferred form of money because it has the highest utility and safety. The internet and blockchain networks are going to be providing that ultra high utility. Our belief is that the opportunity is basically just the money stock—there’s a huge opportunity to grow the scale of that.
E-commerce originally was 0% of retail sales. When Amazon was a monster company, e-commerce was still only 10% of retail sales. IT’s still not even close to the majority of retail sales. Same thing with streaming media—the vast majority of television consumers are still on broadcast, right? It’s not on streaming platforms. So these migrations take a long time.
Could 3% or 5% of the electronic money market be in stablecoins? That’s conceivable over 10 years. Could it be 10% or 15% over 20 years? That follows a similar type of adoption arc, but even in that scale, it’s significant.
The other way to think about the market is basically the utility side of it—you have the money stock, and then you have the utility of how you can use the money stock.
Right now, that’s expressed through markets like consumer payments, which is sort of all of these merchant acquiring fees and issuer fees and like this whole stack that imposes essentially a trillion dollar tax on the global economy through all the fees that that has. You have the utility of using that electronic money in capital markets. So the actual volume of activity that goes into capital markets, where literally there’s trillions and trillions of dollars of activity that happens there, and the payment utility of the pipes that do that.
The entire international transaction market and cross-border transaction market—which is households and firms—is this huge, slow, inexpensive and fee-prone market. Every single one of these can be improved with blockchain infrastructure, on-chain FX markets, on-chain credit markets. You can move so much of the financial primitives into an on-chain world.
You can fundamentally have the utility of money of 10x improvement that we’ve seen in the utility of communication, the utility of publishing, the utility of other mediums that the internet has produced. That utility can be 10x better and with a completely different unit economic model. The business model of extracting fees and tolls on moving value—that’s going to be challenged just like charging for long distance telephone calls is nearly inconceivable, right?
So there’s the utility side, and then there’s the money stock, and they both grow and feed on each other. One of the really exciting things about stablecoins is that they are platforms and network utilities that exist as protocols that anyone can connect to and build on.
With USDC, any developer in the world, any person in the world can download a piece of software, connect to it, and then utilize the network. Any developer who wants to have a digital dollar integrated into their own application for settlement or storage or other things, they just have to write code. That hasn’t existed in the financial system before, and that’s really profound.
Let’s just use another example of a discontinuous jump in innovation, which was the iPhone. For 10 years, people were trying to build smartphones. They were awful, every one of them—Nokia phones, NTT Docomo, Compaq, Palm Pilot, Blackberry, Windows Phone. It was a graveyard of mobile, mobile software, all of that. It was awful. Finally, there was a convergence of good UX, mobile broadband, 3G, and a really good development model. Then you had an open platform for mobile that allowed just enormous amounts of entrepreneurial creativity.
No one could have predicted that travel and logistics infrastructure would get completely reinvented by a company like Uber. That only just became possible—so I use that analogously to what’s happening with DeFi and what’s happening with stablecoins and this programmatic money model. We actually don’t know all the things that people are going to invent with programmable composable money. We’re seeing stuff every day, and it’s amazing, but we’re actually at the front end of that. When that UX layer kicks in and the scalability kicks in, and there are legal instruments that governments stand behind, Yes, this is a legal dollar or a legal euro, then I think you start to see totally unpredictable use cases that will emerge.
That’s only a ten minute snippet from a rich hour and a half discussion. Check out the entire podcast.
Enjoy the weekend!