513 Stablecoins Going Mainstream

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Welcome to Breaking Banks. I’m your host, Brett King, and this is, of course, the number one fintech podcast and radio show globally. Today we are grateful Paxos, and we are going to talk about some recent news about what’s been happening on their front.

And joining us also is someone from the team at MasterCard, who’s a strong partner of Paxos. We’re going to get into that. In fact, let me introduce them right now.

We have Mike Cassetta. He’s the head of revenue at Paxos. Mike, welcome to Breaking Banks.

Thank you, Brett. Great to be here. And Jonathan Anastasia, he’s the EVP of crypto and security innovation at MasterCard.

Jonathan, welcome. Thank you, sir. Appreciate it.

Before we get into the Paxos and MasterCard relationship, what I think we should do is, of course, cover off the obvious news. Paxos launched in cooperation with another strategic partner, PayPal, the new PayPal Stablecoin or PayPal USD. So this is very big news.

In fact, some of the news coverage of this was pretty interesting in terms of this being considered a pivot point for the industry and so forth. So Mike, that’s that’s big news for you guys, right? I think it’s big news for the industry. We’re very excited to be a partner for this.

We’re very excited to see a regulated stablecoin injected into one of the largest financial service players in the world. And I think there’s a really exciting future for what PYUSD can mean for crypto, for payments, for just innovation in terms of global money movement. And I think it’s just the start.

You know, we saw you mentioned the news cycle in the news cycle exploded two and a half years ago when PayPal launched crypto trading. And I think you’ve seen a similar kind of wave of momentum around PayPal now injecting a stablecoin into its ecosystem as well. Yeah, absolutely.

I did notice it’s on you’re running on the Ethereum rails. That’s right. So, you know, and that makes sense given, you know, the stability of Ethereum and the and also the fact that there’s a whole lot less speculation on Ethereum than some of the other digital currencies that we’ve we’ve seen.

You know, from our perspective, you know, stablecoin technology really enables money movement in just a different way. Right. It enables it to move faster.

It enables it to move just as securely, if not more securely, transparently. And, you know, PayPal has always seen itself as an innovator in the movement of money among peers, you know, for merchants, you know, payments, goods and services. So stablecoin obviously represents another innovation in that field for them.

And I think given their brand, their regulatory relationships, their, you know, very large compliance infrastructure, it’s also a way of saying, hey, we can inject blockchain technology into an existing ecosystem and do it right, do it compliantly, do it under the regulators good graces and to do it in a transparent way where now, you know, more innovation will come and, you know, we’ll always look at more blockchains with them and we’ll think about more real world use cases of the stablecoin. But this is really just the beginning. And I think there is, again, a very big future for what PayPal even has in mind for the coin.

Right. Because, you know, I think you make an interesting point there. Everyone’s going to focus on the stablecoin piece of this, but particularly given the recent regulatory attention on, you know, digital cryptocurrencies and stablecoins and so forth and, you know, the SEC’s categorization of those and the Fed jumping in on and so forth that, you know, you really have to have your, you know, T’s crossed and your I’s dotted when it comes to the infrastructure component of this now, because, you know, financial services is critical infrastructure in the state.

So you talk about this regulated blockchain infrastructure. So can you just help me understand, you know, from other stablecoins that we’ve seen, how does your blockchain infrastructure differ? Yeah. So I would say Paxos is probably the safest and definitely the most experienced stablecoin issuer in the space.

You know, protecting customer assets has been core to the mission and protecting customer, you know, security has been core to Paxos’ mission for a very long time. And we only launch products with oversight and regulation from a prudential regulator. And I think that really differentiates, you know, our stablecoin products from many others.

We’re the most experienced issuers of regulated stablecoins today. We have the largest issuance of regulated stablecoins in the world, combining both PYUSD, USDP, and even previous white labels that we had launched. So, you know, what’s probably most important to an end user and even to a platform partner like PayPal or MassCard or whoever, right, is that their users and their customers’ assets are 100% safe.

And, you know, we can only operate the stablecoin under the guidelines and the mandates of the New York Department of Financial Services oversight. And that means assets have to be bankruptcy remote. They have to be backed one-to-one with cash and cash equivalents.

And there’s a very long history of banking law in New York and in the US to protect the assets that are held in trust. And I think that type of security and stability really goes a long way to saying this is not just a stablecoin used to buy Bitcoin or used to buy, you know, crypto or to be in DeFi. This is really a financial asset, and it’s meant to serve as a very pragmatic financial asset for the end user as well.

I just want to add to that, Brad, because I think what Mike just described, I think, is key to the growth of the entire ecosystem, right? Like, this is exciting to me that Paxos is leading it. That’s what led us to our partnership with Paxos as well. The fact that they are regulated, compliant, have the highest level of safety and structural standards in the way they build things.

So if somebody was going to bring this in as PayPal with potential hundreds of millions of users doing it and being involved in the community and the ecosystem, seeing that Paxos underpins it, I think is going to be tremendous for the growth of the community going forward. That’s what’s exciting to me, right? It’s the idea that now millions of people have access to be involved in the ecosystem in a safe and compliant way. And I think that underpinning is a key component of Paxos and why we’re really happy to see Paxos going forward with different partners in this way.

Absolutely. Hey, Mike, you know, you talk about regulated and, you know, regulation of stable coins is a fairly recent, you know, in the United States, at least, is fairly recent. And when you look globally, there’s still, you know, regulation is still settling around this.

But, you know, how are you attacking sort of ongoing regulatory compliance? The goalposts have been moving, you know? Yeah. It’s core to our business. You know, regulation is not a nice to have or a goal for us.

It’s literally the way the business has operated since day one. Paxos was the first regulated crypto exchange in the world, launched in Singapore. First bit license issued by New York State was given to Paxos.

You know, first asset, sorry, first digital asset trust in the United States was Paxos. So to us, it has to be a core to how we operate. And although regulations change, regulators change, they tend to come back to the same core aspects, which is protecting, you know, users, you know, financial assets, protecting their security and ensuring security as part of the way any, you know, platform operates.

But also that this is being done in a transparent way for the likes of compliance and risk and that at the worst, it operates like an existing dollar today. But really, it should operate even more advanced than a U.S. dollar can today. And I think you see advanced levels of security and compliance built in the crypto ecosystem, specifically with stablecoin, that goes even beyond what we see in the fiat world.

And we’re excited to really match this into the traditional financial services world, which is why we’re excited about partnerships like MasterCard to be able to bridge that gap and to operate again in the most regulatory compliant and transparent way possible. Jonathan, this is a fairly rapidly moving area, but you guys have, you know, stated, you know, fairly early from the get go that you’re essentially agnostic to, you know, currency platforms that might sit on the MasterCard rails or in that environment. But, you know, how do you consider the stablecoins that can exist on the Paxos platform? No, I think it’s interesting.

I think, again, what you’re talking about, though, again, from Paxos being the provider of the stablecoin, providing the infrastructure, we looked at that as well. We were engaging them. We had multiple tenants of the way we wanted to engage, whether it was the buy, hold, sell crypto potential, things that we’ve talked about openly about stablecoin settlement on the network at some point in the future, things like that.

It does come back to who’s being done in the most regulated, compliant way. And just one thing you said, Brett, that I think is funny when you talk about attacking regulations. I think it’s a bit different than that.

I don’t view any of this as attacking regulations. I view it as regulations are there to provide the framework to allow you to grow. And regulations are helpful for business.

It’s done the right way. Regulators and regulations facilitate growth. Yeah, yeah.

No, I didn’t mean attacking regulation. I mean, what’s the strategic approach to compliance within Paxos? But anyway, thanks for pulling me in. No, no, no.

I just think it’s important because I think that’s the thing. We want, the whole goal of this, which I’m hoping what Paxos is doing by this as well, it’s pushing the agenda of the conversation forward. I mean, I think the news cycle, which is so great about it, that lawmakers on both sides of the aisle are like, wait a second, we need to get involved.

If you look at the Ripple decision, the Fed to your point, a couple other judicial decisions, this needs to be moved along. And the fact now that millions and millions of just Americans are going to have access into this ecosystem to be involved, I think lawmakers and regulators have to take a much deeper look to say, all right, do we need to adopt something like Vara? Do we need to adopt something like Nika? Do we need to now put a framework in place so people can trust the ecosystem, trust the stable coins they’re engaging with, trust whatever crypto they want to be involved with, trust the blockchain-based solutions? I think it’s pushing the narrative forward, which is great to see. From our point of view, as we look at it now, it is, okay, how do we engage? How do we involve? To your point, we’ll be agnostic about it as long as it is done in a compliant fashion, in a regulated fashion.

We want to simply facilitate things as a network. How do we continue to grow ourselves as a network in this space? It is, how do you engage yourself in the proper manner in the flow of these funds to help facilitate the ecosystem, the transmission of data and information around the world? Great. We’ve covered off the stable coin, but let’s dive into some of the structural elements, particularly of the partnership.

I want to get into CryptoSource and the MasterCard and Paxos partnership a bit. If I can start with sort of a segue, which is, if we look around the world, I was with Sopendu Mahanty today, Mike. You would know him from Singapore, given you have that.

Of course, for those that don’t know, Sop is heads up fintech for MAS in Singapore. And we were talking about the fact that globally today, more people use a wallet to pay for stuff. And that’s certainly the trajectory that’s happening right now, other mechanisms of payment.

But the really interesting thing that’s happening with the wallets, of course, is we are seeing some variation in value store approaches and so forth. But we are seeing a lot more different types of currencies that can be built into these wallets. For example, the ECMY central bank digital currency and supported by wallets like Alipay and Ant and so forth.

But for both of you looking at this future of wallets, obviously, this is a really strategic partnership between you guys because the future of wallets is not just being able to pay for stuff like we have today, but the programmability aspect, combining artificial intelligence into these platforms and so forth, which leads us, of course, towards the requirement for more digital forms of money. So maybe, Jonathan, let me start with you. I don’t want to get too far out, but looking 5, 10 years down the future, how does MasterCard think of your platform in terms of the ability to support this sort of wide range of potential currencies and tokens and CBDCs and those sorts of things? Great question.

I think let me speak a little bit for myself as well for this because I think we start talking 5, 10 years. You go back to 10 years ago. I don’t think in 2013 we would have been doing the things we are doing now, right? I think the expansion, the growth of this ecosystem, the technology has been so rapid and phenomenal, but I think from a MasterCard point of view, we always look at it that we want to facilitate any sort of customer interaction.

So from that, whether you’re talking about a transmission of identity information, whether it’s a payment of funds, whether it’s money movement, whatever the case may be, we want to be the seamless interaction point that helps facilitate. So if you start looking 5, 10 years out, what does that potentially look like? Is the idea that whether you have a digital wallet, whether you’re using IoT advice, whether it’s still based on a card or a simple chip or whatever the case may be, whatever the form factor is, from a MasterCard point of view, the idea is that if you see the MasterCard branding, you know that you can trust that whatever interaction you’re about to have will be safe, will be secure, and it will work no matter where you are in the world. So now if you start to think about that, the natural state of where blockchain and the technology goes to is that interoperability, is the global connection, is the fact that everyone should be able to engage with it.

It’s going to take us time to get there, but what we’ve done strategically over a period of time is say, sure, we’ve laid the pipes under the Atlantic Ocean 50 plus years ago. We have the card network. How do we continue to start overlaying different abilities and networks on top of that, on top of that core competency? So as it goes from card, then we start to engage in real-time payments and further into the account-to-account payment side, now into on-chain activity.

And the idea starts to become you have this overlapping lattice framework that connects everything without any seams to it, that it all simply works. So in a future state when we’re talking about a wallet environment, whatever it may be, that you simply have the ability, that you have your checking account, you have your debit card, you have your crypto account, you may have your loyalty points, you may have Mario Brothers stamps that you got from a game that’s now sitting in your wallet, Xbox tokens, whatever the case may be. And all of those assets are able to simply operate, be exchanged, and facilitate a flow of funds.

Because at the end of the day, a lot of times a user, the consumer itself, they don’t go to the local coffee shop thinking, all right, where am I pulling this money from? They want to be able to pay. They want to have that cognitive offload to simply engage. So going backwards, you’re talking about the programmability of this aspect of it.

The idea that if you have that solution, that interoperable wallet, that anywhere you’re in the world, you have access to different funds, you’re able to make that transaction, make that human interaction. And seeing the MasterCard mark, knowing that it’s trusted, that’s the ideal future state. Because what you do by getting to that level, you’re taking out the necessary concern of, okay, is it a CBDC? Is it a stable coin? Is it a Bitcoin? Is it my checking account? Whatever the case may be, you’re able to operate them in a seamless way.

Now, again, said five to 10 years down the line, right? That’s what I think the ideal state becomes. And from a MasterCard point of view, the conversation, the partnership we have now with Paxos puts us down that line. Because if you think about what I’m talking, what’s necessary in that solution, custody has to be part of it, right? Where are those different assets stored? How do you facilitate tokenized assets and tokenized real-world assets and stable coins and crypto and CBDC, no matter what form it is, those form factors have to exist in some location that then facilitates the movements of it in an instantaneous way.

So I think it’s that side of it. And where I want us to continue to bring to the table, from a MasterCard point of view, we have our franchise model that facilitates the global interoperability in 210 plus jurisdictions. So if you think about the different regulations, you think about even the real-time payment and account-to-account infrastructure, a lot of times you have the problem of how it moves across border, how it facilitates the conversion from different places.

That’s one of those areas as well that I think we need to continue to double down on that franchise model, that global interoperability. Because if you truly believe in the technology and what the end state of blockchain can be, and these different form factors all have to work together. So that’s the five to 10-year idea, if we can get there.

Yeah. Mike, how do you, first of all, how do you envision the wallet evolving? And secondly, can you explain for those listening how Paxos fits into that ecosystem? Sure. So I think the ecosystem touches on a lot of the benefits Jonathan mentioned, which is blurring lines and reducing friction and seamlessly integrating the workflow and the money flow that people do every day into a place where you don’t have to think about where is this coming from? How does it get there? How do I know how to move from this to that? And that’s such a critical aspect of what you’ve seen in many of the super apps that are out there, the WeChat, the Alipay, even CashApp now, and what PayPal is continuing to build.

Because I think that’s a really important way of blurring, again, the complexity away so that people can take advantage of the opportunities of a new technology, but not have to actually worry about how they work. And one of the biggest gaps you saw at the beginning of the crypto evolution was the need to have this wallet and how do you set this wallet up and how do you secure it? How do I understand this? And again, if you describe this to my mom or someone who’s not a fintech expert, they wouldn’t have a clue, which is why you only saw a small amount of early adopters. So our view is that you have to make the wallet really easy.

And what’s the easiest way to make the wallet easy is to put it inside of an existing ecosystem or an experience that people already use and have. That could be their bank. That could be their brokerage account.

That could be their peer-to-peer money movement account. And the partnership with MasterCard is about helping be able to offer that wallet capability to store, to buy, to sell, to transfer, to hold, in the most integrated, seamless way possible with an institution or a partner that the user already trusts. And I think one of the best ways to overcome the knowledge gap that drives innovation to get people into the innovator curve is to, again, attach it to as many existing workflows and existing places that they’re already using and know how to use.

And I think that’s what the partnership is meant to do. Over time, you will see a proliferation of wallet types, you know, identity types, identity that becomes portable, right, so you don’t have to log into 10 different- Digital asset wallets, yeah, yeah. Yeah, and those assets, Brett, can be, as Jonathan mentioned, it could be a Bitcoin, it could be a dollar, it could be a Singapore dollar, it could be a digital image, it could be the title to your home.

Yeah. So that’s an exciting world where all of that is controllable from a centralized, easy-to-use interface. I like Mike’s point, I think it’s really key, attaching it to where people already are interacting.

And so that goes to the core point, I think, when you’re asking, Brett, and back to the partnership with Paxos, the idea that I have my Citi mobile application. Right now, I open it, I see what’s on my debit card, I see what’s on my credit card. How easy is it to then say, all right, I want to buy crypto.

Engage right there, facilitate, turn it on, do it. It’s that native experience that you’re in. And to Mike’s point, you know, when your dad calls you up, and I’m sure we all use this sort of example, like if my dad calls me up and he’s on vacation, he’s like, hey, I just bought something from, you know, cryptohottake.com, is that okay? I’d say, no, dad, you probably shouldn’t have done that.

But if he calls me up and says, I just bought $5,000 of MasterCard stock, you don’t ask where he did it. To your point, you don’t say, did you do it at Schwab, Morgan Stanley, Robinhood? You just expect them to be able to interact. So taking away that thought of, to Mike’s point, like the non-early adopters.

So they are simply in a comfortable zone of where they normally interact. That’s the goal to drive adoption in space, from a wallet point of view. So, I mean, you’ve got quite a bit of responsibility in that respect, because, you know, taking on this partnership and offering, you know, this stable coin platform or, you know, the Paxos capability, you’re essentially, you know, saying to banks, yeah, we trust this platform, right? Yes.

And banks are increasingly interested in sort of getting these capabilities. We’re not going away. Crypto and stable coins aren’t, and CBDCs aren’t going away.

So banks are going to have to get in the game at some point. Let me add this point in. It’s more than this, they want to be involved.

It’s not going away. Most banks are tracking down to the cent when they see money leaving their ecosystem. So we go back to when crypto hit $3.1 trillion, $110 daily trading volume, $110 billion.

The banks were looking closely to say, wait, my 18 to 45-year-olds are getting their paycheck and they’re immediately taking it out and depositing it into Kraken, Binance, Coinbase, right? And it’s leaving the bank ecosystem. Well, look at what happened with the UnionPay 2.0 in China, right? With Alipay and WeChat Pay, exactly the same thing was happening. All the banks were just seeing was an exit of a deposit.

Their deposit salary comes in and then the wallet gets charged up. And they’d lost all visibility of those transactions. I think Jonathan hit it.

These banks, these brokerages were seeing not only users leave, but the deposits leave even of their existing users. And what do all companies want to know is that, am I serving my existing customer? Am I able to attract new customers? And the reason interactive brokers came to us and the reason PayPal works at us and MercadoLibre, NewBank, is because they all want to be able to serve their customer with what their customer wants, but again, to do it in an easy, safe, transparent way. And also, as Jonathan mentioned, when you partner with a company like MasterCard, that’s probably one of the five most recognizable logos in the world.

And that logo means something and it conveys something. And to attach that to a new space, I think, is a very important kind of like sanctioning of it to say, hey, this is really, this is almost blessed as secure and as upstanding. And that puts responsibility on all of us.

But we want to do this, again, in the way that regulators deem safe, that users deem safe, because that’s the only way this becomes a mainstream adopted product type and technology across many industries. You know, again, not just the native crypto users and the native crypto apps. Excellent.

Well, if you’re wondering what all the fuss is about digital assets and so forth, if you’ve been watching the news on August the 14th, it was announced that Shanghai plans to establish a blockchain infrastructure capability for the city, aiming to streamline its processes within the economy, public services, and from a governance perspective. They hope to have the blockchain infrastructure fully implemented by 2025. So this is how smart economies are starting to adapt to the future potential world of digital assets and so forth.

China is certainly taking it very seriously. Let’s take a quick break. You’re listening to Breaking Banks.

We’ll be back with Paxos and Mastercard in a moment. This show is brought to you by Alloy Labs. As much as we love talking on the show, we believe that action is more valuable than talk.

Alloy Labs is the industry leader in helping fearless bankers drive exponential growth through collaboration, exclusive partnerships, and powerful network effects that give them an unfair advantage. Learn more at alloylabs.com. Alloy Labs, banking unbound. Welcome back to Breaking Banks.

Before the break, we were joined by Jonathan and Mike from Mastercard and Paxos, respectively. Could I start, Mike, with this partnership, which given everything that’s happening with PayUSD and everything, this is all very obviously positive news. You guys are to be congratulated on this because it’s been a pretty interesting few years in the crypto space.

But could I just maybe start with, first of all, can you define what this partnership is really about? What’s the product crypto source? And then how did this partnership get started? Absolutely. And I definitely want Jonathan to jump in here. But we see this partnership as an out-of-the-box solution for existing financial service companies who are customers of Mastercard and partners of Mastercard to be able to offer various blockchain solutions to their end users.

And to do it through an existing relationship that they already have with Mastercard, to do it through existing partnerships and engagements they have with Mastercard, but to really make it turnkey, simple, and easy to launch and integrate for those customers. And to do it, again, with a trusted partner and a trusted set of guidelines that really makes everyone feel good that this is the right path forward. And to build on the security that Mastercard has already put in place across its network, the reputation it has, the brand recognition it has, to make, again, the ecosystem grow.

And really our goal here is to grow the pie of where crypto and specifically crypto source can apply. And we’ve seen a tremendous amount of demand globally from some of the most traditional institutions to the very, very innovative and forward-looking Mastercard partners as well. So I’m sure Jonathan has more to add from the Mastercard perspective.

Yeah, I think it’s a great point. It sprung from the idea that getting involved in crypto blockchain, there are kind of three main pillars for our point of view. We started looking at this in terms of you have to know your transaction, make sure that’s safe, secure.

There has to be custody of the assets. And there has to be some sort of standards around how it works to make sure that that trust is embedded throughout the entire process. So we started looking at those custody providers, those players, those infrastructure companies.

And the conversation kept coming back to Paxos as somebody whose principles and beliefs in following proactively with regulators, being secure, making sure that everything is to the highest level standard, that began that deepening of the relationship with Paxos. We had to figure out how to speak the same language, how we’re going to go after things together. But now is the opportunity to go in front of banks around the world to say, look, we don’t want your customers leaving you.

We want you to be able to offer them what they want to keep them there inside of your banking applications, inside of your online presence. And that’s what CryptoSource is, that idea of the two partners who are highly respected and well thought of in this space coming together to offer banks that very safe, secure, trusted solution to allow their customers to do buy, hold, and sell crypto to start with, to get them involved in the ecosystem. How did this kick off this relationship? I don’t even know the starting point of it to be totally fair.

So I know for myself, I was looking at, we were looking at from the teams, custody providers, custody solutions of where to engage, the right way to engage. And I think some of my colleagues had started some conversations with Paxos around what we could potentially do. And I remember I got looped back into it from MasterCard point of view.

We said, look, we believe this is the opportunity. I think at the time we probably called it custody as a service or something like that. And it was this idea that this is the player we want to work with.

How can we do it? And I remember walking over, our office is actually in New York City or like two blocks away. So I remember walking over to the Paxos office. We got in a room with one of your technology architects, Alex on the partnership team.

And we just sat down to say, what is the use case we’re going after? And what we did was we tried to cut off, we tried to cut off all the nonsense, the noise and find the signal to basically say, what is the simplest, easiest use case that my father’s going to understand? You get that simple solution, you get that great product and people again start circling around it. And that’s what we did. So I don’t know how the initial conversation started, but I think it’s fair, Mike, that we were probably waffling a little bit about what to do.

And then we had to hone in on, this is the use case. This is the idea to get the tip of the sword. Yeah, I mean, in my experience, unless you have something tactical that you can do together, you know, it’s great to talk about a theoretical partnership, but you’ve both got to want to do the work and you need something specific to come together, right? I think probably on both sides of the house, we’d been scarred by previous conversations with other players that didn’t go anywhere that we thought it was going to go.

So I do think we all circle each other a little warily to say, we’re really going to do this. And then to your point, once we’ve found the tactical application and we’re accelerating on that, that now opens the door for all the future use cases as well. Jonathan, had you ever considered building this capability in-house? So we looked at a lot of different things.

We worked for a while back, I think starting in 2016, 2017, building out, you know, we had a Mastercard proprietary blockchain. We worked on developing applications and see what that could be. But I don’t think we ever, no, we never took the stance to say, do we want to now build this custody capability, the infrastructure capability ourselves? I think to the point, and Mike says this a lot, and I think your team does, infrastructure is hard.

We went through it when it came to laying the card rails and building out real-time payments infrastructure with partners. It’s hard. So going down a place that, to be fair, is not a Mastercard native lane, I think what we did was we said, we need to look with a native player in this space with that deep expertise to bring the companies together on that journey.

Brett, just to add something, I think for any company considering doing something like this themselves, there is a cautionary tale of not only how hard it is to build infrastructure, but how to build good infrastructure that is secure, that is compliant, that stands up to regulatory scrutiny, that has the audit level capability to withstand the worst and highest level scrutiny from the most critical third party on earth. That’s what you have to do. But you also have to do it in a way that, again, is very easy to use and very integratable into other ecosystems.

So I found many of these companies come to us after they’ve already explored building this themselves and realized this is going to be really hard. And a lot of it they would have to outsource to other entities anyway, either for legal reasons, regulatory reasons, or just to Jonathan’s point, this isn’t their business. They want to offer it, and they want the service and the technology, and many of them want the benefits.

But to then go create a whole business unit around this can be a really daunting and very expensive and time-consuming task. And you can still get it wrong, right? And you can still get it wrong, and there’s a billion dollars down the road. Yeah, and it’s your customers’ money, not even your own.

I mean, maybe it’s your own too. But I think the holy grail of the banking system has to be protecting customer assets. And we’ve seen where even that broke this year with traditional banks.

And in other countries, you see this a lot outside the U.S., but I think if you can’t with 100% certainty guarantee the security and safety of your end customers’ assets, it’s a very scary place to try to do something new. So if a bank comes to you and says, hey, we want to get in on this stablecoin action or whatever, where do you start? So typically, the recommendation we would give is, as even Jonathan said, you start small. You start with a specific use case that offers the biggest leverage value to your end users, or even to your own economic model, whether that’s hold balances, attract new users, get a higher share of wallet, keep more of the direct deposit flow, whatever those guidelines are that you’re trying to kind of chart down.

But then it’s like, figure out what is the exact problem you’re trying to solve and offer. Is it that those users want to buy and sell native crypto? That’s pretty easy to offer today in a compliant way, very easy. Maybe a MasterCard partnership also then wants someone to be able to pay with crypto.

In Latin America, for example, 10% of crypto transactions across the MasterCard network are used to buy goods and services. That’s not normal in a place like the U.S. or even in Europe, but in many economies, that’s real. And that’s a real value add, especially in the countries that have hyperinflation in their own currency.

I’d say the third is maybe you want to offer just cross-border payments or a simplification of FX or simplify supply chain payments. And this is a place, for example, where MasterCard works really well, not just with its banking partners, but also with its business customers, its very large corporate customers. So I would say start small, start simple, and make sure that, above all else, it’s being done in a regulatory compliant way and a very, very security-focused way.

Otherwise, all it will do is just cause problems. You do keep emphasizing the regulated side of things. I will say that if we look at the crypto market over the last couple of years, it’s been pretty volatile, and one of the things we’ve needed is some stability, excuse the pun, in respect to this space and a lot less of the suspicious actors and so forth.

So was part of the strategy here to signal that there’s a maturation of this space, that we are coming out of the crypto winter into a sort of crypto spring, and these types of really substantial relationships are the building blocks by the way we’ll do that. Is that part of your intent, Mike? I definitely hope so. I think, again, for crypto to kind of emerge from the early adopter stage where there’s a lot of speculation because there’s not a lot of knowledge of really the true value of the underpinnings of the technology, so people are chasing value, they’re chasing asset prices.

You had the ICO craze back in 2017, 18. You had the DeFi craze in 21, 22. And we’ve seen the majority of that value go away because there really wasn’t a kind of value in it.

You had the Taylor Swift craze this year. Taylor Swift, right? NFTs, right? $9 million board apes. And that doesn’t mean the stuff doesn’t come back, by the way, but I think it goes from speculation to true value-added service, and what we’re trying to provide is for people who want access, can they get access? That’s number one.

And can they do it through a secure partner, a trusted partner? And the second, for those who really want the underlying value of the technology, you mentioned Ethereum before. There’s a ton of amazing innovation happening in the world of smart contracts and programmable contracts and being able to track the movement of money so that fraud gets thrown out of the system and it’s highlighted and isolated very early, right? So that, again, you start to get to what is the benefit of crypto where really it’s the blockchain movement of money and the blockchain transactions. And that’s where I think the real value and innovation will happen.

And when you start to see big players, MasterCard, PayPal, Venmo, MercadoLibre, NewBank, Oanda, Fidelity getting into the space, you’re starting to see it’s being blessed in a way to say, okay, we’ve gone away from that speculative betting casino and now we’re going more to what really is going to be sustainable, long-lasting, value-adding. And I hope that’s where we are now, and I think we’ve seen some really good signs. Did you guys see NewBank’s latest results? I did.

They’re really, really impressive. They’re a very, very exciting partner of ours, very exciting partner of MasterCard, amazing company, 80-plus million users, growing, active users. I mean, they’re really a brilliant company.

I mean, that easily makes them the largest bank in LATAM, if my math is correct, from a customer-based perspective. We know when they IPO’d, they of course were the most valuable bank in LATAM as well for a time. But Jonathan? No, I was going to say, I think the traditional incumbent players in LATAM see them and what they’re doing.

I actually think, again, NewBank’s a great partner of ours, and I think what it does, it pushes everybody else in the space. To Mike’s point, right now, the traditional incumbents are saying, well, wait, what are we doing? What are we going to do about it? And to Mike’s last point, when he was describing it, I agree with everything he said. I always think of the Gartner hype cycle, right? That you hit the peak of inflated expectations in 2017, then we go through it again with DeFi, you go through it again with NFTs.

It goes to the trough of despair. Then you need to find those use cases, start to bring it out to the plateau of productivity. And I think that’s where a bit of the Paxos PayPal announcement starts to get us into productivity.

You start to get into builders. And to the point about you look at Ethereum, the builders are broke month over month. It’s just constantly increasing.

So while you see the instability, the builders, the people looking to the future, they’re saying now is the time to build. This is the opportunity to double down on investments, on what is the next big thing. That’s what’s exciting about it.

Most people don’t, you know, if you’re not in the fintech space or the banking space, most people don’t really understand why we need these digital currencies. But it’s really what’s happening with artificial intelligence that’s the key to understanding that. Because as machines start to transact on our behalf, we need this infrastructure in place.

That’s why it’s such a big deal. Maybe Jonathan, I’ll ask you this, is how do you see that the future of the bank or the future of finance from that sort of infrastructure, pipes and utility perspective evolving, given the fact that, you know, we have got these new entrants coming in that can operate in the stable coin space, you know, non-traditional banks, you know, that are now starting to play in this space. What does it mean when, you know, the world of finance is operated by smart contracts, you know, and, you know, like from a structural perspective? It’s a great question.

I think I don’t come at it from a banking angle because I come at it from the angle of the facilitation of technology. So let me give you an example. There’s going to be smart people in finance finding ways to make trades on different assets.

The more assets they have available, the more they’re going to be able to make trades and do different investments, things like that. I think about it where if you have a custody-based solution in your wallet, and I’ll walk through just a brief example, the idea that I may have CBDC in that wallet, I may have my Bitcoin or ETH, I may have my normal dollars, but then let’s say I’m also an Xbox player and so you’re connected to the MasterCard network and we’re authenticating Xbox transactions and as part of it associated with your identity and your wallet, you sit there and you may play, you know, Dead Red Redemption, Assassin’s Creed, whatever you want to play, and you’re generating Xbox coins. And those tokens can be used to redeem a shiny shoot of armor or another game or something like it.

But now if I could take those Xbox tokens through my system, through my identity, through my wallet, put them in my wallet, store them, and have those digital assets to be able to transact it and trade it and allow the finance people, the bankers, to say, well, look, these are just different assets that gives me different assets that give me access to different areas to do interactions and build things upon. That becomes really exciting. So we go back to the conversation where banks are looking at assets leaving the bank.

This is a methodology, a way to bring more and more assets within the ambit of finance and for bankers to develop new solutions on, new investments on. So I think it opens up, done the right way, a whole new world of possibilities in the space. Well, I mean, I appreciate that, you know, but a lot of the analogies you’re using are of existing stuff that we do today anyway, like royalty, you know, loyalty programs, you know, and so forth.

And, you know, stable coins, you know, is not necessarily about, like, trading per se. You know, I think it’s more that operational aspect. Michael, you know, let me ask you this.

You know, you’re the CEO of a bank today or a CEO of, you know, a fintech player, and you’re looking at this space, you look at the PayPal announcement, you know, you’re looking at, you know, the partnership between you guys, and you know you’re going to have to deal with this at some point. So how do you weigh that decision in terms of let’s execute on this now and get in early and learn as much as we can versus, you know, particularly given the challenges in crypto last few years, maybe we should wait and see. You know, how do you evaluate that? Yeah, I think for a bank, you know, banks don’t love being first, and they certainly are terrified of being last.

But when you see a company with the likes of PayPal or MasterCard or NewBank or others that are large, publicly traded, well-established companies, you know, starting to build solutions that are blockchain enabled, it definitely gives them a little bit of air cover. It definitely helps pave the road, and it definitely helps them have conversations with their boards, their regulators, about what is the real goal of offering this. I think, again, if they said they wanted to go sell $8 million NFTs to their end customers, they’d probably face a lot of pushback.

But the things that you’re hearing them talk about building are, well, we want to make our credit system more secure. We want to be able to move collateral around the world 24-7 so that we can trade 24-7, you know, between the New York markets and the Singapore markets on a Sunday at 3 a.m. Eastern time. Well, you can do that in a 24-7 world.

And Stablecoin, for example, enables that. For MasterCard that wants to be able to settle with its merchants potentially faster or to do intraday settlement or micro-settlements, that becomes enabled through blockchain. And if they want to program that through a smart contract, you can even automate it in many ways.

So the banks that are really having these conversations, it’s all about the future. It’s all about value-add, but it’s also about how do we move money faster, safer, globally, more securely? And then how do we put that into the ecosystem we’re already operating in? So, yeah, a lot of this does actually touch on things that we’re already doing. But it’s about how do we make the existing infrastructure better, the existing use cases better, while then thinking about what are the brand-new use cases and the brand-new innovations that no one can really predict yet.

But as you keep moving, you start to open up your mind, right, to all the different possibilities. And I think this is a great time for banks to be able to say, how do we build for the future? How do we get to the 24-7 global economy we’ve all talked about for 20, 30 years, right? Thomas Friedman wrote The World is Flat, I think, in 2000, right? It’s still not flat, and it’s still not 24-7, but I would like to see us get there. And I think these types of partnerships really help build those inroads.

All right, well, so let’s finish off with this then. I mean, you guys have started this process. Where would you hope this leads? Give me a view a few years down the track.

Where do you hope this relationship has taken us? I’ll let you go first, Mike. All right, well, I hope we get married, right? I would say, to use the analogy almost, I think right now we’re engaged, right? We’re saying we’re committed to each other. We want to see this grow.

We definitely want to see progress and traction. Where do we see the partnership going? We would love to just be able to have a continuous engagement from the customers that are sitting in the MasterCard ecosystem. We also want to be able to take a lot of the fintech innovators and the e-commerce companies that are coming to us and looking to build brand-new solutions and connect them to the MasterCard ecosystem that already operates and that they’re already partnered with.

But to me, the real success here is that all of the participants, the banks, MasterCard, Paxos, the end users, really ambiguate away the lines. And they don’t say, oh, this is a Paxos solution provided by MasterCard in this app. It’s just they can buy Bitcoin or they can send money to their grandma in the Philippines instantly without having to think about all the layers.

That’s the logical future of payments and wallets, right? You don’t really care. There’s going to be specific instances you want to use a specific type of currency. But you’re just like, look, just buy this thing or access this service in the most efficient way possible and let my smart wallet go ahead and do that.

Cognitive offload. You just want it to work. And I’ll add, ideally, you get this done the right way.

There’s 27,000 financial institutions in the MasterCard network, 100 million merchants, 3 billion cards in circulation. I would love that we convert every single one of those players to somebody involved in blockchain crypto ecosystem because then we’re facilitating what the future opportunities are like. Then you’re creating a globally interconnected network on chain with the ability to engage in different solutions, whether it’s Stablecoin, Bitcoin, whatever new system of funding it is in five years that somebody else creates.

But that ability to interact and engage in that way, it’s kind of leading with the forward edge to say, this is where the future is going to take us. How do you start to lay the infrastructure and the connective tissue to allow people to engage going forward? Absolutely. Well, it’s been really interesting, guys.

We’ve got into some really interesting discussion. I like getting a bit futuristic on this stuff. I’m sure you guys can tell.

So how do people find out a bit more about the partnership, about how to get in touch with you, about CryptoSource? Where can they go, Mike? Yeah, I mean, we have a dedicated page right on our website on Paxos.com. You can look up CryptoSource and get connected to our team. And our team, of course, would love to engage in any conversation, especially if you’re a bank looking to get into the space and want a really clear way of doing it, I would say come directly to us. We’re happy to point you in the right direction.

Fantastic. We have a special URL for you guys. It’s www.paxos.com. That’s P-A-X-O-S dot com slash breaking banks.

So check it out. Please support Paxos in this. And Jonathan, in terms of sort of the partnership work that you’re doing generally, is there somewhere people can go to find out more about MasterCard and partnerships like this? Sure.

So MasterCard.com. And underneath that, I think we have the link, and I can send it to you later on. Same if you go to cypertrace.com, we’ll get directed for any questions, inquiries, and happy to have those conversations. Great.

Well, thank you both for joining the show. It’s a really interesting time. For those that sort of think that crypto is quietening down and that nothing’s really happening in the blockchain space and things like that, I know there are some that are listening that sort of have that opinion.

This is an example of the core infrastructure being built for the smart economies of the future. And it’s not going away. You know, this is just about experimentation and innovation till we get it right.

And you can see the recent regulatory environment stabilizing around this and so forth. What’s happening in China with the blockchain and CBDCs and partnerships like this are really important in building, you know, creating those building blocks so we can do this stuff safely. Mike and Jonathan, thanks for joining Breaking Banks.

Thank you, Brad. Thanks, Brad. Appreciate it.

That’s it for Breaking Banks this week. You guys are, you know, giving us fantastic support. I appreciate that.

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That’s it for another week of the world’s number one fintech podcast and radio show, Breaking Banks. This episode was produced by our U.S.-based production team, including producer Lisbeth Severance, audio engineer Kevin Hirsham, with social media support from Carlo Navarro and Sylvie Johnson. If you like this episode, don’t forget to tweet it out or post it on your favorite social media, or leave us a five-star review on iTunes, Google Podcasts, Facebook, or wherever it is that you listen to our show.

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