Jul 2, 2024

Circle Chief Strategy Officer and Head of Global Policy Dante Disparte breaks down the stablecoin issuer's journey to secure an Electronic Money Institution (EMI) license under the MiCA regulatory framework.

Video transcript

The 71 Democrats that voted in favor of fit 21 or, or voted for example to repeal S A 21 and voted in favor of the Stable Queen legislation and the House Financial Services Committee. Uh all are demonstrative of this idea of consensus laws get passed when you form consensus and consensus cannot be formed. If we're having a tribal fight and point scoring on Twitter, it's actually uh consensus is formed with human contact, no surprises. And it's a, it's a, it's all about building trust. It's Tuesday, July 2nd and this is Markets Daily a show where we get into the minds of some of the most experienced investors. CEO S researchers, strategists, analysts, academics and anyone who has a smart or hot take on the crypto markets before we get into today's discussion, which I'm very excited about. Let's take a look at what's going on in the news this morning. Bitcoin Bulls may have reason to cheer in the coming weeks as possible. Seasonal cycles boost prices of the largest Cryptocurrency by market cap after months of declines in range bounds trading as you know, Bitcoin has traded between $59,000 and $74,000 since April weighed down by billions of dollars in sales, upcoming selling pressure and outflows from ETF S. But this could change this month. That's according to QC P capital, they flagged in a telegram broadcast that Bitcoin has a median return of 9.6% in July and tense bounced back strongly. So we'll just have to keep an eye on Bitcoin in anticipation of the price breaking through that range. Now, let's talk about Ethereum. Now, Ethereum products have seen the highest outflows since 2022. Professional investors withdrew over 100 and $20 million from Ether tract exchange traded products and Bitcoin mining stocks A I and the gaming sector could stand out in the third quarter, Brett to and Cat. We're shining stars in Q two. So we'll keep an eye on those tokens and see if they continue to outperform the rest of the market. Lastly. Stablecoin issuer circle snagged the first stablecoin license under the E U's new Mica crypto rules. Today's show is going to dive a little bit deeper into this story. Joining the show now is Chief strategy officer and head of global policy at Circle Dante depart. Dante. How's it going? It's going great, great to be with you, Jen, great to have you here. The last time we spoke was back in October over in DC and some things have changed since then. But before we get to those things What are you watching in the markets this morning? Well, look, I think the major news frankly is the news we made yesterday, uh which is that uh US DC and our euro denominated stable coin EU RC are the first global stablecoins to enter into compliance under uh Europe's new markets and crypto assets framework. We've done this via licensing in France and this creates an opportunity to passport these products across the EU which is a market of more than 441 million consumers and it does something for crypto assets which we've longed for in this industry for a long time, legal and regulatory clarity. Um at at the whole of economy level in a major region of the world. This is a big big bellwether moment which I think will not only drive retail adoption, it will also continue this momentum around institutional adoption of digital assets. Now, the new rules took effect on June 30th. I want to hear a little bit from you what the journey's been like working with regulators in the EU to get to this milestone moment. Well, sure. And as you may know, Jen, my, my journey with Mika is a little personal because as, as the architects of Mica would probably say a part of what accelerated the development of the markets and crypto assets framework was my prior life and my prior project, the project formerly known as Libra later DM was a big catalyst for the types of rules that the EU has set in motion and obviously coming to circle, we're a regulation first company. Uh everywhere we operate, we try to aspire to the highest standards in our industry and avoid the regulatory arbitrage of, of days past. And what we've done is is partnership with uh the French government and the French regulators, the uh prudential regulators in France and also the markets regulators have been really deeply principled and deeply collaborative. So you may remember a couple of years ago, we not only launched a Euro denominated stablecoin, we made a public promise that the moment Mica came into force, we would functionally import that product into Europe and make sure that it was MICA compliant. We also wanted to ensure that us DC and the users of us DC and the EU we're assured that that product would also be uh mi a compliant and we're pleased to report that both have achieved that. Uh So it's been a long journey, a hard journey and a principled one but one that as a company and frankly, as an industry, we think is uh worthy of celebration. Make sense of what this means for me to folks in the eu who interact with stable coins, what changes for them? What's what's different? Well, I think one of the major major areas uh that Mica will of course enforce is this notion that the coin holder has a right protected. Uh directly from the issuer for redemption at par for the underlying currency uh circle. As a company has operated on that principle since the very beginning. And since we first issued us DC Mica enshrines that in law across the common market and that's big development, there's also other changes that will have implications for the crypto asset exchanges in Europe, which over time will have to effectively potentially delist non compliant stablecoins in the EU. And also, of course, you know, this is the crypto market supermarket if you will. And so how the the the exchanges is list digital assets will have some profound implications under Mica uh which which are also pretty important as well. And then the other hope of course is that we'll see more competition in the space, more integration in the banking sector, acknowledgment as digital currency and digital money across the EU will build a whole host of business cases and use cases that might not have been available to European consumers up until now dig into that a little bit more for me. I mean, what do you expect to see in terms of growth and competition uh for Euro denominated stablecoins? Well, look just yesterday as an example, uh societe general which is a very large French bank also announced that their um their euro denominated uh Stablecoin also achieved MICA compliance. Um And so there's, there's a question of both banks and non-bank actors that are regulated in the eu as emo issuers. This is how uh stablecoins are classified in the European Union. We'll start to compete in this space. And so we care a lot about interoperability, not only in the digital asset ecosystem, but interoperability with the real economy. And for everyday use cases such as cross border payments, we think it's a really important reflection the European Union and Mica is in some ways all about protecting technological and monetary sovereignty in the eu. And it's hard to do that if your currency isn't also represented on the internet in the same way that the US dollar is the dominant currency in digital assets. It's the pricing currency for digital assets and it also represents all of the successful stable coins until now. We think now that the Euro functionally has a fighting chance of being represented in this market segment as does frankly, the French regulator and all of the other European regulators who have been really critical uh partners in developing this framework. You mentioned cross border payments and many people who have been on this show have said that that is probably the killer use case for stable coins right now for you. Is does that ring true or are there other use cases that you think were gonna pop up now that it's becoming more regulated, albeit not here in the United States but in places like the eu? Yeah. Well, I do think, I do think cross border payments is of course, the killer app and in some ways um stable coins in the digital assets economy are also the killer app because it's the most widely used and ubiquitous um asset in this market segment. Um We've seen that experience with us DC is just an example. Uh availability of US DC is global in scope because of the digital wallet environment and the the open multiple Blockchain environment that we support. And so we think now um France of course, is a country with a very deep technological base, a very large diaspora population from many countries around the world that will be natural end users for a lot of these products and will care a lot about not only having interoperability with the Euro as a currency, but access to dollars and of course access to this broader digital asset ecosystem all in a manner that protects consumers and is responsive to the new set of regulations that the EU has put in place. Now do a little bit of a compare and contrast for me. I feel like I probably asked you this back in October, but it's relevant to bring up again. We talked a little bit about your journey to getting this license in the EU if you compare that to your experience in the US. Um in, I mean, we don't even have Stablecoin legislation here into working with policymakers to get Stablecoin legislation. Uh helping folks in Washington understand stablecoins and how they might interact with the US economy. What are some of the differences? Well, I think there's some critical differences, right? And in fact, I actually took to the pages of coin desk uh to write an article in anticipation of uh Mia coming into force on June 30th in which, you know, I really do think it is. Now. Um there's a question to be had across the Atlantic of that. We choose digital asset harmonization and a ver a veritable Western alliance, if you will, of what these digital assets could look like and which value systems are enshrined in them or does the United States choose a sort of Laissez Faire and sort of competitive approach with the eu as we have seen in other, in other regulatory areas and what, what is critical in my view and we're very close in the US as you know, I'm an optimist, uh what is critical given the predominant role of the dollar in digital assets. But candidly also a lot of the risks that we have seen with digital assets of, of the unregulated variety. It is way past time, the United States passes sensible legislation. We think we have legislation and a legislative framework for Stablecoins in the uh Patrick mchenry Maxine Waters framework. We think there's also sensible legislation on hand with fit 21 and some of the other market structure developments that we have seen, but it is way past time. Uh The United States acts and it's it. And this is in my view, a pre partisan issue. We should legislate and create rules for digital assets that protect the US economy and that are nonpartisan. And so the EU has done this and they've spent the last five years developing the markets and crypto assets framework and now those rules are in place now. You're right. Progress has been made in the United States, but we haven't really gotten to the finish line yet. I it's looking like we're not gonna get there this year with the election coming up in November. When do you think we will get there in the United States? Well, look, I, I mean, I don't have a crystal ball so I cannot exactly forecast uh legislative progress if I could do that. Um I would also forecast the weather and markets. Um But what I can say is we're close so we're closer than we have ever been. Um We have passed for example, a stablecoin legislation out of the House Financial Services Committee. It needs, of course, bipartisan support in the Senate to get to the president's desk. We have passed, I think a whole series of, of uh bipartisan developments fit 21 and enjoyed more than 70 Democrats that, that, that joined ranks with their Republican counterparts. And so I do think notwithstanding the fact that we enter a pretty contentious presidential election cycle in the United States, we have an opportunity and I think the forcing function of the eu setting rules for digital dollars should, should be unconscionable to people in the United States and should be unconscionable to our policymakers on either side of the aisle that digital currency is an innovation that is a largely American innovation, especially when it comes to the form of stable. That the largest of which reference the dollars that we have no national framework for this other than state money transmission rules under which circle operates is a gap. That's a competitiveness gap uh that the US has to close the Treasury Department, the White House and many others have asked for that gap to be closed from Congress. And I think um either party that delivers that result, it's a major win for the country and a major win for the industry. Now, Dante, I gotta ask you given your background, I mean, what do you make of the crypto narrative that has attached itself to the upcoming election? What does that tell you about where we are? Well, I think first of all, when an industry is large enough to be regulated, the industry has arrived and when the industry is consolidated enough to have um political clout candidly in the form of money in the form of Super pacs in the form of uh representation. As I think we now do. Uh It's, it's a good moment in time. And you know, but I must argue that the concept of scorched earth politics in which if no one, if no one can have it, if I can't have it, no one can. That's not a particularly great operating model, especially for a technology whose ethos in my opinion is fundamentally uh democratic. It's about broad participation, broad governance and broad trust. And, and I think that as, as I would like to argue is a pre partisan reality that is a very uniquely crypto ethos. And so some of the, the noise that we tend to make on crypto Twitter and crypto X isn't particularly helpful. If you want to advance policy, we want policy, we want rule of law. And frankly, I think the United States now more than ever, especially as the world's third largest economy, the EU has created full digital asset frameworks. They haven't launched a skinny bill, so to speak on just stablecoins mica covers the totality of crypto markets. And so the United States is playing catch up here and uh there's choices to be made lead or be led. And I think in the end, we will finally get there if you were to talk to some of your colleagues, other people in this industry who do make noise on Twitter, especially um you know, maybe attaching themselves to the headlines uh ahead of the election. What advice would you give them? What's a better way to make an impact when it comes to progressing the industry forward in areas of the world where there's no clear legislation yet. Well, look, lots of good and bad things have happened to our on crypto Twitter, for example, in, in the stable coin category, anytime you have had to turn to Twitter to make promissory statements to the market of the Jerry Maguire variety. Show me the money. In many cases, there was very little money there and we ended up with the terra lua debacle. Uh And I think today the same holds true, right. Um, the 71 Democrats that voted in favor of fit 21 or, or voted for example, to repeal SAB 21 and voted in favor of the stable coin legislation in the House Financial Services Committee. Uh All are demonstrative of this idea of consensus laws get passed when you form consensus and consensus cannot be formed. If we're having a tribal fight and point scoring on Twitter, it's actually, uh consensus is formed with human contact, no surprises. And it's a, it's a, it's all about building trust and I think that's been the way we've operated our policy team here at Circle. It's been the way we've operated as a company since the very beginning. Jeremy, er, was one of the very first crypto leaders to testify in Congress uh, back in the heyday of this industry. And, and that's a tradition we have maintained ever since. I think it's a good result and, and that is demonstrative of, of the progress we've made in Europe. It is also demonstrative of the fact that we're close to the finish line in the United States. But uh as Winston Churchill said, the US does the right thing when we've exhausted all other alternatives. And I think now we've run out of alternatives. It's time to legislate and it's time for Congress to deliver to the industry and to the, to the country. What, what we've asked for now, Dante, I know that you don't have a crystal ball, but you have been working with policy makers all over the world. If we look outside of the eu, outside of the United States, what other regions are really making progress when it comes to stable coin legislation? Where might we see circle get licensed next? Well, I can't predict where we will get license. I could predict it but I can't reveal it where we will get license next. But what I can give you is a very quick world tour of where the rules are really coming into force and, and we could begin in Asia and work our way to South America and Latin America in Asia. You see Japan has come forward with a really, really novel regime that actually recognizes internationally regulated, stable coins and operate and creates an opportunity for those to be passport into the country. So we're quite excited about the regime that's emerging in Japan. Of course, Singapore is a long standing beacon of responsible regulation of digital assets. In Southeast Asia. Hong Kong is coming back online and is quickly developing rules. The United Kingdom and the United States might be the last two major outliers in terms of the larger economies. But the UK is very much underway. And the Bank of England and the, the, the Treasury and others in the UK have been developing rules for quite some time and those are expected to come online in 2025. And then lastly, I think you, you know, there's two more regions that matter heavily. The UAE is a region that has just announced a Stablecoin regime from the UAE Central Bank and a number of regulators in the in the Emirates. And then lastly, Brazil, Brazil, in our view is one of the countries that has uh perhaps the best industrial policy for promoting payment systems, innovations for both bank and non-bank actors and the degrees to which you see interoperability of regulated stable coins with the government's fast payment systems picks as well as with the neo banks like New Bank and others is going to be AAA country to watch and their rules are expected to come online in 2025. I think we covered this topic the last time we spoke. But I imagine your answer is ever changing. I mean, with the progression on Stablecoin legislation in the regions that you've just outlined here, do you think that that CBD C versus stablecoin conversation will pop back up? Can the to coexist. Is it necessary to have CBD CS when we have stable coins that are progressing at a much faster rate in many different jurisdictions? Well, it's a, it's a good question and one of one of my maybe more evolved positions now, is that a Stablecoin by any other name is still a Stablecoin. The premise of a Stablecoin like US DC or the EU RC is that it is a fully reserved uh digital asset and that entitles the holder to redemption at par for the underlying currency. So this is an innovation that has to operate under the purview of the central banks and under the purview of the monetary policy whose currency you reference, it's also a product and an innovation that depends very heavily on partnerships with the banks. And so historically, it was always a a downward race of central bank, digital currencies versus stablecoins versus deposit tokens. And I think when you start to graduate what the regulatory regimes of these responsible countries looks like you'll start to see that a lot of these products will, in fact converge and the terms of art CBD C. Of course, is a lightning rod topic. It's one of the very few crypto topics that's made it up to presidential politics. And we've had a number of bills that have outright banned CBD CS or have enforced privacy standards on CBD CS. All of which in my view are values aligned with Western society. And democracy. Uh But nonetheless, these are products that will be about convergence. If we want digital assets to serve billions of people and trillions of dollars in markets activity, we need to ensure that they're responsive to monetary policy, privacy expectations, as well as completely interoperable and portable to the end user, which means that you need today's generation of stablecoins are really the critical first movers in what this future looks like. Dante. it's always a pleasure chatting with you. Thanks so much for joining Markets daily. Thank you, Jen.

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