Mastercard is ending its crypto card program with Binance in Argentina, Brazil, Colombia, and Bahrain, effective September 22. Vanderbilt Law School associate dean and professor Yesha Yadav discusses the industry implications and why this is "big news for Binance."
Beginning September 22nd, Mastercard is ending its crypto card program with Binance in Argentina, Brazil, Colombia and Bahrain. Joining us now to discuss is Vanderbilt Law School Associate dean and Professor Yaa Yadav. Welcome to the show. Thank you, Jen. Thanks so much for having me today. Um It's great to be here. It's great to have you here. Now, your focus is on financial market regulation and payments. I know you've also worked as legal counsel with the World Bank and its finance, private sector development. What's your reaction to this news? Um You know, it's, it's, it's, it's big news here uh for Binance, I think it's worth taking a step back uh to see what it really means. Um You know, partnerships with Visa and mastercard um really represent a great deal of credibility or would have represented a great deal of credibility and legitimacy um that Binance would have borrowed from these institutions and bigger than that, it would have meant that uh Binance was issuing a product alongside Visa and mastercard that would have allowed crypto to, to be used as a payment asset for everyday payments. So for example, the Visa partnership would have resulted in a visa debit card uh being issued to holders that would have allowed them to make everyday payments in crypto uh for things like groceries and petrol and and so forth. So the loss of this partnership is actually pretty big. Uh one for that loss of credibility, two for this kind of uh inability to really mainstream crypto from the crypto ecos sphere into um the life of everyday payments. Um And it's coming on top of some really bruising times for Binance as you know, Jen, um many banking partners have obviously let go of Bin in the EU as well as in the U. So this is really um AAA deeper signal in the financial markets that uh mainstream very traditional regulated financial institutions are cutting their ties with Binance and are unwilling to being seen as being partners with Binance going forward. Yes. So I'm curious if you have any thoughts or have, have looked into how many people actually use these crypto cards. Um Is there demand for it? Could this just be um a reality because there's not a lot of people, especially in this market who are demanding these types of products? Yeah, it's a great question, Jen. I mean, this was essentially a, you know, pretty pilot product. Um The, you know, this was rolled out on a trial basis um across different marketplaces for Visa in the EU. Um And in the case of mastercard, looking at markets in South America and in and in and in Bahrain, in the Middle East. Um these were very, very early days in the product. So in terms of the, the overall use value, I don't think the user base was really that big at all. Uh But the question was, where was it likely to go? Um The, the, you know, the major significance here for Binance is that this is obviously the biggest exchange in the world. This has um clearly the biggest user base. And so there was potential for um the expansion of using um these products um across the world for making potentially mainstream payments and trying to get this product out there. Uh you know, but the fact remains that at least in dollar terms, it's probably not much of a hit for B and certainly not for Visa and Mastercard. But it's really the, the kind of longer term question that was being trialed here, could crypto be used as a means for everyday payments? Um It looks like we're not gonna be able to find out um at least for now, um using these products. I know you mentioned it's uh this is pretty big news and when I read it, it made me think back to April when Mastercard at Reuters reported that uh mastercard was looking into more of these partnerships expanding even more, given, given the ups and downs in the market. Does that surprise you? Is this more indicative of what Binance is going through with regulators, not just here in the US, but all over the world. Yeah, it's, it's, you know, absolutely Jen. I mean, I think, you know, Mastercard and Visa, they're not publicly commenting as to why they've, uh, they've cut these partnerships, but I think we can all reasonably assume it's got to do with the very heavy regulatory cloud that Binance is under at present. Um, clearly the, the two cases here in the, in the in the US with from the CFTC, as well as the SEC are, you know, very potentially, uh you know, huge, uh you know, huge risks for partners uh of Binance going forward and also potential rumblings as you know, Jen, um of a justice department probe, uh potentially down the line. So these are compliance risks for any potential partners. Um In addition, obviously, uh potential partners that might be facilitating money flows, it's even more risky in that context. So, you know, these are things that any major regulated financial institution like mastercard and Visa will be looking at, um including the cost benefit trade off here from legal risk perspective is not looking like a worth it. As you mentioned, Jen, these are, you know, Binance is under a, you know, a lot of scrutiny around the world. Um Eu certainly looking at France, the Netherlands. Um in addition, the UK. Um So certainly there is pressure around the world and what this means is obviously that financial institutions regulated financial institutions around the world, like Visa mastercard have to think about their international business. Have to think about navigating jurisdictional issues around the world. And so certainly, um, taking on a compliance risk, um, and the legal precarious position that Binance is under is really something that regulated institutions are gonna, you know, really shy away from. Uh, I'm curious your thoughts given this news and the recent news we heard from Shopify, implementing us DC payments via so pay and then paypal, implementing their own stable coin. If you think that stable coins and CBD CS might kind of take over where these crypto cards left off or where do you see the future of uh payments focusing on? Yeah, absolutely. I mean, I think stable coins um are a very different proposition than um than, than just just, you know, simple crypto obviously stable coins. The aim there is to try and create a very, um you know, a, you know, a stable peg um against the dollar. Um These are clearly um um mechanisms that are being used to make payments far faster than potentially can be had within the banking system. So for example, Shopify was highlighting the fact that um you know, that the, that the charges for uh using um that for using us DC were far far lower than uh what would be had in the context of credit card interchange payments, which are you know, many, many magnitudes higher than the fees you used to um settle transactions in stable coin. So, you know, these are certainly potential mechanisms for future payments. And that's reflected in the fact that paypal is bringing out. It's uh it's, it's, it's new stable coin. Um It's clearly reflecting the fact that policymakers around the world are trying to get their heads around it. Um What to do about stable coin regulation, how to make it uh useful in a way that is safe um for the um everyday user as well as for making sure that they have an entitlement to these assets that is protected from things like bankruptcy. So, you know, clearly the potential for stable coins is there. Um And you know, we we are seeing that um from the Shopify Partnership as an example, but also certainly um other contexts, for example, in the case of providing payments to, to displaced persons and and, and you know, other use cases that have come about that are showing some of the initial potential for stable coins to work as a cross border payments asset um that can settle far faster and much more cheaper than traditional banking payments generally. Uh Can you brought something up that I think is important for the audience to understand? Can you tell us a little bit more about stable coins possibly providing um a solution for displaced people? Talk to me a little bit about that use case Yes. So that use case um is one that's come up um in the context of providing wallets, um that are essentially super portable for displaced folks um to be able to put their assets into um a stable coin that can be transacted across borders. Um One doesn't have to worry about potential, um you know, banks that um are, you know, specific to a certain jurisdiction where one has an account instead by opening a wallet, um one has a wallet that can be used anywhere in the world. Uh One is able to take this value therefore, you know, anywhere in the world and that has proven to be specifically quite useful for um displaced folks um that have, you know, received uh distributions and stable coins and are then able to potentially take them across borders more easily than they might a bank account that might not be as portable uh or, you know, other assets like, you know, physical assets that can pose a risk to those who are traveling and who are particularly vulnerable um in those cases. So this is something that has been trialed um uh by international agencies to try to create those mechanisms whereby folks who are in very precarious positions can protect their assets, can take their money, put it into stable coins and then be able to take them um across borders. Thank you for that. Yeah, you brought up central banks there and as I, I want to get your thoughts here as more central banks start experimenting and piloting with CBD CS, then we have these private issued stable coins. Do you think that these are two products that can live um symbiotically live together or do you think that our future is gonna see CBD CS outweigh stable coins or vice versa? No, I mean, I think, I think this is, these are all, you know, cool questions, Jen that you're asking that. I think policymakers run the world are asking, I mean, stable coins are out in the world. They're being um you know, they're being trialed with real life use cases um US DC Tether now paypal. Um you know, these are issues that are coming into the market, you know, providing um ideas for real use cases out there. Um And so central banks can't really afford to ignore that. Um In addition, obviously, as you note, um there's CBD C is basically putting public money um into a digital format, you know, essentially taking a physical dollar which is a liability of the central bank and making it digital. So folks are able to, to carry it, maybe this uh this asset becomes programmable. You know, this is a very specific uh product that central banks are looking to issue and is likely to have a very specific use case. For example, in relation to making certain kind of distributions to people we saw in the case of the COVID crisis stimulus payments were made, maybe a stimulus payment might be made through A CBD C. So, you know, there are possibilities for privately issue stable coins, publicly issued CBD CS to work alongside each other, just like public money in the case of physical cash, um and private money. In the case of banking, uh money, sort of our normal bank accounts work today. So there doesn't seem to be any reason why we need to put these things into opposition. Um You know, these are innovations that are happening in the payment space that have been a long time coming. Um And so the question is how to use them in a way that is safe. Um That allows maximum utility to be extracted from these assets. Um And to set out use cases that will make them, you know, really um attractive to everyday users who are going to be able to make payments in a cheaper, way faster way. Um And to be able to make the dollar system internationally that much more competitive and usable. Um So, I mean, at least, um at least in terms of the, the, the question you asked Jen, you know, just like private money and public money exists and complement today. Um There's no reason to see stable coins and CBD CS in opposition to each other. All right, thanks for that. And just before we wrap up here, I got to ask you about FTX. Um We speak about it every day here on the show. I know that you testified to the Senate after the implosion of FTX. You've waited on the bankruptcy. Uh, now, recent news says that FTX is piling up as much as $1.5 million a day in bills as they try and wrap up this bankruptcy. What's your reaction to it there? Is that, um, is that a surprising or a large number when it comes to bankruptcies like this? It's definitely a large number. Um you know, 1.5 million a day, it was 200 million uh with the fees from um the, you know, the 1st 67 months of this bankruptcy. I mean, these are huge fees. Um clearly, um the lawyers are making their case for, for charging these fees, which is that, you know, this is a very, very complex bankruptcy as John the third highlighted in his initial filing. Um the documentation for FTX was largely missing. So it's a case of tracking these funds around the world making sure that the customers who are entitled to these funds, you know, are properly documented and noted. So clearly, it's a super complicated bankruptcy. Um At the same time, the hope here is that, you know, that hard work, that logistical, hard work of identifying claimants and assets is hopefully now um is now, you know, coming to an end. Um And so hopefully this fee burn can stop going forward or at least can become much more diminished. Um You know, one thing to remember is that, you know, bankruptcies are expensive. Um The Celsius bankruptcy was super expensive, you know, so, you know, this is not unique but certainly the FTX bankruptcy is super complicated. You know, one of the issues Jen is as as is likely to come up is this potential reboot of FTX as the new exchange. So again, looking forward, you know, that could create a whole host of complexities too, which means that, you know, despite what I just said that we could see even more legal fees ahead because um you know, any future exchange will have to navigate a whole host of regulatory complexities as it comes forward as well as trying to capture market share, you know, from existing players, incumbents like Binance coin based and others. So, you know, this is, you know, it's a very complicated field that a rebooted exchange would go into and certainly a very competitive one as you know, um in today's market for crypto trading services and just super quickly before we wrap here, what are your thoughts on the reboot of FTXS? Could an FTX 2.0 be ideal for creditors who are waiting to see some kind of who are waiting to get back some of their funds that are locked up in this. It's, it's, it's such an incredible question. Gentlemen, I think the answer to that um is, is, you know what else is there really, I mean, I think this is a bit of a Hail Mary pass in the sense of this is a way forward in which there could be some ability to get some value out of the FTX um sort of carnage uh which is create a new exchange, potentially branded as a very clean exchange that is run or at least supported by uh strong governance, risk management and so forth, that is backed by all of this experience that the lawyers and John Ray and others are bringing into it. Um So potentially this is an exchange that is offering a kind of new uh a new vision for crypto markets uh going forward. But the question is, it's, it's a very competitive marketplace out there. Uh Jen, you know, we are seeing Binance, for example, losing a bunch of market share to other exchanges like Box and others. Um So FTX 2.0 will be coming into a pretty crowded field which is jostling for businesses, Binance is losing market share. Um So the question is how much can it actually make a, you know, make a dent into this space? In addition, the big question, Jen, as you hinted at is what will existing F TT holders get? That is absolutely not clear um in the potential plan that is being discussed um existing claim holders, what they get in this potential rebooted exchange, what their F TT tokens might be worth in this exchange. Um That is absolutely not clear yet. And I think that's, you know, that's the big question that existing claim holders want to know. Which is what are their current entitlements likely to be? How much can they get, what will distributions look like from any revenues that are likely to be generated um from this new rebooted exchange? All right, we are going to have to leave it there. Thanks so much for joining the show and Happy Monday. Happy Monday, Jen. Hope it's an amazing week for you guys. Hope it's a great week for you. That was Vanderbilt law School, associate dean and professor Yaya Yadav.