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Chris Larsen's Ripple Effect
December 01, 2023
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Chris Larsen, cofounder and executive chairman of Ripple, a cryptocurrency company, has the Midas touch when it comes to making money and giving consumers more autonomy over theirs. In the mid-’90s, Larsen cofounded E-Loan, an online mortgage company, the first to allow consumers to access their FICO scores for free — a tool used by many lenders to determine if a person qualifies for a credit card, a mortgage or another loan. A decade later, he cofounded Prosper Marketplace, the country’s first peer-to-peer lending platform.

And like other Bay Area tech moguls — think Marc BenioffMark ZuckerbergSergey Brin, to name a few — Larsen is investing some of that hard-earned money back into the community. He made local and national news when he funded hundreds of high-tech surveillance cameras scattered throughout the City to help fight crime. He has financed TV ads to recruit police officers; provided grants to merchant associations to enliven retail corridors; and with his wife, Lyna Lam, and the Rippleworks Foundation, contributed $25 million to San Francisco State University, his alma mater. And just last month, Larsen and Gap board member Bob Fisher helped launch a $4 million advertising campaign — It All Starts Here — to help boost San Francisco’s tarnished reputation.

Larsen was born in San Francisco to a father who was an aircraft mechanic at SFO and a mother who was a freelance illustrator. He spent most of his childhood in Cupertino until he moved back to the City to get his B.S. from SF State. After graduation, he worked for Chevron and later earned an M.B.A. from Stanford University.

Recently, I sat down with the mild-mannered Larsen at his Ripple offices in the FiDi. We talked about transforming global finance, climate change and his unwavering belief in his hometown.

Meet Chris Larsen.

Tell me about this company, Ripple. Sure. So, we’re using blockchain technology. It’s one of the core technologies of where the world is going. Essentially a second internet, but instead of an information internet, it’s an internet of value. We think that’s a critical component if you’re really going to have a globalized world that works well for everybody.

That makes sense. Obviously, the whole world’s connected through data. There’s some issues there, but it’s brought the world together. People communicate for free anywhere. But with money — you wire money to Europe or to the Philippines — it can take multiple days. It’s incredibly expensive, and access is still blocked for billions of people in the world. So you have an incomplete global infrastructure. ... We’re making global payments that can move in seconds instead of days with no failure rates and extremely low costs so everybody can participate.

What was the origin of Ripple? Well, I go back now over 10 years, which is pretty early in the crypto markets. There was a group of people way smarter than me [who], when bitcoin got launched — in ’09 [and] caught on by 2011 — were fascinated by it, but thought it was too wasteful. It was kind of a head scratcher on why it had to be designed in a way that used so much electricity [due to the energy-intensive process of verifying computerized transactions]. So they felt they could build a better bitcoin in a system that used de minimis amounts of energy. And that’s what they did. I joined that project — before it was a company — in 2012 and went from there.

The industry has changed a lot in the last decade, I’m sure. And we’ve certainly seen dramatic volatility in the market in recent years. It’s a wild thing for a lot of reasons. It’s actually the first time fintech is global. Blockchain is, again, kind of a second internet, but for value. It’s global, it’s everywhere. That introduces a lot more dynamism. And it’s also dealing with money and value. So I think anytime you have that, you’re going to get the usual cast of characters as we read about in the press every day. Crazy characters, crooked characters, but also people doing some really groundbreaking work that will make things like remittances, cross border payments, and really the entire global economy work more efficiently. And that’s good for everybody.

Lots of eyes are on the trial of former crypto-billionaire Sam Bankman-Fried. What effect have his alleged crimes had on the industry? Oh, it was absolutely catastrophic. Not only because what he did was obviously wrong, but he was so political. He must have given $50 million, mostly to Democrats. And his mom [Barbara Fried] ran Mind [the] Gap [pro-Democratic super PAC]. So I think they were pretty skilled at politics. When it blew up, all these politicians that were in his corner had to almost overcorrect and back away. A number of bills would have given the U.S. market clarity, which is something the U.S. drastically needs because we’re really falling behind places like the UK, which has very clear, very pro-consumer, pro-innovation rules. Singapore ... Dubai ... same thing. Very pro-consumer, tough rules, but very clear rules. And they’re attracting all of the companies that should be right here.

So the U.S.’s lack of clarity, and then Sam’s screw-up, which then made that worse, has actually been really bad for San Francisco.

How so? Because San Francisco was actually the global blockchain capital of the world from the beginning through maybe five years ago. And it isn’t anymore. Coinbase was here just down the street. They’re not here anymore. So, I don’t know, we’re at a 30 percent vacancy rate [in the downtown area]? I think it would be half that. [Ripple is] growing. We have 15 offices around the world. We’ve doubled our London office in the last two years. That’s a shame. That should all be right here.

Let’s talk a little bit about AI because San Francisco is, for all intents and purposes, the AI capital of the world right now. How do we make sure AI doesn’t leave SF, similar to what happened with blockchain? I think it should be a lesson learned on what happened with blockchain. I love our leaders around here, but our leaders should have done more to fight for it. We can be pro-consumer, and we can embrace innovation, and that’s good for the state, it’s good for the City, it’s good for everybody. Instead of push[ing] it out to our competitors. So I hope with AI, people have gotten this.

Clearly, we need regulation, but it seems we need to regulate in a more creative and modern way than we did decades ago. Do you agree? That’s a great point. ... Regulation has got to be faster. It’s got to be more balanced ... embracing innovation, which always has an element of uncertainty. So you have to respond quickly. I think in the U.S. we have a particular challenge. We go to London or Singapore or Dubai, the advantage they have is the regulators, the capital market folks, and the innovators are all in the same city. So they all mix. And here we’ve got capital markets in New York generally, you’ve got regulation in D.C., and you’ve got innovation out here. And that doesn’t mix all that well. It’s too far, and the timelines are not in sync. That’s a real challenge here. So we’ve got to get more dialogue. It’d be nice to put fintech regulators, AI regulators, at Stanford or Berkeley or right here in the City.

Before Ripple, you cofounded E-Loan and Prosper Marketplace, all of which give consumers more agency over their own money and more transparency. Was that a mission of yours, or just a good business niche? When I was growing up, my dad was an aircraft mechanic at SFO. I just remember he was always really angry every time he had to go take out a home equity line or finance a car. I think he felt like he was taken advantage of. The motto of the finance industry, particularly pre-internet, is “in confusion there’s profit.” When you go to the car dealer, the car dealer is not telling you your credit score. … So what does that mean as far as price? That’s how they make their money. And that’s not right. So it is a little bit of “Schwabifying” because Charles Schwab was the first to introduce fair pricing before the internet. But I think with the internet you can do much more of that because you can show everything. You take out the commission person. Ripple’s a little bit different in that we’re enterprise, and we can actually have more impact by focusing on the technology, bringing it to existing platforms, and then that makes them more competitive and more effective. So it’s a bit of a tweak.

I’ve read about Ripple using blockchain to help poor populations, like farmers in Uganda, sell carbon credits at a fair price. Talk about how consumers benefit from this technology. The remittance flows on the planet are enormous. U.S. to Philippines, Saudi Arabia to Bangladesh, for example. Those are big flows, and those are generally people who are probably living paycheck to paycheck, if even that. So if you can have systems that allow prices to come down, have more access, that’s going to be a good thing for everybody. We like those kinds of things. You raise the farmer and the carbon. I like that you brought that one up. I think that is a real opportunity.

Farming could actually be a huge sink for carbon. The Global South farmers are subsistence, so wouldn’t it be awesome if [they] could change the way [they] work the soils, grab more carbon, and then if there’s a good effective market [with] transparency ... if [the carbon credits are] resold, they get a cut of the resale. That’s something you can do really well with blockchain technology — tokenizing carbon assets. We actually just launched something called Centigrade, which is a B Corp, a more benefit corporation. We did that with [green energy nonprofit] Rocky Mountain Institute to improve the voluntary carbon credit markets.

That’s actually happening now? Yeah. That’s a big goal for us. Climate’s a big focus that I work on personally, but also with the company. And there’s lots of ways we can use the technology to make that better. Same with sustainability credits, which I think will also be an emerging market. So not just carbon. This is actually happening to a small country called Niue. It’s a country of 1,200 people in the South Pacific, but they have an enormous ocean acreage that’s part of the country. The same with Palau, 20,000 people, but they have oceans the size of France. So these are huge opportunities to protect the oceans. But these are poor countries. They can’t just give up all their fishing rights because they’ll go broke, but maybe they can do sustainability credits, where now we put that on a blockchain, tokenize it, and then anybody in the world can buy a sustainability credit. That’s what Niue’s doing. It’s called ocean conservation commitments. And that’s potentially a great source of financing sustainability.

Aside from your business endeavors, you’re also very active in philanthropy and politically active in your hometown of San Francisco. Why is that important to you? In San Francisco, we just started going down the rabbit hole. We [were], I think probably like every San Franciscan, victims of the smash-and-grab problem. We live in Russian Hill right by the Lombard Steps, which was literally ground zero at one point. This was maybe seven years ago; [now president and CEO of the Hotel Council of San Francisco] Alex Bastian used to work for [District Attorney] George Gascón, and they had done something creative with Union Square — the Union Square BID [Business Improvement District] — [putting] camera networks all around. They had smash and grabbers, a crew that was running in the stores and stealing … but the camera networks are effective. If you talk to the police, they’re really good at making cases. We talked to the DA, same thing. It’d be nice if we can extend that now to live access for the police. That’s been controversial, but they put a police officer on top of that building, they have access. I don’t really understand why that’s controversial. You could put AI tools in that would identify guns. That already works today.

So there’s a lot of things we can do. We like the camera network for public safety. We’ve got to do more with the police because we have a police crisis where you don’t have enough of them. That’s a nationwide problem, but it’s worse here in the City because of the very anti-police police commission, which has prevented tools from getting out there. ... So the morale is bad. Maybe only 20 percent of San Francisco cops live in the City anymore. A lot of them actually live out of state, believe it or not.

Out of state? Out of state. So they’re supposed to be able to get back in the City within four hours of an emergency. That’s just not going to happen. So you’ve got a real problem with public safety resources that’s very solvable, so that’s one big area. And then another area has been trying to help small business through having [Avenue] Greenlight, which is supporting the 34 merchant districts in the City, and then allowing small grants to go to those small businesses or to the district to do things like lighting or signage or cleaning things just to make the environment better for these small businesses [that] have been hanging on in some tough times. Although I think things are a lot better now.

San Francisco has an almost $14 billion annual budget, and you’re talking about privately funding cameras in neighborhoods, helping small businesses and our retail corridors. You have even paid for ads to recruit police officers. So, why is private philanthropy necessary when we have these kinds of resources in the City? It’s a great question. A $14 billion budget is a lot of money. I think the problem is it’s a lot of money, but it’s all tied up in this bureaucratic mess. To try to get cameras funded by the city, it’d probably be a five-year debate. And I think it would just get bogged down. Whereas private philanthropy — we probably have four and a half million dollars put into the camera networks — can deploy that quickly to the CBDs [Community Benefit Districts] or the BIDs. ... If we had to pay for license plate readers, we would do that. Again, another needlessly controversial area that’s super effective, especially since all the smash-and-grab crews are driving stolen cars with just-stolen plates. The number of stolen cars is just astronomical, and it’s mostly all being done to commit other crimes. And if you had license plate readers, you would tag them instantly. They’re avoiding any town that has license plate readers.

Any evidence that the cameras, Avenue Greenlight, grants and police recruitment ads are making a difference? Yeah, we talked to [SFPD] Chief [Bill Scott]. He says the cameras are just absolute game changers, so that’s great. We know that that’s working. On the police recruitment, it was the highest police academy numbers that we had in three years. Now part of that could have been a combination of wages going up, bonuses. The ads were meant for morale and for recruiting. So we might fire that up again. So I think that does work, and having [Avenue] Greenlight for sure. Actually, we’re super happy with that one because it’s relatively small grants, and they make the small businesses feel like they’re being helped. So we’ve got to get more of the bigger business community to help the smaller.

Despite some of the issues we’ve discussed, what do you think gives San Francisco its competitive advantage? There’s nothing like San Francisco, and you can’t replicate it. It’s such a mix of things. You’d never come up with anything like this place again. I love it. The weather, the food, the views. ... So we’ve got our problems, but it’s an awesome place. And my parents met in the City, too. They’re no longer with us, but working on the city stuff, I always feel like they’re happy about it.

I’ve heard people ask you, so I know what you’re going to say, but would you ever consider running for office? I’m just not wired for that.

So what’s next for Chris Larsen? Oh, well, geez. Getting older. There’s less tomorrows than yesterdays, as they say. I think we’re on the right path, but climate’s going to take many years. Climate’s actually really fun to work in.

I have two boys. I want to make sure that they’re growing up in a decent world, and it’s not on fire all the time. This is totally solvable too. But we’ve got to really go before there’s some tipping points. ... It’ll be one of the greatest wealth generators of all time.

Is there a certain philosophy or credo that you live by? I’m trying to tell my kids this, but we shouldn’t assume [that] the way the world is was somehow designed by experts. So we shouldn’t be afraid to challenge stuff.

This interview has been condensed for length and edited for clarity.

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🚨 BIG NEWS‼️

Acting CFTC Chair @CarolineDPham has announced that they will soon be participating as an observer in industry tokenization pilots. 👀👇🏼

00:05:45
Veritaseum CEO Reggie Middleton On The Use Of AI and AI Agents In The Future 🤖

The use of a mouse, keyboard, screen touch will all be a thing of the past.

00:02:16
ARE YOU PREPARING FOR WHATS COMING ?

Xrp
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Xlm
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Hbar

ISO20022

00:01:18
👉 Coinbase just launched an AI agent for Crypto Trading

Custom AI assistants that print money in your sleep? 🔜

The future of Crypto x AI is about to go crazy.

👉 Here’s what you need to know:

💠 'Based Agent' enables creation of custom AI agents
💠 Users set up personalized agents in < 3 minutes
💠 Equipped w/ crypto wallet and on-chain functions
💠 Capable of completing trades, swaps, and staking
💠 Integrates with Coinbase’s SDK, OpenAI, & Replit

👉 What this means for the future of Crypto:

1. Open Access: Democratized access to advanced trading
2. Automated Txns: Complex trades + streamlined on-chain activity
3. AI Dominance: Est ~80% of crypto 👉txns done by AI agents by 2025

🚨 I personally wouldn't bet against Brian Armstrong and Jesse Pollak.

👉 Coinbase just launched an AI agent for Crypto Trading
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BITCOIN PASSES 100K 🚀

Bitcoin making a screaming 😱 candle passes 100k, bringing altcoins with it. 🚀

Take some profits ⚠️ on the way up!

Coinbase Just Launched X402 💥

Coinbase just launched x402 on Tuesday, May 6, 2025.

🔑 Key details about x402:

🔹️ What it is: x402 is a new, open-source payments protocol developed by Coinbase. It leverages the existing but rarely used HTTP "402 Payment Required" status code to enable instant stablecoin payments directly over HTTP (the standard web protocol).

🔹️Purpose: It aims to create a native payment layer for the internet, making it as easy to send and receive value as it is to exchange data.

🔹️How it works: When a client (human user, app, or AI agent) tries to access a resource that requires payment, the server responds with a 402 error along with payment instructions. The client can then make a stablecoin payment (initially focusing on USDC) directly to the server. Once the payment is confirmed, the client can access the resource.

🔑 Key benefits:

🔹️ Micropayments: Enables efficient and low-cost micropayments for various online services and content.

🔹️ AI Agent Autonomy: Allows AI agents to autonomously ...

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Persistence April 2025 Update
In April 2025, we launched Persistence DEX on Babylon Genesis, introduced new incentives, and took key steps toward becoming the BTCFi liquidity hub.

April was a crucial month for both Persistence DEX and the broader BTCFi community, with the Babylon Genesis Network going live in early April. To strengthen our position as the BTCFi Liquidity Hub, we actively engaged with the Babylon community and secured our spot as one of the first DEXs to launch following Genesis.

The launch of Persistence DEX later in the month reflects a shared vision between both teams – to bring utility and liquidity to Bitcoin and related assets, supporting Babylon’s mission to make BTC usable across DeFi.

Over the next few weeks, we’re focused on rolling out new trading pairs, introducing pool incentives, and onboarding more users into the Persistence DEX on Babylon. The DEX was purpose-built for trading stablecoins, LSTs, and Bitcoin assets, and it plays a key role in our roadmap to unlock meaningful Bitcoin-centric DeFi use cases. More on that below.

Let’s take a look at what happened throughout April.

Persistence One Highlights

  • We also published a blog, Introducing Persistence DEX alongside Babylon Genesis, for the communities, solidifying our case. In the post, we summarised the key features of the DEX and highlighted why it’s a natural fit for the Babylon ecosystem.
  • forum post on Babylon about the deployment of Persistence DEX also sparked healthy discussions within both communities.
  • We encouraged everyone in the broader BTCFi ecosystem to jump in and share their thoughts and feedback on the forum discussion and in our community chats.
  • Throughout the month, we continued working behind the scenes on our BTC Interoperability Solution, and towards deploying pool incentives for trading pairs on Persistence DEX on Babylon Genesis Network. We shared these updates through this infographic.

Keep reading further for other key highlights.

Media & Community

Here are some standout moments from the media and community front during April:

  • Our COO, Jeroen Develter, joined a podcast with All In BTC to talk about what’s next in Bitcoin DeFi, our upcoming intent-based Bitcoin bridging solution, Persistence DEX, and more. Listen here.
  • Jeroen further spoke about why he thinks building for Bitcoin Powered DeFi is the biggest opportunity right now, through multiple short video snippets on X (formerly Twitter).
  • Further, the community also tagged several projects to build liquidity on Persistence DEX on Babylon Genesis, after we encouraged them to drop suggestions.
  • Jeroen also highlighted how BTCFi now represents nearly 6% of all DeFi, having grown nearly 20x in 2024, and how it’s positioned to outpace the broader DeFi space.
  • After the deployment of Persistence DEX on Babylon Genesis, multiple DeFi media outlets covered us as one of the earliest DEXs to launch on the ecosystem.

XPRT Governance & Token Highlights

Here are some of the most important governance updates around XPRT from April 2025:

  • Proposal #134 was passed to disable the validator bond factor in the Persistence Chain’s Liquid Staking Module (LSM). The change aims to restore the simplicity and usability of staking operations that were impacted by the activation of LSM.
  • Proposal #135 was passed, approving stkXPRT rewards for incentivizing Persistence DEX pools throughout May 2025.
  • Proposal #5 was passed on Babylon Genesis, approving the Persistence Labs team address to upload CosmWasm contracts for the deployment of the Persistence DEX on the Babylon chain.

About Persistence One

Persistence One is building the BTCFi Liquidity Hub, enabling fast, near zero-slippage swaps for BTC, BTC-variants, and LSTs on Persistence DEX.

BTCFi’s rapid growth has created multiple BTC-related assets, making fragmentation a big challenge. Persistence One will provide a single liquidity hub, simplifying value transfer across the Bitcoin ecosystem.

 

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The SEC Can Learn From the IRS in Making Regulation Simpler for Crypto

The IRS has relied on voluntary disclosure programs to bring taxpayers into compliance rather than imposing punitive actions upfront. A similar model should be applied to crypto regulation as well, says Miles Fuller, Director of Government Solutions, TaxBit.

In February, the Department of Government Efficiency (DOGE) began soliciting public input pertaining to the U.S. Securities and Exchange Commission (SEC) — a move suggesting reform at the agency is imminent.

Since then, the SEC, in line with President Trump, has taken a far less adversarial stance towards the cryptocurrency industry, as evidenced by the appointment of crypto-friendly personnel and the abandonment of numerous lawsuits and investigations into crypto companies. But DOGE has the potential to implement further change, and interest in the SEC signals growing pressure towards regulators to reassess their approach to digital assets.

In response to the request for public input, Paul Grewal, Chief Legal Officer at Coinbase — one of the companies no longer facing a lawsuit from the SEC — proposed a policy requiring the SEC to reimburse legal costs for companies that successfully challenge enforcement efforts. The motivation for his suggestion is obvious, but the impact of DOGE on crypto will likely be a bit broader.

As Joel Khalili summarized in Wired, the SEC’s recent retreat from lawsuits represents “an early signal of the agency’s intent to work arm in arm with the industry to come up with a set of rules to govern crypto transactions and products.”

As things currently stand, the SEC’s lack of proactive guidance makes it difficult for businesses to plan long-term compliance strategies, and their enforcement actions often come after years of operation, leaving companies and their investors exposed to unforeseen legal risks. Going forward, this will likely change.

Clear Compliance Over Reactive Enforcement

Relying on enforcement instead of proactive guidance has forced companies like Coinbase, Ripple, and Celsius to spend millions in litigation to clarify their regulatory standing. But in one case against Debt Box, the SEC admitted to inaccuracies in its statements, leading a court to order the SEC to cover the company’s legal expenses — a preview of Coinbase’s suggestion. The ruling cast doubt on the agency’s credibility and highlighted concerns over its enforcement practices.

In the future, expect to see regulatory agencies – including the SEC – under increased pressure to align with the U.S. Treasury’s approach, which prioritizes clear compliance pathways over reactive enforcement. The Treasury’s digital asset guidelines are far more structured and address key areas like tax reporting, compliance and AML measures. Standardized definitions of what constitutes a security in the crypto space are essential for helping companies structure their products appropriately from the outset.

A Balancing Act

In addition to taking notes from the Treasury, the SEC can also look to the IRS for inspiration. A “safe harbor” provision for early-stage projects could encourage innovation while ensuring compliance over time, similar to proposals previously discussed by SEC Commissioner Hester Peirce. The IRS already embraced this approach, issuing temporary transitional relief for crypto taxpayers in January 2025.

The IRS historically relied on voluntary disclosure programs to bring taxpayers into compliance rather than imposing punitive actions upfront. A similar model should be applied to crypto regulation as well.

While some people assume regulation inherently hinders innovation, the opposite can be true. This is because clearly defined guardrails will entice more risk-averse entities to enter the ecosystem and help it grow. A light regulatory touch requires robust backend enforcement and can lead to unnecessary friction between regulators and businesses.

Altogether, better coordination between the SEC, Treasury, and IRS would help prevent regulatory conflicts and streamline compliance obligations for digital asset companies and stakeholders. The Treasury’s digital asset guidelines already offer a strong foundation for this type of cross-agency alignment. The current regulatory uncertainty and the SEC’s reactive enforcement approach stifles growth, while a clearer, more coordinated framework would benefit the entire ecosystem.

The Bottom Line

Between the DOGE’s request for input, the new administration's broader commitment to digital asset reform, and Coinbase’s proposal, the stage is set for reforms aiming to make regulatory oversight more predictable. While we are in the early stages of the new administration, changes are already occurring at a staggering pace. It’s clear that DOGE’s influence on SEC policies will make an impact – especially with public discourse on these issues further strengthening the case for clearer guidelines rather than regulation by enforcement.

Of course, it’s worth noting that DOGE’s plans for the SEC will likely extend beyond crypto, just as efforts to regulate the industry extend beyond the SEC. Ultimately, it would be beneficial for the new administration, in conjunction with Congress, to create a legislative framework for the industry, so enterprises and individual taxpayers alike understand what constitutes a commodity, security, and digital asset. In other words, we must learn to walk before we run. In the meantime, the SEC should adopt a strategy that can foster growth while maintaining investor protections.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

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Are same brand stablecoins fungible in different regions?

Many countries are introducing stablecoin laws, each with their own requirements, especially regarding reserves. If the same stablecoin brand is issued in multiple jurisdictions using the same brand, is it fungible (or entirely interchangeable)? There’s the practical fungibility versus the legal one, especially if a stablecoin collapses.

Highlights:

  • Each jurisdiction imposes different reserve composition and redemption rules for stablecoins
  • Multi jurisdiction issuers use arrangements between regions to harmonize reserves
  • Issuers cannot precisely track how many tokens circulate in each region due to secondary market transfers
  • Formal crisis plans will determine outcomes during stress events
  • During a collapse, holders in specific regions could face different recovery rates depending on local reserve adequacy.

While the biggest use case for stablecoins is currently for cryptocurrency transactions, there’s a growing appreciation of their benefits for cross border payments. Plus, the infrastructure to support this is expanding, with Stripe’s acquisition of Bridge being one of many examples. After passing the $200 billion issuance mark in December 2024, many predict it won’t be long before stablecoins reach the trillion mark. Citi recently estimated a base case of $1.6 trillion by 2030, with a bullish estimate of $3.7 trillion.

Defining fungibility

The definition of ‘fungible’ according to the Oxford Dictionary:

“Of a product or commodity that has been contracted for: that can be replaced by another identical item without breaking the terms of the contract. More generally: interchangeable, replaceable.”

What’s notable about this definition is that stablecoins issued in different jurisdictions will likely have separate contracts.

The core fungibility issue arises because a resident of one jurisdiction might receive a payment that involves a token that’s technically issued in another jurisdiction. In the examples we’re discussing, these are the same brand of tokens.

Technically, EU crypto exchanges may be breaking the rules

Imagine a global stablecoin, let’s call it GlobalCoin, issued in two jurisdictions e.g. Japan and EU each meeting local requirements. Clifford Chance partner, Diego Ballon Ossio, highlighted that this is potentially problematic in the EU. He noted that, “technically the EU issuer or exchange should have something in place to avoid the Japanese version of that coin to be listed, exchanged, and traded in the EU. Because it’s not exactly the same coin, particularly if say liquidity requirements differ.”

He gave the example of someone from Japan paying an EU resident with GlobalCoin via an EU cryptocurrency exchange. From the user’s perspective, a GlobalCoin is a GlobalCoin, they can’t differentiate where it was issued.

Mr Ballon Ossio continued, “If that coin was used in an exchange, that exchange is now admitting to trading a coin that technically hasn’t been approved because the Japanese version wasn’t approved. And actually you would not be allowed to offer that coin because that coin is being sold as an e-money token, but it’s actually been issued by a non-EU issuer.”

The EU’s MICA regulations don’t deal with this situation. There’s a pragmatic approach involving the issuers rebalancing the books between the jurisdictions, which isn’t perfect. It will work 99.99% of the time, but will be tricky in a de-peg event.

USDC is the first prominent example

The most prominent example of a stablecoin that’s issued in multiple jurisdictions is Circle’s USDC, which is primarily issued in the United States. While this article references USDC a few times, the content and issues are not specific to Circle or USDC.

Circle has EU emoney and MiCAR licenses and issues USDC in France under European rules. The EU version of USDC has a separate issuer, different terms (ie. a separate contract) and ringfenced reserves. For example, all EU USDC stablecoin holders can directly redeem the stablecoin with Circle SAS, provided they go through KYC and compliance procedures. In the US, only larger entities and distributors (primary participants) can redeem directly. The UK has changed its planned approach and now intends to allow redemption only via primary participants.

Jurisdictions have different reserve requirements

Looking at its reserves, in the United States the USDC stablecoin keeps around 15% of its reserves in bank deposits, according to Circle’s transparency reports. USDC temporarily lost its dollar peg when Silicon Valley Bank collapsed in 2023 holding $3.3 billion of USDC reserves. Before that, Circle kept around a quarter of its reserves at banks. Even 15% is more than most stablecoin issuers, in part because holders of other stablecoins often switch to USDC to off ramp. For example, Tether only keeps around 0.1% at banks.

Turning to EU’s MiCAR, it requires smaller coins to keep 30% of their reserves in cash, and larger ones 60%. The regulations attempt to address the risks by limiting the amount held by a single bank.

Another example is Japan, which currently requires 100% of stablecoin reserves to be held in bank accounts, although it’s exploring changing the rules to support government bonds.

In the case of Circle, it also has a license in Singapore. For its Singapore issuance, all reserves are held in a trust account at Standard Chartered Singapore.

Estimating regional stablecoin issuance

Each jurisdiction expects stablecoin reserves to be held onshore in the proportions required by law. Yet stablecoins are bearer tokens where most transactions take place in secondary markets, so issuers don’t know the identity of all their coin holders, or where they are based.

In order to rebalance the books between the regions, they have to estimate the regional figures. Europe has provided guidelines for how to do this for foreign currency coins, which involves getting reports from local crypto asset service providers (CASPs), including crypto exchanges and custodians. CASPs have to provide the issuer with reports on a daily basis. Self hosted wallets tend to be glossed over and these might be retail or institutional.

That said, if a large liquidity provider uses a coin issued in the US to pay for a multi billion Bitcoin transaction in the EU, that will move a lot of coins. However, some of these institutional wallets are traceable, although there is an increasing tendency for larger players to attempt to cover their tracks.

If jurisdictions don’t prescribe rules, then issuers will likely make estimates using issuance and redemption figures via primary participants (distributors).

In the case of USDC, in its MiCAR whitepaper it notes that it will rebalance the reserves between the two current jurisdictions. As one of the risks, the European USDC whitepaper says:

“Dual Issuer Risk. Circle LLC and Circle SAS have entered into a contractual arrangement to rebalance their respective reserves in the event that one reserve is no longer able to meet its liabilities. The Circle SAS Recovery Plan and Redemption Plan will take into account these intra-company considerations and outline a uniform and coordinated approach by both issuers in order to be able to cover any outstanding liabilities and satisfy redemptions in a prompt and equitable way.” 

What happens if the GlobalCoin stablecoin fails?

As we’ve shown, stablecoin issuers can make best efforts to ensure the reserves are sitting in the correct jurisdiction. But they won’t know precisely how many stablecoins are held in each jurisdiction until everyone wants to redeem simultaneously. So what happens if GlobalCoin fails?

There are two ways this will be addressed. One is by having a plan in place, and the EU requires emoney token (stablecoin) issuers to have both recovery and redemption plans. However, these are not public documents. Mr Ballon Ossio was willing to speculate what the contents might include. If there were a shortfall, the treatment is likely to be similar to a client assets framework. This would usually spread the loss across a single class of asset holders. In other words, if there was a 10% shortfall in reserves, then a US dollar stablecoin would be worth 90 cents for redemption purposes.

A second path is for regulators in jurisdictions to have mutual agreements. Mr Ballon Ossio highlighted that in the banking world there’s the Basel Committee framework for banks. However, just looking at the US draft stablecoin regulations, MiCAR and Japanese regulations, the requirements for redemption and holding liquid bank balances are vastly different. While Basel implementations differ between jurisdictions, there’s more homogeneity compared to stablecoins.

This fungibility topic probably won’t matter for 99.99% of the time. As more and more jurisdictions pass legislation, there’s more need for laws to provide legal clarity on this topic, especially given cross border payments are a key stablecoin use case. Hopefully it will be a very long time before there’s a need to explore what happens in the 0.01% scenario: a failure of a multi-jurisdiction stablecoin.

Source

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