This episode reveals how stablecoins are the Trojan horse bringing traditional finance on-chain, fundamentally reshaping the global payments landscape and creating a new infrastructure battleground.
Bridging the Worlds of Fintech and Crypto
- Simon's Perspective: He highlights that both industries have features and bugs. The goal is to find the middle ground where crypto's innovations can solve long-standing problems in payments without inheriting its perceived risks.
- Early Intersection: Simon recalls helping the London Ethereum community host meetups in a Barclays space, illustrating his long-standing position at the intersection of these two cultures.
The Fintech Winter and a Crypto Lesson
- The Synapse Collapse: A key event was the failure of Synapse, a tech platform that provided banking-as-a-service to other fintech companies. Its collapse left consumers unable to locate their life savings.
- A Key Insight: Simon notes the critical failure in the Synapse case was reconciliation—no one could figure out where the money was. He quips, "A lot of people in fintech looked at this and kind of went, maybe some sort of chain of blocks might help you." This highlights a core value proposition of blockchain technology that became painfully obvious to the fintech world.
Payments Chains: The 'AWS Moment' for Money
- The AWS Analogy: Just as Amazon Web Services (AWS) turned its internal back-office infrastructure into a utility that other companies could rent, payments chains offer a shared, standardized financial back-office. This dramatically lowers the cost and complexity for any company building financial products.
- From Cost Center to Utility: Mike Hudac of Sling Money, a remittance app using stablecoins, described on-chain finance as someone taking "80% of my cost and complexity and said, 'Hey, this is a utility. You can pay per hour.'" This captures the shift from building bespoke, expensive internal systems to leveraging a shared, efficient network.
The Mess of Traditional Payments
- Push vs. Pull Payments: Payments are essentially messages, like emails, sent between financial institutions. These institutions run on legacy mainframe systems, with code so old that a group called the "Cobalt Cowboys"—programmers in their 70s and 80s—are hired to maintain them.
- The Illusion of Simplicity: Companies like Stripe and Adyen build sophisticated software to hide this complexity, making payments seem simple. However, underneath, it's a fragile system of reconciliation between disparate ledgers.
- The Deterministic Advantage: David contrasts this with crypto, where sending USDC to an address is deterministic. "I copy and paste that Ethereum address and I know deterministically that it is showing up at Ryan's address no matter what." This certainty is a revolutionary concept for payments.
Stablecoins as a Global Upgrade
- Correspondent Banking 2.0: For a Kenyan oil importer, a payment from the UAE can take anywhere from four days to four weeks, with fees ranging from $60 to $600. Stablecoins offer instant settlement, allowing companies like Standard Chartered to use them as a real-time payment rail.
- The Rise of the "Tetheron": In many parts of Sub-Saharan Africa, the local mobile money agent has now become the "Tetheron," an on/off ramp for stablecoins. This demonstrates a grassroots adoption driven by the need for access to a stable, global currency.
- A Rail Above Rails: Simon describes stablecoins as the "rail above rails." Instead of building point-to-point integrations between disparate national payment systems (like Pix in Brazil and UPI in India), they can all integrate into a universal settlement layer powered by stablecoins.
Defining the New Wave of Payments Chains
- The Players: This new crop includes Tempo (backed by Stripe), Circle's Arc Chain, and Tether's Plasma Chain. Many are EVM (Ethereum Virtual Machine) compatible, meaning they use the same smart contract language as Ethereum, but are architected as separate Layer 1s.
- Core Requirements: A payments chain must solve for the scale and reliability of TradFi. This means prioritizing features like high throughput and fast finality—the guarantee that a transaction is irreversible almost instantly. As Simon notes, "You cannot walk into a store and your card not work. It's just got to work."
Key Features of a Payments Chain
- Gas in Dollars: Transactions fees are paid in stablecoins, not a volatile native asset. This removes a major barrier for institutions, who cannot easily hold volatile crypto assets on their balance sheets due to punitive risk-weighting rules from regulators like the Basel Committee.
- Enshrined AMMs: Tempo plans to build an Automated Market Maker (AMM)—a type of decentralized exchange protocol—directly into the chain for stablecoins. This creates deep, efficient liquidity for swapping between different stablecoins.
- Compliance Hooks: The chains include features like memo fields and hooks for ISO 20022, the global standard for financial messaging. This "backward compatibility" allows banks to meet their regulatory reporting requirements while operating on-chain.
The Fragmentation Dilemma: A War of Chains?
- An Innovation Phase: Simon argues we are in an "innovation phase" where multiple approaches are necessary to figure out the right model. He believes power laws will eventually lead to consolidation.
- Different Target Markets: These chains are not all competing for the same prize. Circle's chain appears optimized for capital markets flows, while others like Tether's focus on the existing global south user base. Tempo is focused on bringing existing TradFi payments volume on-chain.
Neutrality and Permissionlessness in a Corporate Context
- Sacred Words: For crypto natives, these terms imply that anyone, including adversaries, can use the network without restriction. This is a high bar that corporate-backed chains cannot meet.
- A Zone of Neutrality: The hosts propose the concept of a "zone of neutrality." A chain like Tempo won't be "money for enemies" like Bitcoin, but it can be credibly neutral and permissionless within the zone of regulated, compliant financial actors.
- The Business Case for Neutrality: Simon argues that neutrality is also a rational business decision. Large companies never rely on a single payments provider; they spread risk. A neutral network with multiple validators inherently provides this diversification, making it an attractive proposition.
The Governance Model: Learning from Visa's Origins
- Visa's Cooperative Roots: Visa began as a non-profit cooperative owned and governed by its member banks. This "chaordic organization," a term coined by founder Dee Hock, allowed competing banks to collaborate on shared infrastructure that grew the entire pie.
- A Potential Blueprint: While not an explicit plan for Tempo, this model of shared ownership and governance by design partners (rather than a formal consortium) offers a historical precedent for building a successful, neutral financial network.
Stablecoins, Tokenized Deposits, and CBDCs Explained
- Stablecoins: Backed by T-bills and issued by fintechs. They solve for crypto trading and global dollar access for individuals and businesses.
- Tokenized Deposits: These are commercial bank liabilities on a blockchain. They solve a problem for Fortune 500 companies that want 24/7 settlement but need to keep their funds within the credit-safe environment of a major bank like JPMorgan.
- CBDCs (Central Bank Digital Currencies): These are central bank liabilities. They primarily solve a wholesale problem for commercial banks, allowing them to settle transactions with each other instantly and with zero credit risk.
- A Complementary Stack: These three forms are not competitors but parts of a future financial stack. Consumers use stablecoins, corporations use tokenized deposits, and banks settle with each other using CBDCs—all on-chain.
The Threat to Banks: Deposit Flight and Competition
- The Unbundling of the Checking Account: For a retail user, holding funds in a stablecoin that passes through treasury yield is far more attractive than a traditional bank account offering near-zero interest.
- Risk of Deposit Flight: Banks are rightly concerned about this "deposit flight." However, Simon argues they can compete by leveraging their unique advantages, such as their balance sheets, to offer bundled products (e.g., better mortgage rates for checking customers) that a stablecoin issuer cannot.
The Future of Stablecoins: Power Laws and Abstraction
- Everything Becomes a Stablecoin: Gift cards, loyalty points, and other forms of stored value will become stablecoins on the back end.
- The Governance Challenge: This fragmentation creates a user experience problem. The solution will likely be a combination of technology (ubiquitous, low-cost AMMs for seamless swapping) and governance (regulation around the "singleness of money" to ensure a dollar is a dollar, regardless of the issuer).
The DeFi Mullet: Is Fintech Just Crypto Now?
- The View from Fintech: "Crypto doesn't really exist in the fintech world, but stable coins are the number one topic. That's the nuance. Stable coins are the fintech 3.0."
- The Casino vs. The Serious Business: John Collison of Stripe compared crypto to a Vegas casino: you have to walk through the smoke and slot machines (meme coins, speculation) to get to the serious payments business in the middle. Fintech is focused on that serious business.
Stablecoins as the Gateway Drug to Tokenization
- The Revolution Will Be Tokenized: After payments, the next logical steps are tokenized T-bills, stocks, and other real-world assets. The NASDAQ's plan to tokenize all stocks by 2026 is a major signal of this trend.
- Solving the Hard Problem First: Payments are the hardest part because of the sheer number of edge cases (fraud, disputes, refunds). Once that infrastructure is robust, tokenizing other assets becomes much simpler.
The Clash of Cultures: Cypherpunk vs. TradFi
- Different Goals: Simon suggests the cypherpunk movement will continue to push the frontier, while TradFi adopts the innovations that are ready for the mainstream. Not everyone wants to "be their own bank" and manage the associated risks.
- A Maturing Industry: TradFi operates on a model of fierce competition combined with necessary cooperation. As crypto matures and integrates with the global economy, it may adopt more of this pragmatic mindset. David pushes back, arguing the "religious" debates matter because the stakes are higher when a single global standard (like the EVM) emerges.
The Geopolitical Race: US vs. Europe
- A Missed Opportunity for Europe: Despite the Euro being a stronger fiat currency than the dollar recently, 99% of the stablecoin market is dollar-denominated. MiCA was designed as a markets/trading regulation post-Terra/Luna, not a payments framework, which has slowed adoption.
- Investor Takeaway: The regulatory environment is a key driver of innovation and capital flows. The US's current lead in creating a clear framework for payment stablecoins makes it the primary market to watch for institutional adoption and infrastructure development.
The Next Frontier: Agentic Commerce and AI
- AI Agents as Economic Actors: AI agents will act as personal shoppers and CFOs, autonomously executing financial tasks like booking vacations or buying goods.
- The Need for Smart Contracts: This creates a massive liability problem. Who is responsible if an agent goes rogue? Visa is building centralized token-based solutions, but Simon points out this is a perfect use case for smart contracts, which can give agents a cryptographically-secured, predefined budget and scope of action. This intersection of AI, agents, and crypto payments is a key area for researchers and investors to monitor.
This conversation underscores that stablecoins are the critical bridge bringing TradFi's immense volume on-chain. For investors and researchers, the key is to look past the "casino" of crypto speculation and focus on the "serious business" of payments infrastructure, where the battle for the future of finance is being waged.
