This episode features Robert Bench, who unpacks the evolution of stablecoins from simple wire replacements to programmable assets, and explores their potential to fundamentally reshape digital commerce and the internet's incentive models, offering a glimpse into a future where AI agents transact seamlessly using hyper-scalable digital currencies.
The Genesis of USDC and Early Stablecoin Innovation at Circle
- Robert Bench, reflecting on his time at Circle, highlighted the foundational vision of co-founders Jeremy Allaire and Sean Neville: enabling money to move efficiently on new networks. This vision, though taking a "long path" through various products like Circle Pay and the Circle Trade desk, remained directionally correct.
- Bench emphasized the early strategic thinking behind USDC, which aimed to improve upon existing stablecoins like Tether by incorporating strong regulatory compliance from the outset. “When we built USDC, [the question] was can we do this with very clear backing from audit firms... Can the money be in the safest place... and can we be transparent about that?”
- Key innovations for USDC included attestations (though not full audits initially, these provided a degree of transparency about reserves), holding reserves in regulated institutions, and features like "remote burn" – the ability to burn tokens if illicitly used, a novel concept at the time.
- Despite these innovations, Tether initially retained dominance for its core use case: a faster, more efficient replacement for traditional bank wires in crypto trading, solving FX and latency problems.
- Strategic Implication: The early development of USDC underscores the importance of regulatory foresight and transparency in building trust for digital assets, a lesson still pertinent for new crypto projects.
USDC's Pivot to DeFi and Real-World Use Cases
- A critical turning point for USDC, as described by Bench, was its strategic embrace of DeFi (Decentralized Finance) – a then-emerging ecosystem of financial applications built on blockchains. This pivot was largely driven by product teams, like the one led by Joao Reginatto (now CEO of M0), who recognized the potential of USDC's programmability.
- USDC's design allowed it to be natively integrated into DeFi protocols, a market segment Tether was not initially built to address. This focus on programmability allowed USDC to gain significant traction and differentiate itself.
- Following the DeFi boom and a new US administration in 2020, Circle further expanded USDC's utility by targeting "non-crypto real-world problems," notably remittances.
- Remittances, often expensive and slow through traditional channels, presented a clear problem that stablecoins could solve, offering life-changing benefits for users despite not representing the largest transaction volumes.
- Actionable Insight for Researchers: The evolution of USDC from a trading utility to a DeFi-compatible asset and then a remittance tool demonstrates how stablecoin use cases can adapt to market needs and technological advancements. Researchers should monitor how programmability continues to unlock new applications.
Project Hamilton: Exploring a US Central Bank Digital Currency (CBDC)
- Bench detailed his move to the Federal Reserve Bank of Boston to lead Project Hamilton, a joint research initiative with MIT. The primary motivation was to understand the capabilities of digital currencies, spurred by China's advancements with its digital yuan (e-CNY).
- The project aimed to explore the technical feasibility of a CBDC (Central Bank Digital Currency) – a digital form of a country's fiat currency issued and backed by its central bank.
- A key early focus was security and scalability. The team, including former Bitcoin Core developers, aimed to build a system that could handle a massive volume of transactions securely. Bench noted, "if we're assuming the PBOC is hiring the top engineers from WeChat pay to build their thing, America's not going to be worse than them... we have to get a minimum 500k TPS."
- The first iteration, OpenCDC, was UTXO-based (Unspent Transaction Output, a model used by Bitcoin to track ownership of digital currency) and achieved 2.2 million transactions per second (TPS) on standard cloud infrastructure.
- A subsequent iteration, "Parseek," focused on scaling smart contract execution, getting the EVM (Ethereum Virtual Machine) – the runtime environment for smart contracts on Ethereum – up to approximately 118,000 TPS.
- Ultimately, Project Hamilton did not proceed to a live CBDC. Bench cited the primary reason as the Federal Reserve's strong desire to maintain its political independence, fearing that a retail CBDC would inevitably draw it into political decision-making.
- Strategic Implication for Investors: The technical achievements of Project Hamilton (e.g., high TPS for UTXO and EVM-based systems) demonstrate that scalable, secure digital dollar infrastructure is feasible. While a US retail CBDC seems unlikely soon, the underlying research can inform private sector stablecoin development and wholesale CBDC explorations.
The Politics of CBDCs and Stablecoins: Navigating Incumbent Interests
- Bench shared insights into the political headwinds faced by CBDC discussions, primarily from the commercial banking sector concerned about disintermediation.
- He recounted how questions about CBDCs potentially "destroying every small bank" came from both sides of the political aisle, highlighting the significant lobbying power of independent community banks. "The most fascinating thing is we found the one thing Republicans and Democrats universally agree on is nothing can possibly threaten independent community banks."
- Bench argued that a CBDC with a modest wallet cap (e.g., $2,000-$3,000) could serve the basic transaction needs of most Americans without significantly impacting the business models of large banks, and could alleviate the "30 to 40% tax on all goods based on card fees."
- Actionable Insight for Researchers: The political resistance to CBDCs, even when technically feasible, underscores the powerful influence of existing financial intermediaries. Researchers studying financial innovation should consider these political economy factors alongside technical ones.
Current Federal Reserve Perspectives and the Future of Money
- Bench offered his perspective on how different parts of the Federal Reserve might view stablecoins and DLT (Distributed Ledger Technology) – a decentralized database replicated and shared across a network of computers.
- He distinguished between the Payments Directorate, likely concerned about dollars moving outside its traditional oversight, and Monetary Affairs (economists), who would be modeling the impact of stablecoins on markets for assets like Treasury bills and reverse repos, similar to how Basel standards (international banking regulations) affect asset demand.
- Bench highlighted the institutional memory within the Fed, with veterans like Eric Rosengren (former President of the Federal Reserve Bank of Boston) comparing stablecoins to money market funds, suggesting established frameworks for understanding and potentially regulating them.
- A new challenge identified is the operational risk of public blockchains. Bench stated, "I think there needs to be some type of capital buffer on public blockchains running stable coins because there's real risk there... Bitcoin still is not immutable."
- Strategic Implication for Investors: The Fed's cautious but analytical approach suggests that while immediate, radical changes are unlikely, there's an ongoing assessment of stablecoins' impact. Investors should monitor regulatory discussions around capital requirements for stablecoin issuers and the operational security of underlying blockchains.
The "Stable Card Era" and Radius's Vision for a New Internet Economy
- Looking ahead, Bench outlined the "stable card era," where companies like Stripe are exploring how stablecoins can disrupt the high fees (around 3.5%) associated with traditional card payment networks.
- Radius, Bench's current company, is building on the Parity codebase developed during Project Hamilton, aiming for a linearly scalable smart contract execution network. He stated their goal: "can you linearly scale stable coin execution... as you add more compute, can the stable coins move faster and can they get cheaper?"
- Radius's testnet reportedly achieves millions of TPS and 10 million transactions per dollar, making transactions nearly free.
- The ultimate vision for Radius is to disrupt the "attention economy" (e.g., AdWords) by enabling a new incentive model for the internet. This involves AI agents – autonomous software programs that can perform tasks or make decisions on behalf of users – using stablecoins for micro-transactions, buying and selling data, compute, and inference.
- Bench expressed concern that if USD stablecoins don't fill this role, the e-CNY (China's digital yuan) might, noting its existing integration into the backend code of multiple central banks via Project mBridge (a multi-CBDC project by the BIS Innovation Hub). "If you go to the BIS, they talk about mBridge being the future solution of central bank money. And mBridge is just ECNY."
- Actionable Insight for Crypto AI Investors/Researchers: Radius's focus on hyper-scalable, near-free stablecoin transactions for AI agents points to a future where decentralized AI economies could flourish. Investors should look for infrastructure that can support high-throughput, low-cost transactions essential for agent-based systems and decentralized data/compute markets.
A Decade Out: Currency Consolidation and a Standardized Digital Future
- Bench speculated on the long-term (10-year) trajectory, predicting significant currency consolidation driven by the efficiency of digital money.
- He anticipates that technological progress will lead to standardization, potentially reducing the number of global currencies to "six or seven" by 2050, including the dollar, yuan, yen, euro, pound, and rupee.
- This could lead to increased dollarization in regions like the Western Hemisphere, while China might export its digital currency infrastructure.
- Bench posited, "if currencies are deep and liquid enough and can be standardizable in code, I just don't know how that doesn't happen."
- Strategic Implication for Investors/Researchers: The potential for currency consolidation driven by DLT and stablecoins has profound geopolitical and economic implications. Researchers should model these scenarios, while investors should consider the long-term viability of various fiat and digital currencies in a more standardized global financial system.
Conclusion: This episode reveals stablecoins are evolving from niche crypto tools to foundational elements for a new, AI-driven internet economy. Investors and researchers must track the development of hyper-scalable, low-cost transaction networks, as these will underpin future digital commerce and AI agent interactions, potentially reshaping global currency dynamics.
