Fintech

Circle CEO: Crypto isn’t too big to fail yet. But it is too big to ignore.

Crypto is just getting started, says Jeremy Allaire: “We have not crossed the chasm from the early adopter to the mainstream.”

Circle CEO Jeremy Allaire

Circle CEO Jeremy Allaire is focused on convincing politicians and regulators that crypto — stablecoins in particular — is the future of finance.

Photo: Circle

Circle CEO Jeremy Allaire is famous for perhaps the quirkiest crypto celebration ever: a rap performance to celebrate USDC’s circulation topping $30 billion.

The head of the company that issued the dollar-linked stablecoin has no regrets about the widely panned video. “Not at all,” Allaire told Protocol. “I grew up in inner city Philly. I grew up with hip-hop and rapping and beatboxing and it's just sort of how I grew up. So I have no problem with that.”

Allaire is focused on a bigger problem: convincing politicians and regulators that crypto — stablecoins in particular — is the future of finance. When he’s not rapping, Allaire sometimes puts on a suit to explain to members of Congress the rapid rise of blockchain-based financial services and why that tech trend is unstoppable. He’s been doing it for nearly a decade.

“Conversations are a hell of a lot better now than they were two years ago, three years ago, four years ago, five years ago,” he said. Back then, “if I walked in the room and said, ‘I'm doing like a crypto bank,’ people would think I'm an alien and just be like, ‘Oh my god, I'm going to get in trouble for having a meeting with you.’”

Circle is gearing up to go public in a SPAC merger with Concord Acquisition Group. Because it involves digital currency, the registration process “is a little bit longer than a widget manufacturer or whatever,” Allaire said. A day after Allaire spoke to Protocol, Circle said in an updated SEC filing that it was valued at $9 billion, double its valuation in July 2021 when it announced its plan to go public.

In an interview, Allaire talked about the push for an official U.S. digital dollar and why he thinks the Fed should essentially get out of the way and let stablecoin companies like Circle take the lead. He also talked about why he thinks crypto has not yet reached the point of being too big to fail, “but it’s certainly too big to ignore.”

This interview was edited for clarity and brevity.

What’s your fearless forecast on the digital dollar?

Well, the digital dollar is here.

I mean the one that the Fed is expected to issue.

There is a perceived digital currency space race. One could argue that the announcement of Libra created an impetus for China to accelerate something that they wanted to do. And in turn, that has led governments in the West to say: What are we going to do?

That's come in two forms. One has the question: Should the federal government build something? The other has been: There's actually something here already called stablecoins. And these are growing incredibly rapidly.

The interesting question, if you step back and ask a different question, is: Over the last 75 years, where has all of the innovation in electronic money happened? Has any of it been created by the federal government? And the answer is no.

Everything we have, from the wire system to credit cards and debit cards to ATMs, to PayPal to Apple Pay to stablecoins, has been kind of driven by private sector innovation, but has fit within a safety and soundness framework around the actual underlying dollars.

That's created a clear separation between sort of the payment utility side of what happens with dollars and the monetary policy side. In our view, there's no reason to suggest that it can or should be different. In fact, our belief is that a nationalized infrastructure operated by the federal government creates a whole series of significant other risks. And those are identified even by the Federal Reserve itself in its white paper, as they look at these issues.

Now for a country like China, where they're very concerned about private market power, and they're very concerned about people operating outside of government surveillance, it’s a different set of issues. The twin powers of Alipay and Tencent represent significant threats to the authoritarian government. So they have a different calculus. I think the calculus in the West is different, as well. So my short answer is I think it's unlikely that we'll see the U.S. federal government building anything in this space. That's not to say there won't be research. I think the more urgent issue for the United States is, if the United States wants the dollar to be the currency of the internet and wants to compete with the dollar as the currency of the internet, that is a here and now thing.

It's really about how to put the right kind of market conduct and regulatory framework at a federal level around this rapidly growing framework for dollar digital currencies that exist today in the market. And I think that is, in fact, what the government's doing.

I just interviewed Alan Lane, the CEO of Silvergate, who said it will likely be a public-private partnership, like in the space program.

I think SpaceX is a great example. And you know, maybe Circle can be the SpaceX of dollars.

But in all seriousness, there's just this tremendous technological innovation that's taking place. But it's a regulated activity. You don't just get to put rocket ships into outer space. You’ve got to actually collaborate with the government on that. The metaphor of a space race is an interesting one as well. I don't think anybody is sitting here going, “Why aren't we investing more in NASA? Why aren’t there hundreds of billions of dollars being plowed into NASA?” I think they're saying, “Let's unleash the free market and competitive forces to compete there.”

You mentioned that there’s a risk if the federal government in the form of the Federal Reserve decides to say, “We will do this ourselves.” What are the most prominent risks you see?

There are a lot of issues. Why is it that virtually every form of payment system innovation, and every form of electronic money that we know, has been private sector driven? There's constant technology obsolescence, there's a constant changing of technology and that has historically not been something that the government is very good at.

Taxpayer-funded technological obsolescence is a very real risk. I will make the argument that public internet infrastructure and open standards that are built on public internet infrastructure have strengthened things in so many different areas. That kind of open internet public standards, that kind of technical infrastructure, is basically developed out in the open as open-source technology as a public good in the public domain. That moves at a particular velocity.

That's not going to be what you get if you pay IBM or whoever to go build something that is meant to be run and updated in a centralized way for a number of years. You're not going to get the dynamism that comes from open internet innovation. That's why I think, ultimately, even if the government does decide to do something, the actual usage of digital currency is going to overwhelmingly be happening in the private intermediated world, in the open internet, open infrastructure world.

We're talking about this in the context of the rapid growth of blockchain and crypto, plus growing concerns about regulation.

I think it's a very healthy debate. I have been going to Washington for 8.5 years since the very beginning of this industry. I was one of the first people who testified in the Senate in 2013. The policy dialogue today is so much more robust. It reflects the fact that despite all the naysayers, this infrastructure has just grown and grown and grown. It has now reached a point where it is maybe not too big to fail, but it's certainly too big to ignore, and everyone accepts that this is here to stay and is growing.

Do you think it’s not yet too big to fail?

The Financial Stability Board just came out with a paper. They’re the body that is sort of saying what's systemically risky to the real economy. That's the way people kind of define too big to fail. And they're basically saying crypto is not there yet, but it could be. That's almost like the academic definition.

But it definitely is here to stay. I think that the debate has really evolved from one of intense skepticism, “This is all just a bunch of crap,” to “There's a real there there. This is a really meaningful set of innovations, and there's a lot of important value that can be created from it. Let's think about this from a national competitiveness perspective. Let's think about this from an industrial policy perspective. Let's think about this from a dollar competitiveness perspective.” [There’s] a healthy amount of skepticism as well. There is a bunch of crap in the ecosystem, and so we want to have appropriate safeguards.

It's a really interesting evolution to the policy dialogue. It’s very healthy. And I think that probably the biggest challenge facing regulators and policymakers is, first of all, the pace and the velocity of this is intense. I've been in the internet industry for 30 years. This is like super high velocity. And [it] inherently makes regulators uncomfortable because money is a serious thing. Some protocol came out and there's a $300 million hack and it’s like, “What!” People's heads explode.

The velocity is significant. That makes it challenging because when you thought you understood one thing, there's like this whole other arena and it's just moving very, very fast.

I think a second issue is the internet and the open internet collided with the media industry, the telecommunications industry, collided with the retail commerce industry, the software industry, and restructured what it meant to even deliver those services and the economics of it.

And now blockchain, crypto finance, digital currency are essentially the internet finally colliding with the financial system. There's a huge challenge there. A lot of the rules that were written and a lot of the regulations that exist were highly incremental relative to the way that the financial economic system worked in fairly tightly controlled, privately controlled infrastructures.

Now, you've got a public internet, a public infrastructure, open-source software. The concept of that and the financial system again makes people's heads explode. It's challenging when you have a digital currency that exists everywhere the internet exists. Literally, someone just has a piece of software on their device, and they might be actually on a spaceship going to Mars and it exists. It's programmable and automatable and all these things. That's just a problem space that regulators have never had to deal with. They've had to deal with it in other parts of the internet, but not in the financial system. That makes it even more difficult.

So there's a lot of jostling. Which agencies should look over what? How do you define these things? What is a digital asset? Is it a commodity? Is it a security? Is it a currency? How do you define it? Statutes have to be defined. This is a new thing.

A lot of these conversations heated up last year. What have been the most troubling conversations you've had either with a lawmaker or regulator?

Given the conversations I have had over 8.5 years, conversations are a hell of a lot better now than they were two years ago, three years ago, four years ago, five years ago. If I walked in the room [back then] and said, “I'm doing like a crypto bank,” people would think I'm an alien and just be like, “Oh my god, I'm going to get in trouble for having a meeting with you.”

Definitely, things have evolved. But I think it gets down to something that I just talked about. I think the impulse for regulators is to superimpose the existing kind of template for how the banking capital markets [work], to superimpose that on top of cryptocurrency and blockchains. I think when you try to do that there's almost like a cognitive dissonance that exists. Sometimes I will meet with someone who can't accept that things actually might function just differently.

I'll give an example. One of the biggest issues is this idea of self-custody, a digital wallet. People call them hosted wallets. But self-custody is something that to an individual is extremely empowering. It is a sort of self-sovereign control over my wealth, over my identity.

“I don't need a bank account,” essentially.

I don't need a bank. Be your own bank. The potential for different kinds of privacy and security guarantees that come with that, that's a profound thing. That has not been possible, but it's also terrifying to governments. There are people who are like, “We have to ban that. No one should ever be allowed to have self-sovereign money.”

There are these risks that have to do with things like money laundering, tax evasion, financial crime. Those are real. The way in which the regulators in the banking system have dealt with those issues historically has been by basically requiring financial intermediaries to be agents of law enforcement, and to keep huge amounts of records and to kind of share all that information constantly with everyone that they deal with.

Basically your personal identifiable information is being broadcast everywhere behind the scenes. You don't even know it. And it creates honeypots of data. It creates risk around privacy through data breaches and other things. There's an existing system to deal with that which is actually privacy-eroding with a goal of thwarting crime, but it has a lot of challenges with it.

Our view is you can actually have a system where individuals can maintain autonomy over their assets, but where you have very high assurances around identity verification. People can build services on the internet that really only allow people who have a kind of identity credentials to interact on some of these platforms.

You can introduce a risk management layer that still gives people sovereignty and privacy and you can actually improve upon the limitations of the existing financial system.

You are obviously very upbeat about crypto. But what are you most worried about the way it is evolving, especially since you lived through the dot-com era and the financial crash a decade ago?

Yeah, I also lived through the last crypto winter which was in 2017-2019, you know.

Are we in another one, you think?

I don't think so. There's so much happening that's very, very positive. I don't comment on the price of bitcoin or whatever. I have a personal view on that.

I guess the question is: Is there something I worry about? I tell this to all the employees in my company and investors and others: We're still in the very early stages of this. We're still in the early adopter phase of this. This is not yet, to use [a phrase from] Geoffrey Moore, the famous marketing strategist, we have not crossed the chasm from the early adopter to the mainstream.

One could argue that buying bitcoin has crossed the chasm. That's become mainstream, or things like that. You could argue that NF Ts are starting to get there. But when you actually look at internet scale, billions of users, we're maybe a couple of hundred million people in the world that interact with this with any form of regularity.

So we're still in the early stages. We're still, I think, in the very early stages in terms of the ultimate impact that this is going to have. Actually we don't even know what the impact is going to be. We can't predict it. Just like we couldn't predict what the impact of mobile would be.

I think we're super, super early. And I think that's important for market participants, including regulators, to understand that there's so much that is going to continue to develop here. We have to be careful. We need to create the space where the ingenuity that's happening here can happen.

The stakes are getting higher. We also have to be cognizant that people can get hurt. We're talking about value, financial instruments. There's sort of a social compact between certain types of businesses and society and those are real things.

Part of the critical thing here, particularly in the next two to three years, is getting enough clearly defined new regulations in place, that those tail risks can be managed better, because they're real. But also doing it in such a way where entrepreneurship and the innovation that we see that comes from technology and the internet can really have its opportunity to flourish.

You were quoted as saying that this will make the dot-com era seem like small potatoes.

Totally think so. Systems that impact information exchange and communications are huge. That has a huge impact on society. But I think systems that impact economic organization and economic activity are bigger. Just look at the total addressable market of the financial system and commerce and the intersection of that. It’s $500 trillion? It's just a different scale.

I think we're seeing the building blocks of kind of a reordering of how economic organization happens, how economic activity happens in this entirely software-based, internet-based world. For me, at least, it's another 10- to 20-year journey to kind of realize some of the ideas that we have.

Any update on Circle going public via a SPAC which was announced last year?

We have had multiple rounds of back and forth with the SEC. We fully expect to complete that transaction. At a high level, because this is a new industry, there’s a lot of complexity to digital currency, the time it takes to kind of get through that ultimate registration process is a little bit longer than a widget manufacturer or whatever. It’s taking a little bit longer than we had originally anticipated, but we're continuing to move through it.

Last question. Do you have any regrets about that rap song?

[Laughs.] Not at all. No.

How has it changed your view of rap and music, given what happened at the Super Bowl where rap and crypto ads took center stage?

I have my own story. I grew up in inner city Philly. I grew up with hip-hop and rapping and beatboxing and it's just sort of how I grew up. So I have no problem with that.

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