Pundits, policymakers, and business leaders alike are gushing over the promise of, or fretting over the risks associated with, digital currencies. And for good reason. The technology is exciting and holds enormous promise, but the risks associated with digital currencies are real. Consumers want to pay with crypto, and the market is innovating to accommodate that demand. The Fed is studying the viability of a Central Bank Digital Currency, and regulators are seeking to fill the regulatory void on crypto and stablecoins, even as they call for legislation. This session will talk about the payments use cases for crypto and stablecoins, the current legal and regulatory environment as it relates to crypto, and the key attributes of a thoughtful regulatory regime that fosters innovation in digital assets.
Transcriptions:
Daniel Wolfe: (00:07)
Hi again, Daniel Wolfe with American Banker. I am here with Jodie Kelley CEO of the Electronic Transactions Association. And we are here to talk about crypto!!! Exciting space, right? I pay absolutely no attention to it. Has anything happened in crypto in the past week.
Jodie Kelley: (00:26)
Another day, another digital dollar? It has been an interesting week. I was thinking about this panel. What an interesting time to be talking about crypto? As most of you probably know the crypto markets have been roiled over the past week or so, led by a stable coin that a lot of people had never heard of called TERA, and it's sister token LUNA, the stable coin which is supposed to be pegged to the dollar. So always have a value of a dollar, lost its peg. It was no longer a dollar and the algorithm that was supposed to shore it, didn't do what it was supposed to do as one of the commentators read said it worked really well until it just didn't.
Jodie Kelley: (01:13)
The value plummeted and it lost about 40 billion in value very quickly. And it pulled the crypto market down with it. So we saw 600 billion go out of that market in a week. Bitcoin dropped below $30,000, which was half of its value just last November. It was a busy and eventful week in the crypto markets and of course, as you would expect I I'm in Washington DC, Washington DC woke up and paid close attention. This concern about a run is something regulators been talking about and so we're seeing a lot of action coming on the heels of these big market moves.
Daniel Wolfe: (02:02)
So let's back up just a little, can you tell us a bit about who you are and what the ETA's role is in the crypto space or what the crypto's role is in ETA
Jodie Kelley: (02:10)
Space in ETA space? Well, ETA space is the payment space. As Daniel said, I'm the CEO of the electronic transactions association. We are a trade association that represents the payment space. So many of the folks here are our members and it's so good to see all of you. what we do as a trade association that represents this industry, we do what trade associations do for our membership. And I should know we have a very broad membership as payments is incredibly dynamic. And so when I say the payment space, we're talking about companies that are card brands and acquiring banks and payment processors and fintech's and ISOs and everyone in between. And of course everyone is looking at crypto, so what do we do? We do networking and business development events.
Jodie Kelley: (03:01)
We do conferences and I too think this is an amazing conference but probably most relevant here, we do a lot of education and we do both what I would call intra industry education. So, talking about the most topical things that are going on with our own members providing insights into what's happening and really importantly the timing coming off the last panel is spot on. We provide a lot of education to policy makers because a lot of what's happening in the payment space because it's so dynamic is going to be heavily affected by the environments in Washington but also in the states as they noted. And so we are very active, both at the federal level, legislative and regulatory and in the states on issues. And I will say at the federal level right now, our number one issue is crypto.
Daniel Wolfe: (03:55)
So where are we in, I guess crypto's story. How did we get to where we are? And is it mature yet? Is it in its infancy? Where do you see us on that life? lifespan.
Jodie Kelley: (04:09)
So it's interesting to think back about crypto and kind of the trajectory. And of course, I think about it the most in the context of payments, sort of crypto came on the scene 2009 and it was originally the hypothesis or the rayon Dettra for developing the original cryptocurrency was as a payment mechanism. Like the idea behind it was this would be a payment mechanism that would operate outside traditional payments, the payments ecosystem outside the traditional financial ecosystem. It was very much based on a desire to get away from financial institutions and others, and have a payment mechanism that work directly pay or what we have seen evolve over time it just has not largely evolved that way.
Jodie Kelley: (05:06)
And that's because it's a very volatile asset as the events of this last week have really demonstrated. And when you think about kind of things that are required for a payment system to function well having something be a very stable mechanism to transfer value is required. And I don't think any of us would say that the digital assets like Bitcoin are a stable asset. Now having said that crypto assets have clearly captured the imagination of folks we went from zero to its peak, a 3 trillion market cap in crypto assets. It's now down to about 1.3 trillion. So again, talk about some volatility but 1.3 is nothing to SNE that people are very excited by the idea of crypto assets.
Jodie Kelley: (06:02)
People are literally very invested in crypto assets and so, this is an asset class that is here to stay. There are just over 18,000 crypto coins in existence about 10,000 that are actually active in some way. Although only a handful, right that we hear about and that are primarily relevant. But a market that has developed really quickly grown really fast, captured a lot of imagination of folks like I said is here to stay.
Daniel Wolfe: (06:45)
So the word that keeps coming up is volatility. Now, obviously that was theme of last week. What makes last week different or special? Is there anything we can learn from what happened last week versus any of the previous volatility that we've seen?
Jodie Kelley: (06:59)
That's a great question and I have been reading a lot about it and there is a lot of discussion trying to unpack what went wrong.
(07:08)
I would say a couple of things. So there is what was a little bit different about last week was volatility we saw initially was triggered by a stable coin. Stable coins are designed to be pegged to the dollar. whereas assets like Bitcoin, Ethereum and others are not pegged. Like understanding why the stable coin wasn't stable, there is gonna be a ton of analysis that remains to be done. This particular stable coin was not fully reserved. It was used an algorithm to maintain its value. And there is going to be a lot of people digging into the difference between a reserved and an algorithmic based stable coin, it may be, it's certainly true that in Washington, the regulators are certainly headed towards a fully reserved stable coin and this will probably add fuel to that fire.
Daniel Wolfe: (08:09)
Do you think a lot of folks have gotten into crypto as an investment. I wanted to kind of playfully slash snarly bring up a whole bunch of beanie babies that I collected way back when for that tired comparison. But my kid took them all. So looking now at what happens when people are invested in it and the value goes away, the original mission of crypto as a payment mechanism, is that still something that would people be scared off from that by just what they see in the news and what they see in the market? Or is there still a hope for that?
Jodie Kelley: (08:47)
I would say a few things. So the story is still to be written on crypto assets, digital assets more broadly, there is underlying technology, the technology on which these assets run, which is undeniably interesting and a lot of use cases associated with that, we will see experimentation over time. And there is a lot of when you think about the problems that could be solved by it, just in terms of speed and security that look, there is going to continue to be innovation and investments around it. Having said that, I think on the non stable coin side, the volatility is genuinely an impediment to a meaningful use case for payments.
Jodie Kelley: (09:42)
If you are a merchant, you don't want to accept this payment, a crypto asset that could be worth literally half what it was, the moment you took it. What we see people doing to both address the market demand for using crypto's payments against this issue with volatility is by when you talk about paying in crypto, what you are typically seeing is switching the crypto to a Fiat currency to either a stable coin or to an actual dollar. And then the merchant gets paid in the Fiat currency or the stable coin, but that in itself is an innovation kind of leaning into this demand. So again, I really think the story is yet to be written. I don't think this latest kind of episode of the last week, I think it will, we will learn from it and move forward from it.
Jodie Kelley: (10:39)
But it will shape people's views about crypto was introduced coming right out of the last recession. And when the market was at like 8700, the Dow was at like 8700 or something, and it's now 32, 30, 3000, crypto has existed in an up market and I get it, there was just a lot of FOMO, people saw people buy it and then people were making money off it. And then people were they didn't wanna miss out. And so they bought it and they made money off it. There was this sense that it was this asset that was just gonna go up and up and up and what we were learning is like, no it won't, and so that will inevitably have an impact on the way people approach it.
Daniel Wolfe: (11:28)
I will say my personal crypto story is that one of our conferences, years and years ago, we had an exhibitor demonstrating a Bitcoin ATM. And he asked me to put a dollar of my own money into the ATM. And I never saw it again but he gave me an app on my phone, which told me how much it was worth. And I totally forgot about the app. And then I forgot about the phone when I upgraded. And at some point I looked it up what a dollar at that time had become, and it was $70. And I was like, wow, I going to figure out where my phone is. So I did manage to find that phone, charge it, unlock it, and cash out converting whatever and pay for an Uber ride with that money. But, that still seemed like a hurdle. I mean we use this term Fiat currency and I just kept I call it money. it is not, I don't mean to be down on the crypto space, but I am just wondering the pain points that it solves, what is unique about crypto, that it can solve something and that something a bit more traditional for those of us who still call it money, couldn't actually use a credit card or something else to solve for.
Jodie Kelley: (12:42)
It's a really good question. And I will say a couple things, one we have talked about digital assets like Bitcoin and Ethereum, we have talked about stable coins, there is a third category of potential digital dollars. And that is a central bank digital currency. And that would be money issued by the central bank. So it is in fact a dollar, it is the money as you were using the term money, it is Fiat currency issued by the central bank, but it would be in digital form. Even in that context there is a lot of discussion about what problem are we trying to solve? like the first and most important question is, what problem are we trying to solve?
Jodie Kelley: (13:29)
What are the pain points that we are trying to address? Because as all of you know, you participate in our payment system in this country is really robust. It's highly secure, it's ubiquitous and fed chair, Powell has said essentially like first let's do no harm, right. We have a system that works well. Can it work better? It can become faster? It can is there always more security and advances in security we should be exploring for sure. You know, but we have a system that works well. So the question of like what are we trying to solve for, what are the use cases that we can't address with the current system is a good one. And it's the right one. When crypto started, some of the impetus for it, like I said, were things like anonymity, right?
Jodie Kelley: (14:25)
Privacy, like getting off the current financial system, being anonymous and having your transactions, not be, scrutinized particularly by financial institutions or the government. I will say that is not whatever you think about that cannot be how this evolves, if it is to evolve, meaning meaningfully, because just that the government is not going to allow that right. There are legitimate concerns. The prior panel talked about illicit activity with crypto. So those desires, just have to be set aside when you're talking about like, what how can we really, what are the use cases? How can we really evolve this? It's not to say that privacy is not important. Of course it is.
Jodie Kelley: (15:13)
It's not to say that we shouldn't be concerned about how the government or others use our data, we should. But it is to say this kind of libertarian, off the grid view of crypto, cannot prevail if it's actually gonna be meaningful. And so what's left speed, the underlying technology does allow for speed. And so, potentially that's something, security although again, power panel is not perfectly secure. Nothing is perfectly secure but advances in security potentially. So, I think those are some of the pain points that we could try to solve for. Although again, you gotta balance it against existing system, right. As you are, when you are talking about people wanting to spend crypto and like consumer demand, a lot of what you are seeing is, as we talked about people made a bunch of money and then they wanted to spend the money. Right? Your dollar was 70.
Daniel Wolfe: (16:18)
I mean, in my defense, I needed to get home either way, whether I spent that dollar in crypto or however.
Jodie Kelley: (16:23)
Exactly right. But here you had 70 bucks, right.
Daniel Wolfe: (16:26)
Yeah, before taxes exactly but yeah, so that's an interesting, what you were bringing up in terms of what the government might need to know, or even if the government, isn't the one that knows, like, if Amazon says, we will accept crypto for everything and I will think okay, great. All my Amazon purchases are anonymous, except they know my address. They have a speaker in my home that listens to everything I say, and, whatever else I am not thinking of. It still feels like at least in that case, I would be surprised if anybody was expecting anonymity for just such a mainstream use case. I don't expect anonymity if I pay cash for my haircut or what have you, but it's still the same cash that I could use more anonymously somewhere else. Is there a hybrid role for crypto in that regard where it's only as anonymous as the situation merits?
Jodie Kelley: (17:22)
Yeah, that's a great as the regulatory framework develops, those are the kinds of balances that we are gonna see, trying to be struck, right? Like how do you have the appropriate amount of privacy, but not complete privacy? How can people meet their AML KYC obligations and it was interesting to hear about some of the blockchain analytics that will help with some of that. But, that is the balance. That is gonna have to be struck, again, if this is gonna become a mainstream mechanism. And we talked a lot about retail, but there are other use cases as well, things like wholesale payments or, cross-border payments as well, some which implicate to different degrees, some of these concerns, but those concerns are gonna have to be met regardless.
Daniel Wolfe: (18:11)
Okay. So, let's talk about that about B2B cross border, where do you see the low hanging fruit?
Jodie Kelley: (18:18)
Yeah, so I and this is just me personally, these are a couple of areas that I think are actually interesting areas to explore. And again, particularly looking at the underlying technology, when we look at B2B payments, it is an area that is ripe for disruption. So many paper checks still used, such a large market that is clearly not operating as efficiently, as it could. And, so I do think that's an area where we are gonna see a lot of attention paid by payments companies to figure out how we can kind of move, that aspect of the payment system forward in a meaningful way. Cross border remittances. I know our next panel will hear more about that. I am looking forward to that. I think that is another area where particularly CBD CS of central bank digital currencies, could potentially be part of a solution there. I will note though it's a complicated ecosystem and the G 20 working group that's studying, this says this is one of 19 things would have to be solved for to really make a difference. So lots of work to do. And when I said the story is yet to be told, that is why we are in many ways still in the infancy.
Daniel Wolfe: (19:35)
Okay. So, on the subject of not just cross-border, but also just international use cases, are there any examples from outside the US that we hear in the US should look at to follow or to learn from?
Jodie Kelley: (19:47)
Yeah, so there is a lot going on across the globe with digital assets, with respect to central bank, digital currencies, central banks around the world are exploring this as is ours. We are part of that as well. There is the regulatory framework has not been established and we are in this country positioned in a way that is exactly appropriate, which is again sort of first harm, make sure it's clear where we are headed before we leap into the fray. There is some really interesting work being done, Switzerland, Singapore, that is important in terms of advancing the ball and all of this is some experiments that are happening, El Salvador, setting Bitcoin is legal, tender.
Jodie Kelley: (20:42)
We will see how that plays out. Again, I am personally skeptical. So I would not advocate that we follow that at, for sure this juncture and then as we see other countries roll out their own versions of UHCs, a greater lesser degree and some to a significant degree, there are concerns about to your point earlier, the degree to which your individual transactions are being scrutinized and monitored, whether that can be used in a political way to squelch send and so that's obviously a negative example, as we move forward, we will not see, complete anonymity but we do definitely need to be cognizant of the ability with digital currencies and CBDC for there to be CBDC in particular for the government to be aware of what you're spending.
Daniel Wolfe: (21:44)
So on the subject of regulation, what do you think is most likely to happen? And what is your wish list or maybe not personally, if you don't wanna go there, but, what do you think might be the healthiest thing for the crypto market to grow if that is essentially what we do wanna see happen?
Jodie Kelley: (22:04)
So, I would say a few things. So, regulatory certainty is really important for innovation to happen for a market to mature. And there is not regulatory certainty at this point. There is a lot of activity the president's working group issued a report on stable coins. The fed has a report out right now with comments due shortly, there is an executive order issued directing many regulatory agencies to study and report. But, there is no regulatory clarity. We have different federal agencies who are kind of jocking for position here. Until crypto companies understand what the regulatory framework is and can build against it, it's challenging for a market to mature. And we are seeing that crypto exchanges actually advocate for regulation because, they understand exactly that. And so first and foremost, we wanna see a framework that encourages innovation, always, that is not overly prescriptive. Cause as we said, we have no idea how this is all going to unfold, so let's not try to like dictate it by regulatory Fiat.
Daniel Wolfe: (23:24)
What is that word again, Fiat,
Jodie Kelley: (23:25)
Everywhere, it's everywhere but that provides some certainty. And kind of working towards that framework by itself is incredibly positive.
Daniel Wolfe: (23:39)
Okay. We have about five minutes left. So let's open it up to questions from the audience, big topic here. So I am hoping to see a few questions. I see a raised hand, probably more that I can't see because of this really bright light in my face but the mic is making its way.
Audience Member 1: (23:59)
Hi, this is Paul. I have my questions regarding the regulatory framework itself, right? As you mentioned, regulatory framework is still coming in place and we don't have a standard framework right. At the same time, Banks are looking at multiple use cases. You mention about B2B use case, which is very prominent to be looked at right at the same time on consumer side, banks are looking at buy, sell, hold. The question I have is given that there is still things to come up from a regulatory perspective, what should bank do? So they don't come into the regulatory framework as well and get caught the same time, be ready to take care of the innovations.
Jodie Kelley: (24:40)
So what should, I am sorry, was it a bank? Yes, yeah.
Audience Member 1: (24:43)
What should banks do to ensure that you don't get into the regulatory polishing or a check at the same time, right. Be ready for the innovation.
Jodie Kelley: (24:54)
Yeah, so bank should consult their council including those who are on last panel about what they do to avoid getting caught in a kind of a regulatory firestorm, banks as custodial holders of crypto has been a topic. Other payments companies are actually facilitating buy, sell, hold. So like facilitating the purchase and holding crypto in addition to wallets and others. It's, exactly why we need the regulatory certainty that I talked about. So because it is even in the absence of regulation, this is evolving, right? People are developing products and facilitating, and if you are a regulated institution, you don't want to get left behind but in the absence of clarity it's concerning.
Audience Member 2: (25:50)
So you mentioned 18,000 currencies, 10,000 active ones. Do we see consolidation happening in the marketplace, which would control the volatility a little bit as well, and I am not just talking consolidation within the coins, but do you see coin based buying coins and pushing their own digital currencies as an example?
Jodie Kelley: (26:14)
Yeah, that's a great question. And, again I pay the most attention to this in the context of payments and I will say what we have seen in the context of payments is as we have looked at our member companies and kind of as they have started announcing the ways in which they will engage and which crypto assets they will engage with, most of them have put out a series of criteria before they will engage. And that actually narrows the field dramatically. Right? At that point, there are just a handful of these crypto assets, that are in play in the payment space. And that will remain true, right? There is payments companies are appropriately treading somewhat cautiously in this area, whether or not that will lead to consolidation of the remainder. I don't know, but I think as a practical matter we are not gonna be trading 10, we are not gonna be paying with 10,000 coins, but it is an indication of just how much movement there is, right. In this space, think of doge coin, right. It started as literally a joke coin. And it's now one of the largest crypto assets. That is this trading up there.
Daniel Wolfe: (27:34)
I think we have time for one more question. I can ask it. Okay, did I see a hand go up? Yes. There is a hand.
Audience Member 3: (27:52)
I just wanna go back to your El Salvador comment and you made a pretty strong comment without any details. So you said you don't recommend doing what they did as you are saying that for the case at El Salvador, going from their own currency to the US dollar to digital, like, could you give a little more specifics on, are you referring to the US or a more mature currency or specifically in El Salvador commenting? Right.
Jodie Kelley: (28:19)
Yeah. My only point there was making a particular digital currency legal tender means it has to be accepted and recognized as payment, right. For debts and there is again from a merchant perspective, if you are thinking about the way in which you want to engage in business in commerce, if it were me and I think it's true for many merchants, you don't wanna accept something as payment that you don't have confidence in the value. And so my point was simply that, there is a lot to be ironed out in terms of crypto assets, digital assets and like how you could use them in a payments use case in a way that is beneficial for the ecosystem. And it's not clear to me.
Audience Member 3: (29:08)
You just described a lot of emerging economies, currency situations, they're all accepting currency that they don't know what the future value will be. So, they are trading kind of maybe one problem for another versus other economies with stronger currencies and more market value rated currencies is where your advice would come from, Right.
Jodie Kelley: (29:33)
Sure. And look, I have to be clear I am not giving advice to any government, emerging or established. My point only is that there is fluctuations in Fiat currencies to use the term that we keep using. And it's more volatile in places than others. But I do think crypto assets add a layer of complexity that has not been solved yet.
Daniel Wolfe: (29:57)
Alright, cool. I think this discussion has convinced me to trade my beanie babies for Bitcoin, so we will see how that goes. All right. Thank you everyone. Thank you, Jody.
Jodie Kelley: (30:05)
Thank you.
Ready, Set, CRYPTO!
May 23, 2022 11:38 PM
30:11