Stablecoin infrastructure is ‘a strategic national security’ priority for the U.S: Paxos CEO
Paxos Co-Founder and CEO Charles Cascarilla joins Yahoo Finance Live to discuss his testimony to Congress on cryptocurrency, the future of regulation on digital assets, and the implementation of stablecoins.
- For more reaction, let's bring in an executive who was one of those who testified before the House Financial Services Committee yesterday we got Paxos co-founder and CEO Charles Cascarilla joining us. Charles, you know, we heard you say yesterday that we need clear standards and the government's support to create new, more secure, competitive financial systems. Based on the testimony yesterday, your conversations with lawmakers, how confident are you that they have the understanding and the knowledge to create a new framework?
CHARLES CASCARILLA: Well, I think the first thing to take away from yesterday is, the conversation was actually very constructive. And I think that the lawmakers are really in listen and learn mode. And I think they were really trying to do that. If you really suffered through all five hours of that, it was a long day for everybody.
But I think it was also really important to be able to sit here and talk through these issues because they're complex and it was a wide ranging conversation. And I think that as the lawmakers really become more understanding of what's going on in the industry, there's a recognition that while there's uneven regulatory application of different rules, there needs to be a standard that is created that creates a more level playing field for everybody.
And I think that was maybe the important takeaway here is everyone wants there to be the right level of regulation. How do you strike that right balance? How do you do it in a way that makes the US stay competitive in what is it really emerging in important industry.
- Yeah, the piece on staying competitive was pretty interesting, too. Because it seemed like a lot of lawmakers had to ask that about stablecoins and what it might mean for the dominance of the dollar as the world's reserve currency. We heard your compatriot there, I guess, at Circle with USDC talking about that too. And Jeremy Lehrer's response to one of those questions about China's CBDC and what the US could be working on. Just want to play again for our viewers what he said yesterday and get your take to expand on it. Take a listen.
JEREMY LEHRER: Dollar stablecoins are doing trillions of of transactions the experimental beta of a Chinese yuan, which is government controlled, and China has done $10 billion of transactions. So the United States is winning. This has the potential to grow at a very significant speed around the world and benefit the US dollar and benefit American businesses and households.
And so I think that's one really, really critical thing to understand. And I think the primacy of this infrastructure and the development of this infrastructure, it is a strategic national security and national economic priority for the United States. And we need to get going on it right now.
- What's interesting is I mean, both you and him talked about wanting to stick with using the dollar and dollar-backed currencies here in what you guys offer. But you also got pressure from Chairwoman Waters about your partnership with Metta in rolling out your stablecoin on their digital wallet. So I mean, how do you kind of square those things if regulators are kind of in both camps here, but overall it seems like a net positive roll these stablecoins out to a more global user base?
CHARLES CASCARILLA: Well, I think one way to frame this is thinking of money as a product. And maybe we don't always do that because it's so ubiquitous and we all use it every single day. But it really is a product. And if you think of it as a product, is it meeting the needs of users. Is it meeting the needs of the economy as it continues to shift and become much more digital.
And I think the answer is no. And that's what stablecoins are providing is a way of having money have different properties, become a different product, adapt to new technology. And this is an important shift that's happening. And if the dollar is not able to respond to this new technology, to the new needs of users, then someone else will, something else will.
And by the way, it could be crypto. That could be the Chinese digital yuan. And so it's crucial for the US dollar to be able to meet these changing needs. And if it does, I think it actually is likely to increase its ubiquity even more. Because the reality is people want dollars, not just digitally in the US, but they want them all over the world.
Anywhere you go, people want to use a US dollar. They're using physical currency. They can't get bank accounts. Or maybe they have to go use crypto because they can't get dollars. And if you can get them and you can use them ubiquitously and very simply like you can when they're tokenized, it really will actually change the position of the US dollar for a real positive.
But keeping that reserve currency position is something that's also will depend on regulation. So if we get it right, I think this is a huge opportunity for the US and for the dollar. If we don't get it right, it could be a real huge problem.
An innovator's dilemma is something that doesn't just exist for companies, it also exists for currencies as well. And we need to meet that challenge.
- I mean and I guess in terms of regulations around it too, you've got banks maybe not so excited about the idea of new companies like yours coming in here and maybe more directly giving access to those outside of the United States the ability to interact with dollars through stablecoins. Is there a concern there maybe too-- it didn't seem like it when we were listening in to this hearing, that maybe regulators, congressmen and women as well, might be more influenced by big banks just kind of given the relationship there in the past.
I mean what's your takeaway there maybe in terms of how surprisingly friendly they were towards you versus maybe how they've reacted to big banks in the past?
CHARLES CASCARILLA: Well, I think that was an important takeaway is that the lawmakers were really constructive. They're really trying to learn and understand. You go on for five hours, you could pick one moment or here or there where maybe there were some hard questioning. But I think that was very constructive overall.
And I think that this is about an understanding, that like with the internet, nobody wants to be on the wrong side of the internet. No one wants to be on the wrong side of Web 3.0. No one wants to be on the wrong side of innovation. Because we've seen so many times over our country's history that by embracing innovation and embracing change, it actually puts us in a position of strength and puts us in a position to create new industries, create new jobs, and maintain our lead in emerging industries.
And the fact is, in financial industry, in capital markets, in the reserve currency, the US has the lead. And we need to meet that challenge of staying in that position by adopting new technologies. I think that is a lot of what the hearing was about. And so there's more to be done.
The dialogue was, I think, very fruitful. But it's going to be something that you're not going to get through in one hearing. I think there's going to be a lot more of this. And the presidential working group paper is another example and there'll be more to come.
Charles, there's a question about how quickly that regulation, the guardrails should come. And you heard Jeanne just pointing to some analysts who say there's no real sense of urgency, at least on the part of lawmakers. And I wonder how you think about the timing of this. Is it better for the regulations to come first in order to understand what the guardrails are? Or does regulation too soon really risk stifling the growth that we're seeing in this space?
CHARLES CASCARILLA: Well, you know, smart regulation is, I think, something everyone can agree on. What that means is something that you have to dive into a little bit more. I would maybe approach it from a couple angles here.
The first is, as Representative McHenry said, first do no harm. So let's figure out a way to not over-engineer a solution to an industry that's still very nascent. It's growing, it's bigger, but it's still small. And I don't think that at the moment it's systemically important. And so you want to be able to allow innovation to happen.
The second thing is, there is some clarifications that could happen. And I think this was widely talked about yesterday. How to understand what is certain types of assets. Is it a security? Is it a currency? Is it something else? Is it property?
And so what would be the right regulatory regime? What's the right definitions? And that could be very helpful. I also think that the Federal Reserve could potentially open up access to non-bank payment companies like the Bank of England has done and other countries have done.
Mr. Brooks talked about this yesterday. And I think it was a really good point. We talked about in our testimony as well. You could open up the payment systems to non-bank companies and still really keep a lot of safety and soundness. And I think those are steps the regulators could take that would be very constructive.
And it could be that there needs to be legislation. But I think that we shouldn't rush to legislate something until we understand it more and until it develops more. If you do that very early, it means you have to do a lot of prognostication in the legislation process. And that's not always easy to do.
- Well, Charles, we'd love to have you back on the show as we see these conversations unfold. Charles Cascarillo, Paxos co-founder and CEO. Appreciate the time today.