An Overview of Stablecoins and The GENIUS Act with Larry Pruss

In this episode, we speak with Larry Pruss, SRM's in-house expert on all things digital assets and stablecoins. Larry has over 30 years of experience as a trusted adviser, strategist, author, speaker, and futurist. The topic of the day is stablecoins and the GENIUS Act passed this summer in Washington. We discuss both the opportunities and challenges that lay ahead for traditional FIs in the age of stablecoins. 

Transcript

Firmer Ground Podcast – An Overview on Stablecoins and the GENIUS Act with Larry Pruss

Speaker 1

[00.00.00]

Welcome back to Firmer Ground from SRM, where we explore trends and strategies impacting the current and future state of financial institutions in North America and across the globe. My name is Neil Dougherty, host of today's podcast and Managing Director of Global Marketing and SRM. In this episode, I speak with Larry Pruss, SRM in-house expert on all things digital assets and stablecoins. Larry has over 30 years of experience as a trusted advisor, strategist, author, speaker, and futurist, and he also hosts SRM Perspectives Live Webinar series. He serves as a member of the US Faster Payments Council and is a fellow at the Digital Europe Association. The topic of today is stablecoins and the Genius Act, passed this summer in Washington. We discussed both the opportunities and challenges that lay ahead for traditional FIIs in the age of stablecoins. Enjoy the conversation and let us know what topics you'd like to hear about on the next podcast. 

Speaker 2

[00.00.50]

 All right. 

Speaker 1

[00.00.50]

 Hi everyone. Neil Dougherty here, managing Director of Global Marketing at SRM. And my guest in the studio today is Larry Pruss. Many of you probably have heard the name before here at SRM, but Larry works in our payments advisory practice, and he's well known in the industry as an expert on digital assets and emerging payment technologies innovation in general. Larry serves as a member of the US Faster Payments Council. He's a fellow at the Digital Euro Association. Hopefully, he can tell us a little bit more about that. And he's based in State College, PA. Certainly excited to have him here with us today to discuss this new landmark legislation and the role stablecoins can play in the banking and payments ecosystem as we go forward. So good morning and welcome, Larry. How are you doing? 

Speaker 2

[00.01.29]

I am doing outstanding, Neal. I appreciate you having me speak on this. 

Speaker 1

[00.01.34]

 Absolutely. And for those who you know are listening and may not know, Larry's been on quite the whirlwind tour talking about stablecoins and other technologies innovation over the last few weeks. So catching at the end of the week, but I'm sure he'll be able to deliver. Um, you know, some really good insights for us today. So, Larry, as we as we get started here, I just thought it would be helpful if you could just give our listeners a high level overview of what stablecoins are and how they differ from other digital assets that may have been, you know, kind of in the public consciousness, like cryptocurrency or tokenized deposits. 

Speaker 2

[00.02.07]

 Yeah. So they are considered a type of cryptocurrency only. And that is kind of a digital version of money, uh, most cryptocurrency that people are familiar with. Bitcoin and Ethereum are digital tokens. And when I say digital tokens it uh, the value is uh, they they're not backed by any sort of value. Whereas stablecoins is kind of a digital token that is backed by something. Now there's lots of different types of stablecoins. Some people may have heard the term algorithmic stablecoin, which is a good example, would have been Terra Luna. And that one had, uh, blown up a few years ago. But stablecoins today at least post Genius act and Genius act is the, um, the regulatory, uh, guidance that Congress had passed on. I think it was signed by the president on July 18th is called the guiding, uh, established National innovation for the US. That act requires, at least in the US, all stablecoins to be fully reserved and backed by essentially cash like instruments. So cash, US treasuries, uh, repos, reverse repos. And what that means is it's essentially full reserve banking. So people are familiar with depositing money into checking account. Those things are fractionally reserved. And not only a certain amount of that money is there, the rest is lent out. Are we hypothesized to back out stablecoins? On the other hand, um, there's full reserves backing any money that you put into a stablecoin, so to speak. But they're used primarily for, uh, cross-border transactions. B2B in countries with non stable monetary regimes is a way to hold digital dollars without actually holding physical dollars. I like to tell people think of it as a cash derivative. 

Speaker 1

[00.04.00]

 So I say that one more time, Larry. You'd like to think of it as 

Speaker 2

[00.04.03]

 a cash derivative. So it's a derivative of cash. It represents cash. It can be used like cash. Now, you don't have the same sort of acceptance that you would with, say, debit and credit cards. And there's a lot of merchants accepting these. Um, but it's very useful for passing value, uh, from person to person. There's no intermediaries involved. And that's, that's something that we can get into a little bit more detail about. Uh, but most of it's been cross-border type transactions in it, and it found its start in the crypto world where people who were maybe trading Bitcoin and Ethereum when they wanted to get out about volatile position, they would put it into stablecoins. And what that would allow them to do is put it into something of a stable, wasn't fluctuating in value, and they didn't have to, you know, cash out into an ACH or do a wire transfer into a checking account. They would just park it in stablecoins because of that stable value and because stablecoins operate on the blockchain, these things have broader implications than just crypto. So if you were to look at the crypto landscape over the last 12 months, stablecoins were responsible for passing about $38 trillion, and that's trillion with a T of value around the world. Well, most of that was crypto trading, 75% of it. The rest of it, you know, probably 5 to $7 trillion. Well, I guess about, yes, 5 to $7 trillion, uh, sorry, 7 to $11 trillion would represent non trading activity. And most of that is B2B payments. So the rest of the world is very much using stablecoins for B2B payments. That's not something in the US yet. But now that we've got the Genius Act pass uh we'll expect it to be a lot more popular. 

Speaker 1

[00.05.51]

 Gotcha. Well, and let's get into the genius act a little bit. And you mentioned it. I think you know what? We want to make sure that our listeners come away with today is just, you know, how does this legislation and the activity surrounding it, you know, ultimately, how will it impact financial institutions? Right. You know, credit unions, community banks and trying to understand, you know, why they may need to embrace this or, you know, make some potential changes, right. So, you know, the question I really would pose to you is when you think about this genius act, why is it a significant milestone? Um, you know, for adoption of this technology and, you know, how will it impact, uh, regulated financial institutions? 

Speaker 2

[00.06.32]

 Yeah. So good question. Um, it's going to have a real significant impact. The reason we've not seen broader stablecoin adoption in the US, certainly from a merchant standpoint, corporate standpoint or traditional finance standpoint, is that there really weren't any definitive laws around stablecoins. There wasn't even clear whether stablecoins were a, uh, a security or an asset or something, somewhere, something else. So this law provides that definitive guidance, much like the, um, marketing, uh, marketing credit, the I'm thinking of like mega action or, uh, law that the EU passed in 2024. So while the rest of the world had regulatory clarity around stablecoins, the US has not. Now that we have that, the question is how much adoption we're going to see in the US. And there's an interesting study that was done by the US Treasury Department back in, I want to say, April of this year. We've looked at the potential risk of outflows from days and checking accounts from banks and credit unions into stablecoins, and they estimated that it could be as large as $6 trillion, which would be a very significant amount. And part of that would be, as we see adoption of stablecoins, not maybe so much as P2P, but I think maybe B2B type transactions or cross-border transactions as we see picking up in that volume. There's concern that monies could flow from traditional checking and savings accounts into something that might be more efficient from a money movement standpoint. The other thing, and we can get into the details of that, but one of the things that act defined was saying that stablecoins are essentially up to coin payment. Stablecoins are not allowed to pass interest back to the holders of those stablecoins. So if I buy a stablecoin, I can't earn interest on that. And that was done by the banking lobbies to ensure that they wouldn't be able to compete with traditional deposits. Unfortunately for the banking lobby, they didn't make that very clear. And a lot of issuers of stablecoins today. The circles and the tethers of the world are looking at that, that law and saying, well, maybe we can share rewards, which would then mean that as a holder of stablecoins, I might get something that feels a lot like interest, not called interest, but called rewards. Maybe by getting Bitcoin payments or something like that for holding you something that's very stable. And you'll often hear people mention that stablecoins aren't FDIC insured, as if that's a bad thing. The reason it's not FDIC insured is you don't have the FDIC insured, because these things are required to be backed one for one. There's no profit rating of those deposits are held in a custodial relationship. And in fact, uh, genius passed some specific laws regarding the banks bankruptcy regulation in the US, where stablecoin holders now receive special priority case access. In the case of insurance or insolvency. So there's a lot of protections, uh, around stablecoins that potentially make them more attractive than even holding money in a deposit. 

Speaker 1

[00.09.46]

 Okay. So you've I think you've done a nice job of pointing out some of the, the pros and sort of the opportunities. But, you know, even with the genius act in place, you know, what, what do you feel that, you know, might be holding, uh, other, you know, institutions back from, you know, either working with a fintech or adopting their own version of a stablecoin. You know, I know having the regulation is great, but there probably are still a few, um, concerns and, you know, potential risks that are at play here. 

Speaker 2

[00.10.16]

 Yeah. So from a regulation standpoint, it did. There were a couple key provisions. And that's probably worth covering first. And then we can talk about why institutions may be reluctant to get into it. Um, the first key provision is that, you know, these permitted payments, stablecoin issuers have to be subsidiaries of insured depository institutions. So in the case of a show that accredited can now be accused in the case of a bank, it would be an operating subsidiary of operating a subsidiary or a special purpose subsidiary. Uh, the other option would be you have to be a federally qualified non-bank issuer. Uh, I don't believe any of those exist today, but a number of the stablecoin issuers. Circle wise, Ripple and Paxos are all pursuing, uh, National Trust banking charters through the OCC so that so that there is a, uh, there is a path for them to get that license. I do believe they will get that license, especially given the new head of the SEC. He does come from a. I believe he was an attorney at one of the crypto institutions at one point. And then so you have to be again related to the banks in terms of a subsidiary of a depository institution, you have to be a federally qualified non-bank issuer. And then there's also a path for state qualified issuers. So there's already a licensing hurdles to getting involved in this. A traditional finance can obviously can do that today, but they have to do it through a subsidiary. Uh, there's a complexity of issuing stablecoin. So if you are a financial institution you want to issue them. You have to have these things in a custodial relationship. They have to be audited on a regular basis. You can't be hypothetical this. Now what are the benefits of issuing a stablecoin? Whether you're a fintech or a financial institution is essentially you're going to use someone else's money to drive treasury yields. So as the issuer of that stablecoin, you get a Treasury yield. And that's made, uh, the companies like, uh, Circle or Tether, very, very profitable companies. There's also a regulatory oversight providing, uh, outlines who the regulators are. So. Federal regulators. Regulators be people like the OCC, Federal Reserve, FDIC, NCUA and those issuers of stablecoins would face strict oversight, including regular examinations, capital liquidity requirements, and consumer protections. And then the issuers must also disclose redemption policies and monthly reserve compositions. And again, one of the things I mentioned earlier is that stablecoins aren't explicitly classified as securities, but those holders do get special priority in the case of issuer insolvency. So there's some complexity with wanting to be an issue issuer. If you're a traditional financial company, you say, well, why would I want to use stablecoins? And I would, I would suggest, well, they act a lot like fed now or RTP. And they say, well, we already have that now. RTP yes, except stablecoins have been around much longer and are much more adopted around the world. In fact, about 49% of um, financial institutions. So banks, uh, you know, credit union type organizations. Fintechs or payment companies around the world are already involved in stablecoins. It's just not in the US. So one of the reasons you might want to get involved, as opposed to fed now or RDP, is those are domestic focused only as opposed to be able to facilitate international transfers, especially as it relates to remittances. So that's one of the reasons. The other reason is the interesting thing about stablecoins is they don't require any intermediaries. These things are conducted on the blockchain. They're reasonably automated. All you need is a wallet as a receiver and a wallet for the sender. And you can transact with the stablecoin. Now, today, if you're going to cash out of a stablecoin that has to be done through an exchange, there's an opportunity in the future that to be done through a bank. But because there are no intermediaries in stablecoins, if you think about any other payment transaction out there, whether it's debit, credit, ACH, wire, international wire, which involves correspondent banking, you're talking about anywhere from probably a minimum of four intermediaries to a high of probably seven intermediaries. Well, because stablecoins only have one, no zero, no intermediaries, maybe I can make the argument for 1 or 2. What we're going to see is pressure on all the traditional payment rails to kind of eliminate intermediaries. And, you know, what is the analogy I like to use is if, remember, when you're a caveman, if you ever played a game musical chairs, it wasn't super important when the music stopped that you were the first to grab a chair. But it's super important to not be the last. And that's the case with stablecoins that you don't want to be the last of the party. Because if you're part of a the payment system today, whether or not you're a bank or you're a payment processor or you're a network like Mastercard and visa, someone is ultimately going to be excluded from that process. And that's why you see the visa's of the world, the Fei serves of the world, the fintechs, like circle of some of the bigger banks, all rushing into the stablecoin arena to make sure they make their stake. And they're not the last ones to party. 

Speaker 1

[00.15.44]

 Right. And I know you've written a little bit and some recent articles are out there. I'm just talking about, you know, some of the examples, right. The JPMorgan Chase is the visas. Right. Major retailers that may be getting into this space. And so it seems to me that, you know, one thing that we've been talking about for a while, um, is this concept of, you know, at some point, you know, merchants, consumers, fintechs, they're going to, you know, bypass these traditional payment rails. And, you know, this is, you know, probably in the big picture, you know, the most frictionless version of that kind of, you know, future of payments scenario. I know, again, you know, right now it's that concept of, okay, well, these, you know, can go cross-border whereas fed now and some other things are really more, you know, US based. And so it makes sense for them to be in that space. But um, you know, it feels to me like that concept of, you know, risk versus reward when it comes to getting bypassed is, you know, something that's kind of big on your, um, you know, roadmap, if you will. Yeah. 

Speaker 2

[00.16.43]

 The risk of being disintermediation is super high, but there are also opportunities in that these are newer rails that offer lower costs, faster settlement. 24 seven. 365. Um, if you are a merchant and you're used to seeing, you know, processing fees of 1 to 3% on cards, um, paying that in terms of merchant network, you know, the processing costs drops to basis points. So there's a big advantage for merchants. Um, there's a lot of new business models, whether or not you're a stable coin issuer or even a traditional finance around wallet custody providing on and off rams. I mentioned before that stablecoins today, if you want to cash out stablecoins, you have to do that through a centralized exchange. Unless you're super large and then you do it with the issuer themselves. But in the future, there's an opportunity for banks and credit unions to be able to provide that function so that if I have a stablecoin and someone sends it to me, I can cash out of that, and I can cash out of that into my checking account. So it's essentially a way of driving additional deposits. Um, there's also a ton of opportunity around treasury and liquidity solutions, since this is programmable money and it provides for a lot of automation. And again, it's instant. Real time, irrevocable money movement has got a lot of implications for treasury solutions as well. So one of the things with stablecoins is in any new technology, you can kind of gauge to whether or not this stuff is going to be successful. And I believe it is by looking at, you know, all the participants have to benefit. So is there a benefit to the merchants? Yes. Lower transaction fees. Is there benefits to customers or member? Yes. Because even though you can't get interest for it, it lowers the transaction costs. You can get rewards for holding potentially in the wallets, and then you can get reward for redeeming merchants. Is there a benefit to traditional finance banks and credit unions? And yes, the answer is there is because, you know, you would avoid the risk of being disintermediation. There's new fee based opportunities because a lot of these things are international in nature. There's FX opportunities, opportunities for charging um fees, redemption fees. There's opportunities around issuance of these things. There's issuance around Treasury. And then if you're a processing company there's opportunities as well. There's new products and services and revenue opportunities. UPS, stablecoins, settlement APIs simplifies cross-border processing, etc.. So all of these are opportunities for all of the players. Which leads me to believe. This will get adoption. We'll see. Adoption in the US. Um, if you think about technologies, banking technologies, the US is typically the last to adopt them. Whether it is EMV or contactless, you can name lots of them. The rest of the world tend to go first. The same with stablecoins. But we do ultimately adopt those technologies. And I think that will be the case here, whether or not it's going to impact the traditional payment rails, I think it will. But I don't think it's going to be immediate. So there's probably a 3 to 5 year runway before we really start to see this. A shift in the current payment modes today. Um, that said, you know, it's not like something you could just turn on overnight. These are fairly complex solutions that require hope from a third party consulting company like SRM to be able to implement and think about strategically, what are the use cases? How do you get something like this to market? Yeah. 

Speaker 1

[00.20.18]

 So let me interrupt you there and let's get into that a little bit. Right. Let's try to contextualize this and you know, say I'm, you know, an Fei credit union or community bank whomever. Right. And I'm, you know, I want to stay ahead of the game. I'm interested in exploring, you know, stablecoin. Um, you know, what? What are you know, and I know you've been you've been having a lot of conversations with folks, as you mentioned. SRM offers a kind of stablecoin strategy approach. And so when you're in conversations now, people are, um, you know, leaders are saying they want to get in the game. What are realistic first steps, right. Should they be, you know, thinking about issuing their own stablecoin or partnering with a fintech or, you know, is there another approach altogether? Um, just curious, you know, in your conversations, contextually, you know, what are you what are you seeing and what are you what are you recommending in terms of like, that kind of, you know, getting started piece, which typically I'm sure has a little bit of crawl, walk, run in it. Right. But, um, you know, maybe there's maybe there's a different play altogether. 

Speaker 2

[00.21.14]

 But yeah. So you definitely have to do it through a partnership, unless you are one of the top five financial institutions in the US that have already dabbled in tokenized deposits and stablecoins, you won't have the technical wherewithal to move forward with any of this. So you have to do it through a partner. Now, if you think about core providers, the Jack Henrys of the world, the Pfizer Zap physics, they've all made announcements that they're going to be providing stablecoin type solutions in the future. So that's a path to implementing to some degree how soon they come to market, whether or not they will adequately serve a financial institution. What are the use cases? Will they have the right bells and whistles? That is a much more complex question, I would say, for if you're a traditional financial company or even a fintech team, you want to get into the stablecoin world or stablecoin race. You kind of have to start with education. And we've been providing those sorts of that sort of education. I've been having a ton of conversations with boards and executive teams, just educating them on what stablecoins are, what's the risks? What's the opportunities? Who are the players in this space? What are the use cases. So it has to start with education. And then if you get past the education, which most people do, and you realize that, hey, this could disintermediation traditional finance. But there's also opportunities from a revenue standpoint diversification of a product. Then yeah we want to do something around this. Then it's a matter of what are the specific use cases for your financial institution? You may have a fair number of members or customers that are have international background and doing remittances back home. Well, then there's a use case for stablecoins. Maybe it's you've got a large corporate segment and they are constantly doing money movement and they need access to something 24 over seven. 365 maybe you've got a big merchant relationship where there's an opportunity to cut, cut out some of the costs and merchant processing of payment. You know, these are all use cases. There's lots of them. In fact, I used to. I know I used to struggle when someone would ask what the use cases are and now I say, well, the use cases are the same thing that you could use cash for, except it's even more flexible or checked for that matter. Um, there are also considerations about things like underlying infrastructure, not just blockchain, but to make something like stablecoin truly successful. Like what we have with checks and checks are obviously an old financial instrument that's been around for a long time, and people have been talking about the demise for years, but it's still here is checks where it was financial institutions to accept checks from each other's financial institutions. There's no issue with that because there's a clearinghouse. Well, there are now concepts around building clearinghouses for stablecoins. So that will facilitate the transactions. Um, so you get to the use cases, you kind of have to understand the some of the changes in the environment, but then you also have to develop what is your strategy? Okay. I've got a couple of use cases. How do I get to market. What does that look like. What's the what's the revenue opportunities. What's the expense cost of doing. So what are the compliance risk. How do I do this. Compliance you know how do I set up wallets if I'm if I'm receiving stablecoins are they coming from a virtual asset provider. They come in from an individual's wallet. If they are, there's different requirements for the travel role. So there's different regulatory requirements. Once you've had some assistance in developing a strategy, then if, say you still can't implement this self, who the right partners and vendors and there's tons of partners in this space. There are companies like rail and B and K even visa and Mastercard offer solutions around stablecoins. There are issuers. There are blockchains. They're custodial providers. There's compliance and regulatory. They're cross-border players. There's lots of different vendors. So how do you select the right vendor? How do you get the right deal? How do you make sure that they're going to, um, provide you what you need? And then ultimately how do you go to market? And so all of those kind of three, 4 or 5 different categories or things that we've been advising our clients on to help them kind of get to market, and it's so new. There's not a lot of those, um, those kind of use cases out there a bit. We're helping develop those. In fact, we are helping a large credit union get to market or at least develop a strategy around stablecoins. And we're getting a lot of requests around that from community banks and credit unions as well. 

Speaker 1

[00.25.44]

 That's awesome. And it's exciting, of course, because I think there's going to be a lot, um, a lot of learnings and a lot more to share. You know, in the future on, uh, the, the strategy and kind of the, the roadmap around that. But, you know, one thing that I've noticed, um, that was mentioned either in previous like articles or publications that you or our team were involved in, um, was a little bit of a conversation around. And this is something that I think all institutions have to think about, which is, okay, if I'm going to do this right, how does this change my tech stack needs. Right? And then how much more am I going to have to invest potentially. So, you know, I guess my question for you is, you know, just from your perspective, what you know, today, you know, how steep is the kind of technology investment for Fiz that want to enter this 

Speaker 2

[00.26.27]

 space. It's not so much that it's expensive. It's that it's complex. Um, you know, if you think about cause and how we move money today from financial institutions to financial institutions, there's a there's a messaging component in that transaction is a shift of liability. There's a back end following of kind of a matching asset that's done through red wire. It's complex to move money today as a result of that complexity. We've got settlement times of year of T plus one t plus two t plus three. There's reconciliation process that has to go through like traditional finances already fairly complex. And it operates on independent cause blockchain is much different. Stablecoins are much different because they rely on the blockchain. And the blockchain is a shared core. So it's a very different type of financial transaction. It is instant that you don't have settlement risk. You don't have to do that reconciliation process. It's 24 over seven 365. And so there's a lot of benefits to that. But how do you tie that into your core? Do you do that through a signed core type of relationship. Do you do that through a wallet. Now we're talking about, you know, blockchain addresses. Do we do these things as kind of one offs or do we have to do it through like a YouTube account or omnibus account, or are we doing this kind of a segregated account? Like, those are really serious questions that have real implications for compliance, that financial institutions probably can't make those decisions on their own. So it's not so much that it's expensive, it's just that it's complex. Uh, unfortunately, financial institutions don't have the option of standing still with us because the fintech providers are the ones that are already out there leveraging this technology. The Robinhood's of the world, the Coinbase and the circles of the world. Um, those are your competitors. Even stripe. Stripe made $1 billion investment in a company called bridge. Uh, visa is making investments in VNC if they've got a partnership with them. So everyone is rushing to come up with solutions on these. So it's not an option to avoid the complexity. Um, and or the cost, although those costs are huge. It's a matter of the complexity. 

Speaker 1

[00.28.44]

 Yeah. No, I think that's super helpful. And again, you know, my hope is that we can have a kind of part two of this conversation in the future when you've gone through it a few times with, you know, some of our clients and the institutions that are working with us. So that's awesome. Um, I have to ask you this question because it's something that came up recently, you know, following the passage of the Genius Act. And, um, you know, there were a few people who were detractors, I would say, of the bill, um, and, you know, Senator Warren being one example. Right. And she was speaking about the fact that this could, you know, open up more, you know, sort of almost criminal activity, um, help, you know, international entities, um, you know, move, you know, payments for illicit things in different directions. Right? So, you know, I'm just curious what your take is on that. And, you know, that's really something that we started about. 

Speaker 2

[00.29.35]

 Yeah. So some of the people that are out there, like it's good to have detractors and it's good to be skeptical and that that's their problem. Some of the operators aren't operating in what I would consider good faith. Um, the reality is, is that digital assets and cryptocurrency, which, you know, have had a sorted background, have been around now for 17 years, uh, Satoshi Nakamoto kind of developing Bitcoin, those digital assets. Well, may have got their start in kind of questionable beginnings today from a transactional standpoint. Uh, the amount of. Diesel assets are involved in illicit transactions, or 2% of them that are involved illicit transactions, or less than a quarter of a percent or less than half a percent. You compare that to traditional cash, which runs at about five, probably 7 to 8%. Stablecoins are a little different because it is money movement, and it is a little bit more questionable that the percentage stablecoins that might be involved in illicit transactions from a dollar amounts, probably about 5% of the transaction amount, is probably a little bit larger. But again, these things it's not much different than kind of cash transactions. The good news with the illicit component of it is, you know, we see that continuing to decrease year after year. And the reason for that is while people early on that blockchain was anonymous, it's just quasi anonymous. Um, it's actually fairly easy to track transactions on the blockchain and some of the questions about AML and know your customer like it's very similar to the way you would treat, uh, cash type transactions and that, you know, you kind of need to know the source of those funds, but you don't need to know where the funds came prior to that, to the source of your customer. Um, that's kind of what we expect will be the approach with stablecoins. But stablecoins have the added benefit in that if you really need to trace it, you can see who had that, uh, the stablecoins where you touched on the stablecoins before, multiple hops where with cash you don't have that ability. So there is some real improvement that stablecoins and blockchain offer to kind of traditional BSA, AML type. Uh. Track. 

Speaker 1

[00.31.56]

 It's interesting you bring that up because, you know, the perception might be that that's not the case, right? But that seems like a potential misconception about stablecoins, right? It's this anonymous thing where in fact it actually probably has more traceability and fingerprints than, you know, as obviously cash, but, you know, other things that are. Oh, and 

Speaker 2

[00.32.15]

 a lot of this stems from the fact that for the longest time that the government saw stablecoins and digital assets as competing to the with the US dollar. So some of the things that were put out, there were narratives. Um, where we are right now. And if I always tell people, if you want to know why the genius act passed, all you need to know is that the collective, um, holdings of the stablecoin issuers that are out there today in terms of US treasuries, it makes them the fourth largest holder of US treasuries. So these things are not going away by, by any stretch. Um, they're always going to be detractors. Um, but these things are ah, it's just a technology. Uh, sometimes technology can be used for good as well as for, for bad. Uh, but it's a technology that that isn't going away. And there are a lot of misperceptions about the, you know, the use cases for these things in the fraud and the way they compete with US dollars. And, you know, how does this relate to central bank digital currencies? You know, we can have a very in-depth conversation around all that. But the reality is, is that, uh, it's no more dangerous than what you are doing today from a banking standpoint. And the reality is, is if you don't have a place in this, uh, the fintech providers, you just you use this as a cheaper way of transacting and going to eat, uh, collectively as lunch. Gotcha. Well, that's helpful. And I want to kind of bring this around a little bit. Um, you know, again, with the idea that we want to make sure this is as kind of actionable and useful for the audience as possible. You know if you think about 

Speaker 1

[00.33.50]

 starting something like this, what advice would you give to a CEO or a board that's contemplating their first move into digital assets and stablecoins? Um, just kind of that first move on the chessboard. 

Speaker 2

[00.34.00]

 Yeah. So again, not super important that you're fast, but super important that you're not last in the, the players who are going to be involved in this are being determined. Now. So while we may not see mass adoption for 3 to 5 years, we're going to find out who the players are. They're going to lead this next evolution of payments. And so, you know, if you're a CEO of a credit union or a community bank or a large financial institution, you have to decide, do you want to be involved in payments going forward? If that answer is yes, then you need to have a strategy around stablecoins. So, um, it's super important to get started with this. 

Speaker 1

[00.34.41]

 Awesome. Well, that's super helpful. And, um, you know, I think this has been a pretty good primer and overview for where we are right now here in August of 2025. And again, I know there'll be more to talk about, uh, as it relates to this subject. Um, I guess maybe, you know, my last question for you, Larry, just to kind of cap it off is, you know, when you think about this and you spend a lot of time researching and you're very involved, I mean, what excites you most about this particular innovation and how, you know, it might potentially change the game? 

Speaker 2

[00.35.12]

 Yeah, I think, but excites me most is the financial inclusiveness of stablecoins. Um, it also is what scares me though the most, because it does open up finance to people who might not have access to traditional, um, banking solutions. And, you know, community banks and credit unions are very much focused on inclusiveness and bringing people into the fold that that aren't there today. But the danger with that is, is that if you don't offer those solutions, there's stablecoins and digital assets can be used without the, the influence or participation of traditional finance. And a good example of this is decentralized finance. There's a there's a market of about $300 billion of traditional banking activities that are happening completely out of traditional banking control, and largely a good portion of the people who are involved in that are people who have been excluded from traditional banking solutions. So my point with that is, is if you don't have a solution, you don't have a plane. This the risk is you become irrelevant. Um, the opportunities if you do have a plane, this you're providing a solution and you're improving financial inclusiveness for people who today might already be excluded from banking solutions. So it's kind of a win if you if you look at it that way. 

Speaker 1

[00.36.40]

 Yeah. No, I think that's great. And, um, a really, really unique insight and, uh, just, you know, enjoy talking about this topic with you. I think it's important. I think it's, you know, one of those things, obviously, you know, you're hearing from, you know, institutions about and you're getting in the mix. And so I really encourage anyone who wants to know more about this topic and SRM overall payments expertise to reach out directly to Larry on LinkedIn. If you do, you'll see he's very active there. Um, and has a lot of, uh, you know, updates throughout the week, but that's definitely the fastest way to contact him. And, um, Larry, I certainly look forward to having you back on the podcast. I want to be able to talk about this kind of at another juncture where we start to see, um, you know, some outcomes from the folks that we work with and just the industry in general and how they're, you know, moving forward with this. So I just wanted to say thank you for joining today. And, uh, again, if you guys have any questions or any, you know, additional curiosities, I would certainly encourage you to follow Larry on LinkedIn. I 

Speaker 2

[00.37.34]

 I very much appreciate that, Neal. 

Speaker 1

[00.37.38]

 Thanks for listening to Firmer Ground from SRM. Please stay tuned for more new podcasts in 2025, featuring guests from various areas of the financial services and technology world. Until then, you can visit us at SRM Corp. Com or on LinkedIn.