The Money Movement / Episode 25

Episode 25

Trade Finance, DeFi and Stablecoins

Summary & Key Takeaways

Full Transcript

As stablecoins surge in usage and growth around the world, these digital dollar currencies are finding their way into more and more traditional dimensions of cross-border commerce.  This week we'll explore the growth and use of stablecoins in trade finance, invoice financing, and the growing interaction between these traditionally "off-chain" assets and processes into both distributed and fully decentralized financial infrastructure. 

To explore these themes, we're joined by Ernst & Young's Paul Brody who is their Principal for Blockchain Technology, where he has been helping spearhead new core supply chain finance infrastructure with OpsChain; by HongZhuang Lim, the founder and CEO of ShuttleOne, an emerging fintech out of Southeast Asia leveraging stablecoins and DeFi for trade finance; and Centrefuge.io founder Lucas Vogelsang, who's firm has been driving innovation in the synthesis of traditional assets such as invoices and DeFi money market protocols.


About the show

The global economy is experiencing unprecedented challenges and change. Business leaders everywhere are grappling with how to transform their companies to become more digital, resilient and efficient. As we face this change, a new global movement is building around the promise of digital currencies and blockchains — forming a new architecture for the global economy and creating new opportunities for companies everywhere. The Money Movement explores and chronicles the issues and ideas driving this brave new world of digital money.

The Money Movement is brought to you by Circle. Our mission is to raise global economic prosperity through programmable internet commerce. Learn more about Circle Business Accounts and Platform APIs at https://hubs.li/H0yrhvH0.

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Jeremy Allaire: Hello, I'm Jeremy Allaire and welcome to The Money Movement, a show where we explore the issues and ideas driving this brave new world of digital currency and blockchains

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Jeremy Allaire: So over the past months we've seen surging use of US DC and stable coins in what we think of as kind of crypto markets activity.

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Jeremy Allaire: But we've also seen rapidly increasing use in a variety of different international payments and settlement use cases more and more businesses who are realizing the benefits of

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Jeremy Allaire: digital currency as a payment and settlement medium and USD. See, in particular is is is noteworthy in its its its use in those international activities dollars several most of the world's trade transactions today.

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Jeremy Allaire: And businesses that conduct trade and conduct commerce and have partners or suppliers or employees or others that around the world are finding that stable coins are a

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Jeremy Allaire: New a fundamentally new way to settle those types of transactions. Now just payments and settlement is a piece of the puzzle, the real power of

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Jeremy Allaire: digital currencies that are on chain, such as stable coins is in their program ability and they're composed ability that you have this native

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Jeremy Allaire: Digital dollar token and developers can write code on blockchains that enable more complex forms of economic contracts and interactions to happen.

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Jeremy Allaire: On these public networks, we're seeing this today in the world of decentralized finance for defy were smart contract based protocols are enabling things like borrowing and lending.

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Jeremy Allaire: On blockchains and I think for many businesses and for many institutions deeper integration of this infrastructure with real world economic contracts is fundamentally the next phase of growth, the maturity of this

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Jeremy Allaire: In payments settlement and capital markets use cases is also really powerful and important.

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Jeremy Allaire: But at the core, the real innovation is how can businesses that operate or in this age of internet commerce connect and contract with each other in powerful new ways.

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Jeremy Allaire: So trade finance, which is the sort of complex web of financial arrangements that undergird global trade and commerce.

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Jeremy Allaire: Is a whopping big space trillions of dollars of value move through trade finance to make the world economy go so it's a whopping big space and we're starting to see

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Jeremy Allaire: Us DC and defy protocols themselves find their way into trade finance and this this more core form of commerce that happens in the world today.

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Jeremy Allaire: So to explore these themes. This week we're joined by Ernst and Young is Paul Brody, who is their principal for blockchain technology where he's been helping spearhead new core supply chain finance infrastructure.

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Jeremy Allaire: And other forms of on chain commercial infrastructure with ops chain by Hung's Wang limb, the founder and CEO of shuttle one

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Jeremy Allaire: And emerging fintech out of Southeast Asia leveraging stable coins and defy for trade finance and centrifuge founder Lucas Vogel saying

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Jeremy Allaire: Who's firm has been driving innovation in the synthesis of traditional assets such as invoices and defined money market protocols. I'd like to first welcome Ernst and Young's Paul Brody back to the show. Hello, Paul. It's great to see you and great to have you back on the show.

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Paul Brody: Thanks, Jeremy. Thanks for having me.

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Jeremy Allaire: Yeah, so, um, obviously, maybe we can start just talk a little bit about your role at Ernst and Young and at a high level kind of the, the thesis that you've been driving at Ernst and Young and then we'll drive into two more on on some of the specific work in this area.

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Paul Brody: Perfect, yeah. So I'm the global blocking the UI. And that really means my job. My vision is to drive all in in a coordinated manner.

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Paul Brody: All of the things that he does in the world of blockchain. You know, confirm everything but my goal is to sort of think about the big strategic solutions that we bring to the market. So

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Paul Brody: Audit assurance tax and business applications and shepherd them all kind of in the same direction and

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Paul Brody: The thesis, the central thesis that we have is very simple. It's that

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Paul Brody: blockchains will do for business ecosystems. What he RP did inside the enterprise. And let me just unpack that for a little bit, because it's a it's a mouthful, but it really explains kind of how we've come to think about this.

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Paul Brody: Enterprises over the last 30 or 40 years have become very sophisticated internally. They've got me s systems manufacturing systems. They've got the RP which tracks kind of business process tools.

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Paul Brody: And shared data. Right. And then on top of that, they got planning and scheduling and and above that, they often have kind of analytics tools and machine learning systems.

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Paul Brody: And yet the minute a really sophisticated company wants to do business with another company all that digital sophistication gets boiled down to, let's send them by email and PDF documents.

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Paul Brody: Right, it kind of collapses. Right. And the reason that

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Paul Brody: large enterprises don't have more sophisticated tools is because they don't have something they can trust. There are there are great ways to manage complex multi party systems with shared business logic and shared fact

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Paul Brody: But none of them until blockchain allows you to do so without handing out really strategic information to whoever's operating that digital interaction hub and that makes them way too powerful.

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Jeremy Allaire: A lot of

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Paul Brody: Our vision is

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Jeremy Allaire: Risk basically

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Paul Brody: Exactly. And our vision for blockchain is this is finally a way for companies to interact with each other as part of an ecosystem. Right. And by the way, this includes payments. Right. That's the whole cycle. Right, right.

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Paul Brody: In a genuinely level playing field where you're not at risk of becoming disadvantaged.

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Jeremy Allaire: Yeah, I mean, it's such a it's such a breakthrough in terms of how

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Jeremy Allaire: Enterprises can contract with each other, interact with each other, communicate with each other, but obviously at the core, right. It's about settling

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Jeremy Allaire: Transactions. So you guys have pioneered and you've and you've begun rolling out ops chain and you know from, from what I've read and understand. And this is a very comprehensive set of

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Jeremy Allaire: On chain infrastructure that reflects this. These new possibilities, you know, where are you with that rollout and and just just maybe talk at a very high level about the kind of capabilities that are part of ops chain.

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Paul Brody: So if you think about how to companies interact with each other right and and you see that all the time, right.

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Paul Brody: I've got money you've got stuff. And we're going to exchange my my money for your stuff. Right. And we're going to exchange that subject to some terms and conditions right a volume discounts or payment upon delivery and things like that so

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Paul Brody: The things that really sort of challenge enterprises is

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Paul Brody: To manage the terms and conditions they're good at negotiating these deals. They're not always good at applying the rules right we using smart contracts.

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Paul Brody: In arms chain we can allow you to do things like set up your purchase order set up your, your volume discounts and we can make sure that every time you do the volume discount. Every time you do a purchase order, you get the best discount you're entitled to

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Paul Brody: Mm hmm. Then you know that the closing the loop. The thing that's that that's most challenging and is least mature is OK, we have a contract, we have an agreement. I've sent you a purchase order right you send me product now.

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Paul Brody: You sent me an invoice and I need to pay you. Right. And this is where

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Paul Brody: I would say we are least mature and have the most high expectations and excitement about what circle is doing and the role of stable coins, because

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Paul Brody: Enterprises don't want to settle transactions at Bitcoin

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Paul Brody: Now that's not because they hate bitcoin, or it's not because bitcoin is terrible. It's not because cryptocurrencies are bad, is because crypto currencies are foreign currencies right my revenue my taxes, my employee pay. That's all in dollars.

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Jeremy Allaire: A contract. I like to go

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Paul Brody: Right, exactly. So I want to keep my transaction denominated in dollars. Yeah.

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Jeremy Allaire: So this, this set of like this kind of set of use cases with ops chain, you know, this is really kind of drilling into trade finance.

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Jeremy Allaire: These complex inter company economic arrangements and obviously you know the you've mentioned here that the kind of role of stable coins.

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Jeremy Allaire: But, you know, where do you see that, you know, what are the use cases where you see, you know, stable coins embedded in ops chain based, you know, smart contract applications.

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Paul Brody: So my goal is to make stable coin I envision two things. Number one, I want us to see this kind of closing the loop with stable Coinbase payments. Right. Secondly, and I think, fundamentally, even more importantly,

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Paul Brody: I want to see enterprise d phi. I've heard you talking about defy kind of in our in your opening conversation defy is a huge deal, because in reality.

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Paul Brody: Yes, if a big company like Eli.

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Paul Brody: You know, buy something or we get an invoice from from another humongous company. We don't need trade finance.

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Paul Brody: We don't need working capital, right. We're a huge company. We had great credit. That's not a problem that's not true for the vast majority of companies.

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Paul Brody: They need working capital they need insurance. And today, they're probably paying far too much for it. So I believe the thing that gets me really excited is

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Paul Brody: Properly programmable privacy enabled d phi for enterprises. That's what I want to see with dollar stable coins. You're a stable coins yen stable point

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Paul Brody: All those things.

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Jeremy Allaire: Like in, you know, decentralized invoice capital markets that exist on chain that every business can participate in in in a in a seamless way around the world.

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Paul Brody: Right, if you got a purchase order from UI. And we have perfect credit, right, you should be able to get working capital financing to support survey E y at a

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Paul Brody: At an interest rate price that reflects the quality of our credit and our ability to pay as a global corporation, not your tiny little local business where you would have paid 10 or 15% and we would have paid 0.25% right

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Jeremy Allaire: So kind of this is sort of technically becoming the the building blocks are sort of becoming possible today. And there's obviously a lot of experimentation, you're rolling out, you know, significant things blockchain infrastructure self improving very, very fast layer one and and defy

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Jeremy Allaire: Implementations you know if you had to imagine two to three years in the future, you know, maybe just through the lens of of what you're building it, and why

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Jeremy Allaire: What do you envision. I mean, obviously, you've just you've given us a little bit of color on some of the things that you envision, but what do you see happening with enterprises themselves adopting this and adopting stable coins on chain in these economic contracts.

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Paul Brody: So, uh, I foresee a couple of things. So first and foremost, the most important thing for me is this will only take off if

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Paul Brody: The blockchain ecosystem invest in privacy right no corporation is going to spend a penny on a D fi system or anything that doesn't give them privacy. And right now, today, stable coins d phi, none of these services support privacy. So that's job number one. That's my number one priority.

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Paul Brody: Right, so, so not not to beat a dead horse, but let me you know flogged privacy some more. And there's a lot of privacy challenges to work out because

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Paul Brody: If I issue a purchase order from NY right. I want you to be able to get credit against that purchase order, but I don't want you to tell. I don't want you necessarily to tell

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Paul Brody: Everybody that you have a p o from Eli. Right, right, or for the amount. So we need to find a way to do credit rating and other things under privacy.

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Paul Brody: In that environment. So that's, that's one piece of this, I think the second piece of this is, we've got to figure out security today defy

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Paul Brody: Is a little bit of a cesspool from a security perspective right there's, there's a lot of hacks happening. And that does not scare me. It should not scare you. That is a normal part of a maturing ecosystem.

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Paul Brody: But enterprises prefer to be at the back of that they want to they want to come behind. So we need to we need to mature security, one of our big pushes is we have a system called smart contract review.

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Paul Brody: Which is designed to address security issues and help companies manage them. Yeah. And then I think the third thing is, I believe,

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Paul Brody: There's a sweet spot where enterprises will start and it's direct materials procurement at the business network level. And what I'm talking about here is manufacturing companies.

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Paul Brody: That buy routinely from global sourcing most from multiple suppliers and they have decentralized manufacturing, which means they've got

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Paul Brody: suppliers and in different parts of the world that they're subcontract into what that means is that your manufacturer insane Malaysia needs to be able to buy on your behalf.

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Paul Brody: And that your discount the raw materials. You've negotiated. So that's what we mean when we talk about like network operations. That's what I think is

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Paul Brody: Is, is that the sweet spot in terms of creating value right so security and privacy are essential requirements, but the decentralized structure of the system is what will get I think companies to spend the money and to do the work.

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Jeremy Allaire: As always, Paul incredible perspective, really excited to see the progress you guys are making and really appreciate you joining us to share your, your perspective today. Thank you, Paul.

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Paul Brody: Thank you. Thank you for having me on letting me ramble on. It's always a pleasure, what you guys are doing is very, very important. Right, we, we need his payment mechanism we need programmable fiat currencies. So we're very appreciative of what we see a circle doing

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Jeremy Allaire: Thank you so much. Alright. Have a great day. Have a great day.

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Jeremy Allaire: Thank you. Absolutely.

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Jeremy Allaire: Our next guest is shuttle one founder and CEO Hongzhi Wang Lim who joins us from Singapore. Thank you so much for joining in the middle of the night I deeply appreciate it.

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Jeremy Allaire: Where he and his startup have been hammering away at real world uses of stable coins in trade finance having deployed, some of the very first uses in the world. It's really a pleasure to have you on the shows you Wang.

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HongZhuang Lim: Thank you. No, thank you for having me.

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Jeremy Allaire: Absolutely. So maybe we can start just briefly, you know, tell us about the history of shuttle one and and how you got into this and working in this problem space.

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HongZhuang Lim: So Shannon, why has been a startup. We are based in Singapore for about three years. We were founded as a group of friends at the end of 2018

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HongZhuang Lim: And we saw a very clear need Eddie. Eddie height of crypto winter. Right, I guess, you know, and this clear need was there was a lot of promises of the blockchain technology stable coins was just coming out, but there was no real wall use case.

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HongZhuang Lim: It wasn't impacting you know many, many forces of life that you know the the the blockchain technology is supposed to function. So we decided to do something very simple from the onset and they were they were just building via on and off ramps.

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HongZhuang Lim: Or the Southeast Asian countries like Indonesia, Malaysia, the Philippines, Thailand, and so on, so on. We've that we've that in place.

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HongZhuang Lim: And and and and one of our first few transactions to Indonesia to. It was actually a remittance from Malaysia to Indonesia are utilizing 400, I think it was 452 cents for dollars of US DC

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HongZhuang Lim: was done it was done in a matter of like 30 minutes now. It's unheard of in in the in the retail space.

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HongZhuang Lim: And and an end to end in that sense. Right. So from there, we decided to branch out into, you know, what are the more impactful arm use cases, there could be

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HongZhuang Lim: So we started looking at, you know, real assets, things like your trade financing cargo and we were fortunate enough to work with some of the government entities around the region.

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HongZhuang Lim: That supports our global supply chains. We want reports now and programmable money, such as, you know, the stable coins us, etc. For example, we are able to capture

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HongZhuang Lim: Off chain data. So things like your data, things like your risk management data, bring them on chain and interact with a virtual currency, like us, etc.

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HongZhuang Lim: Arm to mix it in the specimen for trade finance and, you know, make the Financial Services seamless and very straightforward. In essence, yes.

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Jeremy Allaire: Very, very, very cool. And I know you've been at the sort of cutting edge of this maybe just walk through like an end to end.

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Jeremy Allaire: Use case for stable coins in these trade use cases tied to, you know, the, the, you know, kind of ports and shipping activity like get maybe very, very specific about like an end to end use case.

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HongZhuang Lim: And maybe, maybe, since we are in the coven night in condemning you know, or I'll bring up the writing sample.

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HongZhuang Lim: That are very proud of. So one of these killings that came along.

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HongZhuang Lim: In the month of April, May, June, till now, actually, especially during the early, early onset of the pandemic. A lot of the small and medium sized enterprises, I mean,

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HongZhuang Lim: Paul. Paul mentioned earlier on that corporations, no problem credit, you know, everybody's going to fund them, but the SMEs, right, the small and medium sized businesses.

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HongZhuang Lim: You know, cash flow financing is a lifeline, and before the pandemic. We already having big issues with, you know, such shuts SME financing in that sense. So

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HongZhuang Lim: at the early stages of the pandemic. You know when when when people are trying to secure mask gloves PPS, you know, especially for maybe China or production houses like Indonesia or Thailand.

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HongZhuang Lim: Right. Um, and when they fall below the credit line, you know, there's always an issue. So we had many instances from from from from April, where the merchant able to take a loan on the blockchain on the internet. If I me

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HongZhuang Lim: P are their suppliers, which the, you know, instruct the the the smart contracts, right, which is all powered by infrastructure or smart contracts, who they want to pay see in China or in Thailand, for example.

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HongZhuang Lim: And the supply gets paid the secure their supplies. All right. And because we work with some of the biggest parts around in Southeast Asia, they are able to arrange for logistics, you know, a move this supplies arm.

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HongZhuang Lim: And and and in quick fashion in that sense or wish wish wish maintain certain business continuity.

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HongZhuang Lim: Is important, you know, for SMEs for the communities are where they serve. We serve a lot of merchants why in rural areas of Indonesia, for example, right. And this things cannot be late. Some of the supplies cannot stop and you know being efficient in, you know,

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HongZhuang Lim: Financing being efficient because of

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HongZhuang Lim: In payments, you know, does make a big difference. During this period of time.

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Jeremy Allaire: That's pretty powerful. So you're you're using, you know, essentially, I don't know if it's truly work allies like port data.

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Jeremy Allaire: To to, you know, communicate the, you know, the sort of movement of goods provide underwriting based on that provide credit in the funnel stable coins to, you know, kind of

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Jeremy Allaire: Provide forward capital to kind of move goods to the, to the next phase.

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HongZhuang Lim: Oh yeah, right. Maybe. Maybe I can expand a little bit on that part data side. So we talked a nice the pot data we have a process integration that ties the on chain.

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HongZhuang Lim: Risk management to the off chain processes risk management and with these to combine and with efficiency of table coins and digital assets, you know, that creates you know stability are in this whole tree.

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HongZhuang Lim: And when I mean stability is actually reduces the level of trust that is needed, you know, maybe without, without the blockchain technologies without programmable money in that sense.

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HongZhuang Lim: All right, and he allows to treat to be more straightforward and and and and efficient so so so that's how that's how we are doing, you know, capturing data there is there's operational data tokenism those data and making sure that are the risks involved are will mitigate it.

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Jeremy Allaire: That's, that's, that's awesome. Um, so as you as you sort of look out and what you're building

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Jeremy Allaire: You know, you're, you're, you're obviously implementing processes and using technologies that that are new, both in trade and commerce and in the financial system, you know, what are the barriers that you see.

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Jeremy Allaire: Especially within the Southeast Asian market. What are the barriers that you see to this having much wider or broader adoption.

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HongZhuang Lim: I think in Southeast Asia. We always a little bit behind in terms of you know the the thought process or developments of the West in that sense.

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HongZhuang Lim: Right, so we know them while we don't though. And this includes a lot of the partners that we interact with on a day to day basis.

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HongZhuang Lim: So I think awareness is always you know the the first hurdle. We spend a lot of time lobbying, you know, advocating, you know, creating awareness, not just for

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HongZhuang Lim: The people that work immediately with us, you know, but also the stakeholders, so they could, they could improve the operational partners and stuff.

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HongZhuang Lim: On but i don't i don't think that's the biggest hurdle. I think one of the the key hosts could be always regulatory. Yeah, right. It's still gray in most parts of Southeast Asia. I'm based in Singapore. We have a law for digital assets or what we like to call digital payment tokens are

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HongZhuang Lim: You know, in

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HongZhuang Lim: The required crypto. Right. Yeah. So, um, it's, it's taboo was like that right that no we don't talk about crypto publicly, but

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HongZhuang Lim: You know, everybody knows that it's virtual assets, you know, our crypto on, you know, using the blockchain. Um, so I think regulatory is also the vehicle and I think lastly I'm

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HongZhuang Lim: I think great UI and awesome UX is missing. We build a lot of a lot of smart contracts are, you know, in the background. Right. It's behind is powering something that

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HongZhuang Lim: Was my contracts power software that are, you know, almost as old as me almost 3067 you know years old and they're still using that. So, this are the main challenges.

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HongZhuang Lim: I think, and we need great user experience for for for mass adoption. I think even for on the enterprise side and you know for them to understand how this works in that sense.

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Jeremy Allaire: Yeah, I mean, I think I see that the regulatory piece, the user experience peace and then obviously the sort of scalability and efficiency of these of these underlying platforms which which i think i think is being addressed, you know, more and more

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Jeremy Allaire: But that's very, very helpful as you, man. I really appreciate you joining to share the shuttle one story and how you're solving problems with stable coins in trade and in Southeast Asia really deeply appreciate you joining us in the middle of the night again.

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HongZhuang Lim: It's all good. Thank you very much for for the opportunity. And, you know, for, for the stage that you have given us, I think.

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HongZhuang Lim: I mean circle has done a great job with us DC and then is one of the most efficient, I would say stable coins day we use for remittance entry financing in our ecosystem right now.

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Jeremy Allaire: That's great to hear. Awesome. Have a great rest of your night.

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HongZhuang Lim: Thank You Jeremy just by by

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Early

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Jeremy Allaire: I think, you know, building on this conversation with Steve Wang. We're now joined by centrifuge founder and CEO Lucas Vogel saying welcome Lucas.

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I

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Jeremy Allaire: Your journey.

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Jeremy Allaire: Your hotel you're you're you're safe.

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Lucas Vogelsang: Yeah, probably the lab that more probably the last conference for a while. Yes.

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Jeremy Allaire: What city are you in now.

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Lucas Vogelsang: I was actually in Frankfurt and funnily enough, they did the crypto assets Conference, which is a very actually pretty well regarded more on the enterprise regulatory side.

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Lucas Vogelsang: Conference that they did the first iteration this year in March, right before things started getting bad and I guess now actually

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Jeremy Allaire: Shut down again.

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Lucas Vogelsang: Turn is getting shut down again. So they didn't get didn't get it in again right before. So yeah, it was a funny.

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Lucas Vogelsang: funny coincidence or not so funny coincidence.

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Jeremy Allaire: Yeah yeah well

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Jeremy Allaire: I'm happy to hear that you're in a good place.

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Jeremy Allaire: Look, I, I've been following centrifuge for a while.

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Jeremy Allaire: I think you're, you're obviously working on some some very related areas here, but maybe you could just tell us a little bit about yourself and your journey into this and just to sort of set the stage.

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Lucas Vogelsang: Yeah, so, um, maybe my, like, I think there's two sort of things I was like to talk about when like specifically do my journey into centrifuge.

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Lucas Vogelsang: Maybe a bit of my past life and my co founders past life is that actually we build a fairly large traditional fintech in San Francisco, a company called Talia that pioneered a specific piece of the I'd say called like trade finance or like if there's a need to be lending space.

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Lucas Vogelsang: Specifically Talia.

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Lucas Vogelsang: pioneered this idea, the

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Lucas Vogelsang: Financing opportunities, your entire supply chain by so working together with a bank. I'm getting a line of credit from them and then offering that

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Lucas Vogelsang: At giving an alternative to these companies to go into what traditional very complicated and expensive factoring businesses and so Talia to date. I think they're they're averaging financing or 30 billion a year originating 30 billion in loans and

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Lucas Vogelsang: Are doing that 450 of the global 2000 companies. And so maybe just super quickly this, for example, to does one of their customers. They Toyota offers some of their smallest and some of their largest suppliers, a

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Lucas Vogelsang: Chance to get an early payment at the click of a button and that using either Toyota's own cash or

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Lucas Vogelsang: Third party cash to to do this. And so this is where we came from. So, so we got to know the B2B banking and finance world really well and we saw what it looked like, both for the largest and the smallest businesses in the world and

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Lucas Vogelsang: Sort of based on that, actually. So then 2007 end of 2017 beginning 2018 we started sitting back together at a table, figuring out, okay, like, well, what would the next iteration of Italian evil with the next fintech be if

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Lucas Vogelsang: If we were to talk about blockchain and crypto think okay, how could this technology be adopted and at the time I think define define

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Lucas Vogelsang: Became a maybe somewhat common word and like half a year later, or even later but really like it was maker was a thing like Dharma protocol was sort of just coming up. I think like

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Jeremy Allaire: Yeah, it's about half a dozen projects that

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Lucas Vogelsang: Yeah, exactly.

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Jeremy Allaire: Like the content when

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Lucas Vogelsang: when when when was circle actually founded

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Jeremy Allaire: We were actually founded in 2013

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Lucas Vogelsang: Okay, good. So you guys were actually i i don't remember when I first heard about you. But yeah, I mean it is. It was a

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Lucas Vogelsang: It was a small space we were thinking of, okay, how do we how do we find

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Lucas Vogelsang: A way that actually real businesses, he wants a new that wants to be worked with that had huge need for capital.

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Lucas Vogelsang: Could actually access to the liquidity that existed in blockchain. And what Paul Brody said earlier on. Well, businesses don't want to pay for invoices in Bitcoin obviously very

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Lucas Vogelsang: True. So we started thinking about working with using stable coins to finance loans and so sort of fast forward to where we are today actually them.

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Lucas Vogelsang: Be quite soon realized that

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Lucas Vogelsang: A sort of large missing piece in this chain from invoice or house or of acid to financing is actually that defined today is not made to scale to the single non fungible acid level.

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Lucas Vogelsang: And so these these assets are

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Lucas Vogelsang: They have an independent independent due date that you can't really cut them up. You can bundle them but

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Like

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Jeremy Allaire: Thing. It's like an invoice company it's. There's one of them. Yeah.

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Lucas Vogelsang: So we were actually so the first people to think of, oh, and if these are the thing to use for representing real world assets, but then exactly in my nephew, which is sort of we push that out as a first

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Lucas Vogelsang: Experiment in 2018

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Lucas Vogelsang: But the problem was actually the fly while everyone loves to use NFC is and think of how to do in the the governance.

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Lucas Vogelsang: And sort of the scalability is not there to do that for individual invoices. And so we started building a securitization layer on top of that. So having a way that

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Lucas Vogelsang: You can handle those invoices pull them and have investors invest in these pools getting a blended return getting sort of a diversified portfolio.

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Lucas Vogelsang: And now this much more liquid larger asset class is actually what you can interface with a, with an audit, for example, or a haymaker doll.

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Lucas Vogelsang: So that's what the product is that we're building that with 10 makes it allowing real real assets trade finance for the large focus, but also others to be financed using the fire liquidity settled in stable points.

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Jeremy Allaire: So it's extremely cool. And so this this sort of intersection of, you know, cortical real hard assets using defy mechanisms like liquidity pools, you know,

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Jeremy Allaire: Even even hmm on any liquidity pools of these empty base real world assets stable point Salomon right it sort of creates decentralized markets for essentially decentralized money markets for these externalize you know forms of assets. Yeah.

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Lucas Vogelsang: Yeah.

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Jeremy Allaire: So, that's awesome.

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Jeremy Allaire: It's it's it's it's very, very interesting power. How are people using it. Like, what are some of the first use cases that you're seeing

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Lucas Vogelsang: Yeah, so we've been live with sort of this. The first version of 10 league since May we actually just last week launched the second major iteration. Technically it's version three because we did some of the very earliest

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Lucas Vogelsang: Transactions with a are really first version, together with the maker foundation back in summer last year.

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Lucas Vogelsang: And so we are the first iteration, we launched the second iteration, we launched on maintenance public product release in in May and sort of the usage has been, and still very small. It's super early but

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Lucas Vogelsang: I can just name a few. For example, console freight is a trade for word or technology company they manage their building tools to allow

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Lucas Vogelsang: Very forward isn't and buyers to coordinate your delivery of goods sort of settle these shipping transactions.

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Lucas Vogelsang: So they have invoices. They have data they have customer relationships and these businesses like almost every other business in the world.

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Lucas Vogelsang: Do have a need for capital and a lot of times, like working capital is a thing that they would like like to use as a source to get liquidity when they need it.

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Lucas Vogelsang: And so concentrates in the ideal business in the ideal position to offer that service and instead of building out this finance product using a bank line of credit or some credit hedge fund as a source of capital day

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Lucas Vogelsang: We're visionary enough and sort of believed in crypto and defy enough that they said, Actually, if I can tap into liquidity and defy

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Lucas Vogelsang: In the long run, I'll be able to have a source of capital that isn't just one source of capital, where I depend on one bank and I'm

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Lucas Vogelsang: Subject to whatever the system is they have whatever the underwriting criteria, the slowness of the process. But actually, I can offer my

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Lucas Vogelsang: Credit my, my dad or my data actually I credit my dad to whoever's interested and so that could be a maker dollar that could be money markets, it could be you and me. That just Marlon have exposure to this asset class.

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Lucas Vogelsang: And so that's that's the vision for these users is to get this like super flexible, dynamic line of credits essentially like use the Pfizer line of credit to start originating these loans.

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Lucas Vogelsang: And so console for it. As an example, they finance over 100 loans. I think they did around 700,009 originations that they're using using die to settle these loans and

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Lucas Vogelsang: They, they sort of done this, I think, in, in three pools, so far, and they've now just last week. We're, we're also one of our early

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Lucas Vogelsang: Actually the first ones on the new release that we just released and so started ever evolving pool that has now grown to

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Lucas Vogelsang: 300 die inside so they they have around $15,000 in in money that they originating growing that over time. And so that's a phrase that's what's made me a quick summary of what's been

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Jeremy Allaire: Happening.

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Jeremy Allaire: In the last month.

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Jeremy Allaire: That's awesome, that's, I mean, connecting the dots to to like really making this happen for people is

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Jeremy Allaire: Is really exciting. I mean, obviously, like we can we can see where this is sort of headed at a high level, but you know as this as this grows like

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Jeremy Allaire: You know who stands to benefit the most from this and and who stands to lose the most from this assuming this gets to scale in the coming years.

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Lucas Vogelsang: So what I what I always think of

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Lucas Vogelsang: Crypto is like the thing that people always see is that it can does intermediate a whole bunch of things right and i think in

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Lucas Vogelsang: In trade finance and in just a lot of depth that is actually where we can get to a point where the person that providing the liquidity and the person requiring the liquidity.

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Lucas Vogelsang: Now move that much closer. Right. And that, in the end, will result in like hopefully more interest for more more more yield for the investor, but also a lower rate for

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Lucas Vogelsang: For the borrower and and i think like sort of that that is what the like transparency and the openness of the deep the theorem ecosystem. And then, by, by extension, the different ecosystem that came through it.

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Lucas Vogelsang: I think it sort of has it ingrained in the industry in this idea, right, like if there is like this is transparent and if there is an opportunity that could be arbitrage or they could be removed.

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Lucas Vogelsang: Then you can do that. And I think that is ultimately what stands these businesses both my investors to benefit the most

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Lucas Vogelsang: The ones that I think will be ultimately left behind are the large institutions today that are not willing to really optimize their process right the companies that today are happy to pay to pay half or

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Lucas Vogelsang: Charge half a percent for Google bought a bond that Google issues, but at the teams at the same time, say, a small business needs to pay 15% APR on their on their trade finance acids. The credit risk is not 30 times more so the the reason this discrepancy is here as well because

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Jeremy Allaire: It's scale and efficiency of

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Lucas Vogelsang: Process. Right.

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Jeremy Allaire: This this concept I use this a lot, like, you know,

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Jeremy Allaire: The internet is is incredible of building these multi sided marketplaces multi sided platforms that that allow like a very, very long tail of participants to

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Jeremy Allaire: Get involved very, very efficiently, whether that's like I'm a tennis instructor and I'm going to bid on ads. I'm going to find the right person through AdWords like this auction marketplace or the

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Jeremy Allaire: Obviously, the original example of a bay, but like marketplace platforms that the long tail participants have the same level of reach the same level access

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Jeremy Allaire: As as the biggest right and we haven't had like platform marketplaces on the internet in financial markets and for boxing does and and and you know define decentralized markets, right, is it, it creates that that

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Jeremy Allaire: That level playing field right and it makes it efficient, even at that small business scale to participate in

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Jeremy Allaire: debt markets, whatever they might be in a way that you know in a human intermediary world where you've got, you know, loan officer looking at, you know, books and records and so on. It's just a different. It's a different

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Jeremy Allaire: It's just not not feasible economically.

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Lucas Vogelsang: Yeah, exactly. I mean, I think that's, that's really what's happening. I mean, the reason I think the reason why is right that I mean, maybe, maybe you could say peer to peer lending and then crowd funding were like

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Lucas Vogelsang: Were some of the technological or like more like product inventions that started breaking down these barriers of like large institutional banks, but really still there's like so much red tape around

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Lucas Vogelsang: That that

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Lucas Vogelsang: hasn't done the it hasn't been the 10 X improvement, where I agree with you, crypto d phi is the place where where we now see that actually, this could enable this

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Lucas Vogelsang: This marketplace for financial assets.

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Jeremy Allaire: Yeah, and we hope and pray. Now, in all seriousness, it's, it's sort of happening with an incredible pace as there are barriers, obviously, like there's no way. I mean, we're both entrepreneurs, we're trying to build this and we're running up against the inertia, the existing

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Jeremy Allaire: institutional frameworks, the

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Jeremy Allaire: existing regulatory frameworks.

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Jeremy Allaire: The

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Jeremy Allaire: You know, all this kind of stuff. What do you see as like the

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Jeremy Allaire: When you think about the biggest barriers that that are in the way for what you're doing, what do you see

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Lucas Vogelsang: I think so. I mean,

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Lucas Vogelsang: I need to make sure that I don't start just complaining about yet on and off ram costs.

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Lucas Vogelsang: We can sort of usability.

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Jeremy Allaire: Out there.

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Lucas Vogelsang: I know, I know. And I mean,

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Lucas Vogelsang: I mean I think sort of went. But when you do start interfacing with the real world. You have regulatory issues and i mean if i if

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Lucas Vogelsang: If people would know like the legal bills involved in trying to innovate in both within the legal framework and the technical side. Then I mean yeah it's it's a sad story, but the other

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Lucas Vogelsang: The other thing that I do think is extremely important as well like as long as we're sort of operating at this bridge between our at this intersection in real world and the end and crypto

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Lucas Vogelsang: A key thing is just making this on and off ramps really easy and fast. It's not just a cost, but also the speed. Right.

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Lucas Vogelsang: And so when we were when we started doing these first like real real businesses that never owned any stable coins and it before like never really had a significant amount of crypto

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Lucas Vogelsang: The I could, I mean, I was looking at, okay, how do we solve this problem for our users were like they pay upwards of like half a percent for

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Lucas Vogelsang: Buying they're buying their crypto and instead of then how do they keep them safe and all that. Right. And so I mean for for a for a small business.

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Lucas Vogelsang: I dream of a time we're actually I can have a bank account and whether my money is in crypto or whether I'd write a check somewhere or send a wire. It doesn't matter. Right. And I can do both from the same balance because yeah

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Lucas Vogelsang: It doesn't have to think of my money being in crypto or out of crypto it's it's a hassle. It's like, actually, I have this problem that now suddenly I have a liquidity crunch on one side or the other and that's that's

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Lucas Vogelsang: Yeah.

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Jeremy Allaire: I think we're, we're, we're moving inevitably to a digital currency first Treasury operation kind of world right where

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Jeremy Allaire: You know, probably start with SMEs not gonna start with, you know, Ford Motor Company or or BMW right it's going to

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Jeremy Allaire: You know, it's going to start with Destiny's ago

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Jeremy Allaire: I want to keep my working capital in in stable coins. I'm going to, I'm going to participate in yield. I'm going to have like the fastest first party payments. I've ever had. And yeah, I can interface with

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Jeremy Allaire: Wires and and and other things. And I can do that on demand. I can do that, the same cost and efficiency as as people who are entirely mad, but I'm inheriting all these these benefits that are there and

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Jeremy Allaire: Yeah, and we're excited about that. And then once you're there and people can interface with, you know, defined markets and other protocols and

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Jeremy Allaire: And whatnot. I think businesses will say, this is just so much superior. It's sort of like people moving from, you know,

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Jeremy Allaire: The running their own data centers to using Cloud Services. I mean, like, you know, it's insane. When you think about like the number of businesses that had like

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Jeremy Allaire: These you know racks and racks of stuff that we're doing right and and so everyone's pretty much cloud first if you're, you know, in most businesses now right so

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Jeremy Allaire: It seems like we're naturally headed there.

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Lucas Vogelsang: Yeah.

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Jeremy Allaire: But it is barrier is definitely a barrier. And that's one we're we're working very, very hard to to knock down. I guess I'm looking at a little bit, you know, what is mainstream adoption look like in this in in broader global commerce in the next like two to three years. From your perspective,

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Lucas Vogelsang: So I think, and this is maybe also like learning of the three three ish years or more. Now that I've been in crypto

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Lucas Vogelsang: Is that just sort of thinking of the user. We went with the right with

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Lucas Vogelsang: What you would probably call them multiplier right sort of the way we started building these pools, how we allowed users to actually access liquidity.

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Lucas Vogelsang: Is unfortunate not going directly to the business today because

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Lucas Vogelsang: Sadly, for them to start dealing in crypto, it's still a bit out and it's, it means like there's a whole lot of knowledge, like keeping your key safe is really not that easy, even for me and as a software engineer and doing this thing every day. I'm like,

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Lucas Vogelsang: I'm nervous every time. It's been something bigger, right.

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Lucas Vogelsang: And so, and so the the sort of the, the early adopters that I think are interested in this stuff and see it and understand and have to long term focus

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Lucas Vogelsang: Our fin techs and that's why I think sort of by cold console afraid of fintech

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Lucas Vogelsang: And I think those are the businesses that can take actually this opportunity. Think already about money as a technology that they use.

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Lucas Vogelsang: Interface that directly with technology and that those I think are going to be the ones that I started adopting this stuff first. And so for us there, the multipliers that actually do make sure that the

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Lucas Vogelsang: That the loans originated in the fly and up in you as US dollars on the business banker companies, it

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Yeah.

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Jeremy Allaire: Totally agree fin techs are going to be the front edge of

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Jeremy Allaire: Market adoption.

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Jeremy Allaire: Awesome Lucas really great to have you on and very excited about the progress you guys are making and you know look forward to

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Lucas Vogelsang: Yeah, and let's talk about that, that the crypto on chain Treasury Treasury first bank account idea. I really am curious to see what

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Lucas Vogelsang: Yeah, I think.

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Lucas Vogelsang: You guys have have some interesting stuff in in store as well there, right.

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Jeremy Allaire: We're, we're, we're, we've got things in the oven.

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It's good.

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Lucas Vogelsang: To see. Yeah.

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Jeremy Allaire: Awesome. Awesome. Well, Lucas. Thanks for joining us, late at night and safe. Safe travels

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Lucas Vogelsang: Yeah, I have a good one.

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Lucas Vogelsang: Thanks.

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Jeremy Allaire: To a lot of, I think, really powerful ideas here on this connection between public blockchains stable coins as this kind of base layer of money and building block this program ability

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Jeremy Allaire: Connectivity to these new kind of borrowing and lending platforms that are being built entirely on these blockchains. And then finally,

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Jeremy Allaire: Really, most importantly, the trade piece of this, the trade finance piece of this is the connecting real world assets connecting things like

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Jeremy Allaire: invoices that are tied to, you know, trades that are between you know companies for goods and services. This is sort of the last mile of commerce and we're seeing this, you know, really starting to come into place, which is very, very exciting. So

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Jeremy Allaire: Hope you enjoyed the show and we look forward to next week. And until next time, stay well stay safe and stay informed.

Episode Highlights

Paul R Brody from Ernst & Young talks about the future of blockchain ecosystem on The Money Movement

HongZhuang Lim talks about the founding of ShuttleOne & the stablecoin market on The Money Movement

Lucas Vogelsang talks about the founding of Centrifuge and how it's impacting DeFi & stablecoins

Guests in this episode

Paul R Brody

Principle & Global Innovation Leader, Blockchain Technology of Ernst & Young

Lucas Vogelsang

CEO and Co-founder, of Centrifuge

HongZhuang Lim

Founder & CEO, of ShuttleOne