SPEAKER_00: 0:00

Hey, hey, hey, welcome to this week's episode of Blockheads Blockcast. I'm your host, Takatoshi Shibayama. I'm also the head of APAC for Ledger. I aim to uncover the creative, intelligent, and radical minds who are shaping the crypto industry today. I'm as crypto curious as anybody that's tuning into this show. We're doing this together, guys. Let's go. Hey, what's up, guys? Today, I really wanted to kind of understand the payment industry well, because I'm not really particularly from that. So today we have Mr. Darren Guo, co-founder of REAP. Thank you for coming on to the show.

SPEAKER_01: 0:39

Excited to be here. Thanks for having me.

SPEAKER_00: 0:40

Now that stablecoins have really been on the limelight, especially this year, also, especially after the genius has been passed through in the US, there's a lot of light in this stablecoin space where people really want to get to know more about stablecoins, what, you use cases of today, which everybody knows it's about trading and cross-border payments. But what is Stablecoins for the future? What kind of businesses can we see in the future? But before we actually go into that, I really want to get to know you first. How did you come about crypto? What was your journey into crypto? And why do you think you want to be in this space?

SPEAKER_01: 1:15

Yeah, I think my story is probably a bit unconventional compared to the typical crypto native entrepreneur or builder. I come from a very trad-fi background. So I've been in payments for the last 12 years of my life. I sort of started as the first member of Stripe's growth team back in San Francisco, saw the company scale from 90 to about 2000 employees globally. And 2015, they sent me to Asia to essentially kick off their expansion in Asia. So set up a lot of infrastructure in Southeast Asia, Singapore, Hong Kong, China. So saw the growth of Stripe as a technology platform, a payments platform, but it was really interesting to see how everything transformed through the lens of Asia and emerging markets broadly. And I think this is really where stable coins sort of have the most application and utility, right? I would say my sort of venture into crypto has been one of a lot of ups and downs. I started off as a skeptic, right? That the idea is, you know, how can something be so novel, but not be able to replicate a lot of the basic foundational pieces around transaction speed, around reliability, consistency, consistency of payments as it relates to payment use cases. And that's why I think blockchain and crypto payments ultimately did not scale from a payment use case perspective. Even at Stripe, Stripe started accepting Bitcoin payments in 2015, then they quickly deprecated that over time, right? But now with the emergence of stable coins, I think this is the area that I think has a lot more characteristics that, you know, warrant investment as it relates to payment use cases. So I think this is the area that that had catalyzed my interest and REAP's sort of adoption of stablecoins as this more modern financial stack. I think when we first started in this space in 2018, most of the crypto use cases that we were seeing was everything was around trading and speculation, right? For us, that was a really powerful use case to get more attention, to get folks excited about this particular space. But when it comes to the core principles and pain points associated with moving funds cross-border being able to provide dollar access around asset values that don't fluctuate. It wasn't until stable coins came in that they were able to really drive value there. And I think so we've been very much following the stable coin journey since the inception of the business. And as a core focal point for us and all of the roadmaps and products that we were delivering going forward

SPEAKER_00: 3:47

as well. And for crypto native people, generally, we think of cross border payments using crypto as, okay, I'm going to send my stable coin to somebody else's address, it doesn't really matter if it's cross border or not. I mean, it could be a person sitting right next to you, and I'm sending the stable coin. So generally, you know, it's simplified a lot of like understanding of like how payments work on the crypto space because of that. But in the traditional like fiat payment infrastructure, it's a lot more complicated, right? So, you know, as a general retail user, I have, let's say a visa card, I go to a merchant, I tap, you know, and then I just do my payments. But I know that there's a lot of stuff going on in the background. So could you help us like peel the onion a little bit and see like what players are in the industry and how do they contribute to the payment infrastructure?

SPEAKER_01: 4:36

I would say whether it's cards or payments, I think there are different form factors to be able to move money. And I think stablecoin infrastructure is now becoming, as the name suggests, more of the infrastructure side where if done well, it's actually invisible to the user experience that the platforms that we're powering or is able to provide to the end user. Before stablecoins, you had a lot of complexity around needing to pre-fund certain collateral requirements. So for example, when we settle with Visa, we have to hold a significant amount of collateral with them over time. The idea is that we can work with them to be able to bring them to the on-chain economy by driving things like USDC settlement with them directly. This will lubricate the entire stack so that we no longer have to hold collateral with Visa or with any of the payment providers that we're working with to be able to facilitate that transaction. Now, from the user's perspective, they see this as a remittance or a cross-border payments, but underneath the hood, the infrastructure improvement and enhancement ultimately allows you to have cheaper costs, faster payment times, especially on a cross-border basis, and then ultimately have less collateral requirements to be able to facilitate all of that. This never really came into the limelight until until I spent some time in South America. I spent about two months there a couple of years ago, and it was really very illuminating. It sort of crystallized a lot of the hypothesis that I had around stablecoin adoption and it being very relevant for emerging markets. We worked with a CFO in Peru where they were trying to buy electronics from Hong Kong, right? And this is a pretty typical payment flow between South America and Asia. And obviously, these are suppliers that they've never met before. Everything from making sure that the payment arrives on time is consistent and reliable is crucial when it comes to negotiating better terms, negotiating better discounts, things of this nature, and building the relationship with the supplier. And I think having worked very closely with the CFO, it was clear that sending supplier payments into a place like Hong Kong was incredibly difficult. And I think stablecoin compresses the time and the costs associated with making that payment up to 12x for a lot of different B2B use cases. So I think by working closely with emerging markets and being able to export the infrastructure that we have in development markets, it really allows B2B flows, leveraging stablecoin infrastructure to be a lot more seamless and consistent in nature, right? So I think this is the area that we continue to be very excited about and continue to invest a lot of resources in to be able to elevate and modernize that entire stack so that countries and trade can continue speaking with one another and communicate with one one another more seamlessly.

SPEAKER_00: 7:28

So let me dissect this a little bit more, because one thing is to talk about cross-border payments. Obviously, we kind of do that in a kind of day-to-day, or not the day-to-day, but for me, I send money to Japan once a month to pay for a mortgage, life insurance, all that kind of stuff. So even for businesses or retail people like me, we rely on banking rails, and we use the SWIFT system, right? So I had a problem once when I was sending money across to another country, and I I use a Swiss system. So I use my local bank and I send, you know, X amount of dollars to somewhere else. And then it just disappeared. It was not arriving at the destination. And I called a local bank account and I told them, look, my money is not there. It's been a week, you know, what's going on. And they're like, oh, well, we have to investigate, but you have to pay us$40. I was like, you know, like pretty much like what the fuck, right? I mean, like your job was to send money to the other bank. And why do I have to pay extra to confirm that? where my money is. So I see that problem there because generally like the Swiss system is a messaging system and it's kind of vague. I'm sure there's like credits and debits that happen across banks. And I want to ask you around how that works. And then the other part is the general payment space. So if I take the same example, as I just mentioned before, I'll go to a merchant, I'll tap my Visa card, but when the receipt comes out, it says like world pay. And I'm like, okay, what world pay is doing? I don't really understand. I thought I was just using Visa and a receipt that tells me something else. So can we separate the two and then kind of dissect that a little bit so that we all understand before I go into what are the problems of that system?

SPEAKER_01: 9:07

Yeah, I mean, the anecdote that you described is one that we hear very often. You can imagine this is you sending funds from Singapore to Japan, both close in proximity. They already facilitate a lot of trade with one another. The consumer payment implies that it's sort of astronomical quantum in terms of the amount that you're sending, even with those type of basic characteristics, you've had a lot of friction, right? You can imagine how much friction there is when you're trading between, let's say, Singapore and Peru, and you're trading hundreds of thousands, if not millions of dollars in supplier payments, how much more friction that it would present, right? And I think this is really where Stablecoins is able to simplify the most complex leg of that particular transaction, which is the movement from Peru to Singapore, in your example, from Singapore to Japan. I think that the cross-border nature and being able to abstract the complexities there is ultimately the main role for stablecoins broadly. And I think this is where, you know, if we can bring that transaction, particular transaction on chain, there's a lot more programmable aspects that we can make that particular transaction even more efficient. So I think this is a very common problem that continues to be exacerbated because the global south and the swift access is not as well built out. And I think this is really where you have to combine fiat infrastructure with stablecoin infrastructure, right? Your mortgage in Japan doesn't take stablecoins. The supplier here in Hong Kong doesn't take stablecoins either. So the idea is to leverage stablecoins to be able to modernize and speed up and expedite that particular transaction, but also continue to work closely with the fiat systems, whether it's local payments, Swift, or anything in between that allows you to ensure that the TradFi systems are able to communicate seamlessly with the stablecoin side. And this is where REAP comes in and we're able to translate the two and make sure that the two systems are able to talk to each other seamlessly. Similarly, on the Visa side, I think to date, we're providing infrastructure for stablecoin-backed cards, but the cards itself is spent through fiat, right? So the settlement and the transaction and the speed of the transaction and the way that you tap and how Visa communicates with the merchants and the world pays of the world are all on the TradFi side. I think we're starting with ensuring that the issuers that we're powering as well as REAP in and of itself is stablecoin native. And then the idea is to make sure that that asset that's used for settlement for merchant payouts continues to drive on-chain adoption so that we can reduce the timing for the world pays of the world to be able to settle to the underlying merchants to be able to process that particular coffee or book that you're buying through the merchant through WorldPay, if that makes sense.

SPEAKER_00: 11:57

And for those kind of like, you know, retail payments, there's no problem with it to me. Like if I go and then pay for something, obviously there's a fee that I have to pay, you know, either WorldPay or Visa, but generally it just kind of works. So, you know, what is Stablecoin addressing there that can actually solve what seems to be like, there's not much of a problem. So just wanted to ask you your answer for that.

SPEAKER_01: 12:17

Absolutely. And I think this is where the emerging markets focus in terms of the customer persona becomes very relevant, right? For For developed markets in Asia, Singapore, Hong Kong, Japan, U.S., I think the problem of dollar access in a secure, stable financial system is generally a solved problem. But when it comes to emerging markets, the Africas of the world, the Latin Americas of the world, this is where something as basic as getting access to a visa card or getting access to a stable financial system is not as prevalent and built out. And I think this is where we invest a lot of time to be able to develop the infrastructure in Asia, but be able to export it to a variety of different countries and regions in the global south, especially where this financial system that we take for granted and we live and breathe today are not as ubiquitous. And therefore, we want to be able to extend the capabilities that we have here and export it into those particular regions.

SPEAKER_00: 13:18

Yeah. And generally, I always had this idea that, you know, crypto would take out the middlemen. So, you know, as I said, we can do payments p2p generally but now that there's a convergence from like the crypto side of like stable coins and then the traditional payment industries kind of colliding together and this is kind of what's happening today we're seeing traditional companies buying crypto companies or crypto companies buying traditional businesses so that that kind of world is colliding together so how do you envision the industry players of today in the fiat rails working with like a technology where it was supposed to take out middlemen

SPEAKER_01: 13:54

yeah it's a good question and it's Evolving quite quickly, I think when it comes to stablecoin infrastructure, I don't think in the future there will be crypto native and non-crypto native. And therefore, this sort of segregation of worlds between stablecoins and TradFi, I don't think will exist or be as delineated as it is today. When we think about how stablecoins can really disrupt financial surfaces, we think very much about how it can drive the future of a tokenized economy, right? Where all money movement, most asset assets will be programmable in nature on chain. And I think this is where stable coins could replace bank deposits as the default digital money for global commerce. Every stable coin is instant, borderless, low cost, programmable in nature. So you can build a lot of other, I would say, programmable features and products on top. Everything from conditional payments to better escrow payments to recurring settlements that's programmable in nature outside of banking hours. So I think when it comes to removing moving the friction associated with middlemen, that's rarely where stablecoins can come in and provide a better user experience. But obviously, the staples of the traditional financial system, I think, still needs to exist from a checks and balances perspective. But I think there's a lot more modernization to the stack that we are excited about powering. And we see this across the different regulatory bodies across the world, where it started with the US passing the Genius Act, as you mentioned, but Hong Kong, Korea all have stablecoin bill that are very quickly sort of becoming the norm. So I think we're excited to see how the convergence between stable coins and the Trafi world continues to proliferate as regulations become more clear. I think the other aspect that I think stable coins will continue to dissolve when it comes to modernizing the sort of on-chain economy is where it's not just money movement that's on-chain, right? It's everything from equities, to bonds, to even real estate one day, all tokenized, all represented on-chain And then this can create really interesting new financial services around lending and borrowing, getting liquidity pools on a fractional basis with 24-7 access. And if you look at the numbers, the tokenized asset market is already around$50 billion and is expected to hit$1.5 trillion by 2025. Those are the type of net new capabilities that I think stablecoins will continue to drive progress on. And I think we want to be the stablecoin native infrastructure of choice for the future. for a lot of the trad five companies that are looking to expand into this space or work with very energized startups that want to be disruptive in this particular space as well.

SPEAKER_00: 16:35

Going back to that genius act, the act itself said that you cannot issue stable coins with yield. So to me, it seemed like they're trying to cap the ability for crypto native companies or stable coin issuers to reward its users with yield. So basically what they're saying is, if you're a stable coin issuer, you can keep all the yields. And then, you know, the retail users won't be able to, you know, have the rewards, but they can just get the stable coins where you can do cross-border payments and such. I feel like that rent-seeking nature of banks is always going to try to, you know, like linger on. And that's, you know, and that's a very TradFi kind of mindset, right? Because it's been there for ages and more and more as we kind of move up the kind of tech stack. So I kind of view like fiat as like a layer one and then a stable coin as like a layer two where you could do all these types of things that you just mentioned, where, you know, you could trade equities and you could do different types of trades and you could have on-chain services where you can pay with stable coins, et cetera, all that additional like digital services that will come up in the future. But, you know, the underpinning, you know, kind of layer one is always going to be kind of rent seeking in nature, where it's like, okay, I'm just going to keep the, you know, fiat here. I'm going to, you know, take all the 4% yield that I can get. And this is kind of where I, you know, draw the line and then you could do all the other stuff that you you know, on top of that. So, you know, do you think that that's going to, you know, change? I mean, like, it's kind of like up to us and up to you guys to kind of fight that battle as well, right? Because, you know, you do want to reward people who actually use stable coins. Like, for example, like USDC, you know, if you have, you know, an account at Coinbase, you can actually get rewards on USD holdings. Whereas, you know, if you're using a Bank of America, you know, stable coin, you're not going to get anything. So, you know, do you think there's going to be like a work around these kind of things?

SPEAKER_01: 18:25

We're keeping close eye on this. I will say that when it comes to demand for the type of stable coins that we facilitate, the demand is still around the stable coins with the most amount of liquidity access. So yield is a secondary consideration, right? Obviously, as stable coin, the stable coin market becomes more mature, and the customers and the users become more familiar with the capabilities around staking and yield, then I think some of these characteristics will become more important. But when it comes to payments in motion or money in motion, the ability to be able to drive liquidity, provide access is often the main characteristics around performance, cost and efficiency. So when it comes to evaluating stablecoins through that lens, I think it presents a different set of requirements from us and our clients. So we don't see, at least right now, the demand for more yield generating stablecoins, but it's ones that have the most regulatory oversight, as well as the ones that provide the most amount of liquidity across the world.

SPEAKER_00: 19:34

Okay. So let's talk about the future of stablecoins. So I did just kind of mention about stablecoins not just being for trading or not just for cross-border payments. What kind of on-chain digital services do you think that our industry can create so that there'll be more use cases of stablecoins?

SPEAKER_01: 19:52

In the short term, it's in the that some of the TradFi folks has a better understanding of the capabilities, reach and use cases associated with stable coins. So the fact that Bank of America and JP Morgan has plans around issuing their own stable coins, the fact that Stripe bought Bridge to be able to have a place in the on-chain economy, I think are all great seminal milestones that continue to drive progress in this particular ecosystem and industry. And I think by having some of the TradFi folks get excited about this, become more crypto native. They can work closely with folks that have been in the space for a while to generate more value and utility for the end customer. So I think it starts with getting more players to be able to expand the understanding, the capabilities associated with this particular technology. And I think the second, which we're very excited about is the programmable nature and the tokenized economy, where we're not just incrementally and marginally sort of improving payout speed and costs, we're actually creating net new payment experiences that fundamentally cannot be created today because the infrastructure is not quite there. So if you think about B2B payments, there's a lot of trust and security associated with facilitating that particular payment. So we want to build an on-train multi-sig process to be able to facilitate that better with more transparency, with more speed, and with more capital efficiency. So those are the type of, I would say financial services that are inhibited by the existing banking constraints and the way that wallets and accounts work today. But if we bring that on chain, I think those are the type of net new use cases that we're excited to drive forward. But obviously we have to start with more pragmatic, practical use cases around cards, around payments to get people familiar with the on-chain space. And then I think we can add a lot more innovation around it. It's very similar to I would say the way that AI has developed, right? Where AI and ML has been part of technology businesses for a very long time, but they needed that chat GPT moment to get people excited, to get folks to understand the actual use cases and utility of it. And then folks started building on top of it. And now it's sort of a paradigm shifting type of technology. I see stable coins along a very similar path where we start with some of the basic use cases around payments and cards and making that a lot more efficient, getting more folks to adopt wallets, think about DeFi and get familiar with the space. And then I think a lot of the more innovative aspects that only can be created through an on-chain economy will sort of come to the spotlight thereafter.

SPEAKER_00: 22:40

Yeah, I totally agree with you. I mean, I said on a different episode that Bitcoin can be the gateway drug into crypto, but also stable coins is the same. And I think this has probably more chance of people getting a little bit more interested in crypto as opposed to Bitcoin, because Bitcoin generally, people think of it as digital gold and accept it as such, right? So, you know, obviously there are BTCFi in the space, but I'm not sure if people are going to look into it because they already in their mind has this image of, oh, it's just digital gold. But for stable coins, obviously there's a lot of things that people will associate with fiat into stable coins because people can actually earn yield. They can trade. They could do all these other stuff with stable coins already in fiat that they think, okay, well, stablecoin should be able to do that. And then what else? And then you can introduce concepts of like DeFi, introduce concepts of like financial inclusion, where a lot of people who didn't have bank accounts, no longer need bank accounts anymore, they have stablecoin and in their crypto wallets, and then be able to make payments and all these kind of stuff. So, you know, how do you envision your company to fit into this kind of like new paradigm of on chain digital payment?

SPEAKER_01: 23:49

Yeah, well, reap is ultimately building financial infrastructure that's native to stablecoin. Right. And we think that the future of financial services will be driven by, as mentioned, a tokenized economy. And to get to that world, we're starting with three main use cases. The first is a white label stablecoin card as a service platform that allows different centralized exchanges or modern neobanks to be able to issue cards to their captive audience. The second is a cross-border payments platform that enables trade financing, import export use cases, cross-border payments. payment platforms to be able to facilitate payments through stable coins, but be able to pay out in fiat in a multitude of different currencies and countries all over the world. And the third is a stable coin enabled corporate credit card expense management and bill payment system that allows decentralized finance teams to be able to manage all of their expenses, payments and balances at scale using stable coins, right? So those are the three main primitives that we're starting off with. But the idea is to be able to drive towards a platform where we have different entrepreneurs, builders, and projects that can be built on top of the platform that we created to be able to leverage everything from the card issuance to the payment capabilities that we built underneath the hood that we've been able to synthesize through all of the licenses and capabilities that we've been able to drive across the world and ensuring that the builders of the world have access to them so that they can create some of the net new payment experiences that I mentioned through the tokenized economies and the on-chain infrastructure that we're building and driving forward.

SPEAKER_00: 25:28

Yeah. So can you give me like a few examples of how that would look like? So, you know, right now, as you mentioned, you have those three pillars and I can see like corporations using or issuing credit cards and having their employees spend those credit cards using, you know, stable coins, which will pay out in fiat to the merchants. But as we kind of like grow this industry, what do you like in particular, do you have like examples of like how builders and these companies will start building on top of your platform?

SPEAKER_01: 25:55

Yeah. So as an example, we obviously facilitate payroll and I would say general broader business expenses and payroll and the need for getting access to funds from salary becomes a lot more dynamic in emerging markets where folks may be living paycheck to paycheck, where needing access to funds early is important. So one of the things that we've been thinking about is something around payroll streaming, where we can stream payments into a wallet of the employees on a sort of real-time basis, per second basis, as opposed to anything else, and then being able to create a card or being able to create off-ramp mechanisms where they can actually use that salary that they earned on a per second basis. If you think about the infrastructure associated with streaming those payroll salary payments, it involves online, on-chain infrastructure, something that's available 24-7, programmable in nature so that we can facilitate off-ramps as needed. So there's a lot of these type of capabilities that we're driving forward. And that's just one example of one that I think will be crucial to sort of ensure that there's more financial inclusion and digital inclusion in emerging markets broadly.

SPEAKER_00: 27:06

In emerging markets, I mean, which areas do you think that you'll be kind of focusing a lot more on? Because, you know, I think in Southeast Asia, I think the fintech has been kind of very strong in this region. And you mentioned about Latin America, which I also agree, I visited Latin America anytime And, you know, I've always heard people telling me that the banking system is not, you know, the same as what I experienced in Asia. I could also think about Africa. I mean, all those regions have like different characteristics and their needs. So what you guys are thinking around those?

SPEAKER_01: 27:40

Yeah, I mean, I consider myself very lucky, right? The bank accounts that we have are extremely stable. The currency around Singapore dollar or Hong Kong dollar is quite stable as well. We also have to remember that the fiat infrastructure is multi-currency. So your bank account in Singapore, my bank account here in Hong Kong can hold and process up to 14 different currencies. And that acts as the fertile ground to be able to facilitate trade. So for us, we focus a lot on B2B use cases, facilitating trade for supplies, cross-border payments between emerging markets, especially Latin America, Africa, and Asia, but very much across the world. So those are the type of complex payments that I think Stablecoin is ripe to solve as the main and most challenging sort of type of payment that we're processing today. So a lot of import export use cases, trade financing, invoice factoring, those type of capabilities that are very sort of tradify in nature, but the platforms that we're powering are modern, they want to be able to leverage the best technology to be able to facilitate those payments. But a lot of it is related to movement of physical goods across the world, especially as it relates to emerging markets in Asia.

SPEAKER_00: 28:54

Great. And I think we've come to the end of our recording, but is there anything else that we missed that you would like to talk about?

SPEAKER_01: 29:00

I think broadly speaking, we're very excited about the pace of change in this particular space. There's a lot that we're working on behind the scenes as it relates to the intersection of AI and stable coins. As I mentioned, the new stable coin use cases. So I would say broadly speaking, you know, a lot of folks think about stable coins as this sort of modern money movement stack. And I think that's very much the tip of the iceberg. The reality is that I think about it as a technological infrastructure improvement that allows net new businesses to be made, to be created, net new financial services, payment products to be generated. So I think it's a lot more beyond financial services, a lot more beyond even sort of money movement. It's very much a new paradigm that allows entrepreneurs to be able to build the next wave of financial services on top of this infrastructure. So yeah, hopefully we can get more people to join this space, to get excited about the space, but we're very much in the early stages of what I think is very transformative technology going forward.

SPEAKER_00: 30:01

And where can people follow you and the company?

SPEAKER_01: 30:04

We're on Twitter. You can follow us on LinkedIn, of course. As a B2B platform, we do most of our posts on LinkedIn, but I'm trying to sort of build out and tell the story across a variety of different channels and mediums, but I'm making myself available on Twitter and LinkedIn for now.

SPEAKER_00: 30:18

Thank you very much for your time. It's very encouraging to see the growth of the stablecoin industry, and I will keep Keep my eyes open for all these things that are happening. Thank you very much for your time.

SPEAKER_01: 30:28

Thanks so much. Appreciate

SPEAKER_00: 30:29

it. Thanks for listening. If you like what you hear, give BlockCast a like and subscribe on Spotify and Apple Podcasts. And for all your juicy Web3 news, keep updated on Blockhead.co. Catch you all in the next episode.