The Hidden Liquidity Layer Behind Every Non-USD Stablecoin

Hey. It's Zach here from Stable Dash. We're live at the BITSO stablecoin conference in CDMX. We're with Juan from Kappa. Juan, it's been great. I think we booked you, and you're like, hey. I don't know what I wanna talk about, but the but the stablecoin guys stable dash guys wanna talk. So thanks for carving out your time. Stable Dash live is sponsored by Agora, built for global institutions moving money at the speed of the Internet. You can learn more at agora.finance. How has how's the vibe?

Are you enjoying it so far? Well, I've been in Mexico for more than ten years.

So nothing new. Yeah. No. But, like, at least, like, Steel Open Conference this year feels like there's, like, like, lot of new people. And it's a little rough that I've been in the crypto industry for just a little bit over seven years. And you see We'll we'll little things. Faces in conferences over and over and over again. This is the first time that I've probably have tried to say hi to people that I don't know the face the last two years in the industry.

Have you met anybody here that you were maybe surprised to see or even, like, oh, that company is finally here? A lot of friends who are bankers that Mhmm. They chose, like, the whole dark side, and they are here in, like, the payments role. So yeah. And a lot of companies that either were interested in discovering stablecoins or were, like, a 100% crypto native, and now they're more on the institutional side.

I I find funny because it tells you that the real value proposition that, like, stablecoins have is either payments from a to b, institutional deal, RWA, or just hoping to do something that's faster and more efficient. And

so where do you fit in the puzzle? And I guess the kind of two part question. Where do you fit in the puzzle? You're on, you know, you're on the non USD stablecoin side. I think you were telling me out there you're one of the largest market makers for non USD stablecoins. So I guess kind of frame that piece of it. And then also, why? Why why choose this lane to swim in in the whole stablecoin conversation? I think why it's more important.

Like, the the whole reason why I started using stablecoins is because I used to prefer college with them. In the in The States or somewhere No. Here in Mexico. So

there used to be, like, a very good arbitrage in Binance p two p, and I was always very interested on how I can convert pesos to USDT and sell them for the positive arbitrage, take those pesos, buy more USDT, and do like a vicious cycle. That helped me out through college, but there was a point that I was going with, like, a big duffel bag to start buying, like, bigger chunks and bigger amounts. And in one point think that's a first. I think that's a first origin stories for state owned businesses. For a second.

There's there's, like, a handful of founders that went through, like, the same problem. You have the arrow from Alfred. You have the guys from, like, It's certain macroeconomic conditions let you understand why stablecoins are very important. Yeah. But at the same time, I just figured out if it's so hard for me to do this, it's has to be, like, 10 times harder for, like, businesses. Initially, Capa started being an on off ramp, so, like, consumer crypto, trying to connect into Metamask.

And we eventually found out that, like, the market's not there. There's the like, the billions of dollars or the trillions of of dollars in volume are founding specific use cases that are sticky. Eventually, when the company started scaling, we figured out that b two b payments was the first, later came enterprise, and then came a lot of publicly listed companies that wanted to do cross border payments.

And when the non US stablecoin part came in, I found it very interesting because you have companies like Bitso that are doing MXNB, and then you have Etherfuse that's doing set test, and they're doing, like, MXNE. It feels like a blank canvas. And, like, I don't think that local stablecoins are going to be, like, trillion dollar AUM products, but they're gonna be ones that are gonna have a a lot of volume turnover. What do I mean by this? Their specific use case is payments.

People wanna pay in local currency, and not a lot of people want to save in dollars. That doesn't happen in countries like Mexico. It may happen in Argentina, or it may happen in Colombia, or it or it may happen in a country where there's a dollar there's a dollar shortage. But when I use an app like Dollar App, it feels a little bit screwed up that from one year to another, I'm now 20% poorer because I was saving in dollars all of this time. Yeah. So I got lied by that thesis.

Locustivo points are just very important because of two things. I can pay you Yeah. But at the same time, I can onboard into a faster and more efficient payment system. And then if I wanna convert it into that dollar, there comes this whole on chain effects market that's starting to open of trying to replicate FX markets on unchain markets like Uniswap Hyperliquid.

Yeah. How how far along do you think we are in this kinda, like, development cycle of on chain FX markets? Because I think we've seen, you know, we're seeing the development of some. We've obviously talked with EtherFuse. We talked with Codex. Have we got a chance to talk with Mento Labs? Help us, like, break down that that paradigm of, like, we say on chain FX.

What is that form factor? What what should it look like? So so this is cool because all of the companies you named use CAP as an LP for their own chain market. So they use us for rebalancing and bank management. Not scripted, by the way. This is definitely not scripted. But, also, they use us as a way to how can we replicate payments behavior in on chain markets. Mhmm. What's the biggest problem? And this is where there is a a big liability in how we create the stablecoin issuers plus also PSPs.

No company can do both at the same time because of the stage that these companies are. You see companies like Etherfist that are great at at issuing stablecoins and trying to grow the TBL. Stable bonds. Yeah. But if you see their payments volume, it comes from companies like the Capas of the world or the the companies that are actively using local stablecoins as a way to efficiently on offering into these markets. The way that I've been seeing local stablecoins is that it creates stickiness. Why stickiness?

You have to k y b into a stablecoin issuer. You have to form a relationship with them for them to open, like, your payment rails. And now what we're seeing from going from zero to one, which is creating the stablecoin and the reserve, is that what are the use cases this organic user base is giving to us? It's not only DeFi protocols and, like, swaps. No.

There's a lot of people that are actively trying to use MX and Eurezetes to save institutional yield for their companies without having to go to a traditional broker because it takes too much time to cap the liquidity.

So there's a lot of things that you take a very good jump start from the traditional market, and these companies treat you like a real VIP customer from a bank that you don't have to dump millions of dollars in capital for you to get a proper service in yield payments or just simply having access to local currency.

And I wanna go back to what you said about the payments turnover because it's like, you know, you can go online and you're like, oh my gosh.

Look at the USD, you know, US dollar stablecoin market cap versus non USD, and the market's nonexistent, and they only have, you know, a million in AUM, how should like, do you think we're there from a data perspective to, you know, index this data to be able to track, like, how is this space developing, or are people looking at it from the wrong angle and somebody needs to go, you know, build those dashboards to actually say, like, hey. There's these products are getting sticky.

The other side of that question is, is this an issue of nobody wants to show their cards? Nobody wants to know that, hey. We're seeing all these payments go here. I think the cards are very much transparently shown. If you go into, like, a lot of dashboards in Doom, you see that the stablecoin volume is real. The only thing is that that volume normally comes intra company. So let's say that StableDash Inc wants to transact with Kappa Inc. Yeah.

The Stablecoin issuer doesn't make any money out of it because it's me paying you. So that's where a lot of the data has very good numbers, and it's a turnover game. But it also needs more data on the AUM game. Why? Because the more liquidity there is, the deeper pockets you have to do bigger payments, and that's where the industry gets way more relevant. If I were to use I don't know. Like, we use one of our customers, let's say, Starlink, and they have to do payments from Mexico to the Doctor or no.

From Mexico to The US. Me going through a liquidity pool to swap Mexican pesos on chain for a $300,000 wire that I have to do, there's no capital for that. Yeah. Initially, when you do, like, a rule of thirds and you see that the mean payments ticket size in Mexico for, a b two b payment, it's a $110. But for consumer remittances, it's, 350. You start seeing where the market is starting to, like, get, like, a jump start.

And then, eventually, that liquidity that fulfills one market eventually fills out the other one. Mhmm. And that's when you start seeing secondary market behavior and when you start seeing stickier consumer tickets or stickier businesses tickets week on week, month on month. And so

we we were talking about before this before this the the interview a little bit about how much of FX actually does need to come on chain. You were especially talking about your work with d o DLP. Correct? Yeah. So talk to us maybe about one, I don't think we've covered the Dominican Republic, any any forex stablecoin payment flows there. So maybe let's briefly talk about where you're seeing traction in in that geo.

But then also, let's talk about, like, when we think about this final form factor of of even on chain FX, how much of it is on chain through local stablecoin issuance, and how much of this is we're just issuing US dollars on chain and, you know, you're owning the corridors in The Dominican Republic?

Probably 95% of the payments we do using local stablecoins, they end up on us owning the risk on the currency Mhmm. And then trying to find a liquid way to get into dollars. So that basically means that there's two sided risk when you're trying to convert from local currency over to USDC. So the last mile in payments takes it as a palpable currency, and then they can do, the USD payout. Now I believe a 100% of the on chain of of the FX market has to go on chain. Twenty four seven, it may be more liquid.

It's more transparent. The data feeds are better, and it prevents a lot of market swings that happen in countries with more volatile currencies like the Dominican Republic or even Mexico. If we can go deeper on there, least this is where I find way a ton. When we start seeing currencies like the USD and the euro, they have, like, their mid rate. It's the average of the price of where a bank sells it and where the bank buys it from you. Okay? Mhmm. The Dominican Republic doesn't have that. There's no market mid rate.

Wow. So, eventually, either you have to build a book that's so liquid and that you own it a 100%, or you have to play by the rules that the bank puts on to you. Mhmm. This is where I think that there's use cases where on chain effects shouldn't go Onchain. Why? Because it's up to you to close the proper pipeline, and you don't need Dominican peso on the blockchain to have Dominican pesos on there and swap it for dollars.

You literally need to solve the liquidity issue that the incumbents currently have, and it's positioned by how governments and markets and banks behave when the country swings up or down when it comes in centuries. What's the better part about this? I think that eventually affects markets and in emerging markets that very much have become more liquid. Mexico, if you were to buy USDC three years ago, they would be sitting at a two to 3% spread. We're talking about two to three basis points in institutional customers.

It we've became that the rules of economics don't even affect markets like these ones because on chain markets dictate themselves. And that's good. You're making your own set of loss. But at the same time, you leave a lot of markets behind because they're not ready in payment systems wise, start issuing their own local stablecoins. And I don't think that the market is that big. Why why would I issue a token of of the French Polynesian currency? I don't know what the currency is.

I hope it's not the dollar, and I look wrong on this podcast. But I'm just putting an example that maybe an economy that moves a $100,000,000 of total GDP doesn't exactly need on chain effects, but they definitely need dollar access. And that's where stablecoins come in and play a huge part, but at least for Mexico where the market is big. Yeah. And investing in pesos has become very, very attractive. People do need non USD stablecoins based out of the MX.

Yeah. Do you think that our paradigm for thinking about non USD stablecoins is a little distorted because of what we've seen with dollar stablecoins? Like, the way I see it is, like, there's a lot of there's there's similar use cases kinda like you mentioned, like, you know, with with with settlement times and cost. But especially, I think, when it comes to go to market, we I think we easily lump in that, oh, dollar stablecoins, they just saw this meteor me you know, this awesome rise.

We're gonna see the whole, know, you 150 other currencies of non USD stablecoins see the same growth, and it's just probably not gonna go that way because, like you said, liquidity for each of these coins, not to mention then, you know, regulation in each of these jurisdictions.

Let's go a little bit more broader. In the last six months, more stablecoin companies have been founded than in the last five years. Wow. So this is very interesting because they either go on the b two b payments vertical stablecoin issuance, or they go into agentic finance. Not a topic I really wanna speak about because I'm a complete ignorant with agentic payments. But when you start seeing stablecoin issuers, you see players that they don't know exactly what they're doing, but they just want a piece of pie. Yeah.

And then eventually, there's incumbents or there's people that were part of incumbents and and started their own stablecoin insurance company, that they're eating a bigger chunker of the pie. And from permeation, they've managed to find a customer base that can use in an abstracted way so that you don't feel that you're using, like, ConchainedFX Mhmm. That it relies on the whole back end.

And then you have a lot of companies that are building something that they call, like, solar networks, which is basically, I'm gonna find you the cheapest provider for the cheapest effects rate.

And I don't think that that's the most efficient way, but that's where the market is heading because we're all in a rat race to see who's gonna eat the whole pie for centric countries, and pricing has to be something if you wanna close the big companies like the Western Unions of the world, the money terms, the whole trans networks. I think that there's another market out there that has to be with local stablecoins that people do not fight for pricing. They just want performance and reliability.

And that's where the market's getting harder, but at the same time, you see a lot of companies. There's one called Braille. Braille has built a complete payment system behind the stablecoins that they issue. So they finally made their 100 plus stablecoins fully composable. Why is that good? Because we can have stable dash USDC or we can have capa USDC. Yeah. But in the Fedwire system, they're always gonna look the same. We're seeing this with MXNB and like MXNE.

We have 2 Mexican pesos on the blockchain that at the end of the day, the way that they build their mechanism, it has pesos in a palpable bank account that you can send them to, like, everybody. The end game here, and this is where I think that it that it starts creating a lot of stickiness, and it sounds counterproductive. The market needs to have a natural contraction on who are going to be the top two to three issuers in certain big jurisdictions where there's demand. Mhmm.

And how do we bring these currencies into endgame is by a big centralized exchange like Binance or like Kraken, not trying to, like, actually plug some of them. We're just putting, like, examples that they have a lot of emerging market permeation, create the proper liquid rails for them to operate at scale institutionally. Because right now, the customer pipeline that we bring institutionally because of local stable points, it's opportunistic.

I have the spot rate because a company like Vitsa gives it to me because it's part of a contractual agreement. Yeah. When I do that and I swap it using USDC, I set myself three to five basis points. That will also happen in Colombia with Mintero, happens in Brazil with b r l one. So it's basically having companies pay for data while we provide a value add that we are gonna make your token liquid. The real endgame here is when doesn't Capa have to give them business anymore?

And we have enough datasets for us to become a proprietary payment stack on top of function FX rails that bring companies from zero to 10,000 and that that currency is always going to be composable. Stable dash BRL with Kappa BRL, they're gonna be worth the same thing when it falls into the pixies. And that's where I think the real market is. It's not trying to monetize from it.

It's trying to build from it and get the foundational part so that you can focus on a specific customer segment, and you build a killer payments business that processes billions

or trillions. I don't see non US stablecoins winning if they don't adopt the payments stack. Yeah. Well, it's like you even see right now if you go to you know, you see on crypto Twitter, and you'll see people trying out all the different, you know, stablecoin neo banks. Yeah. And the common pain point on all of them is, k. Great. You're building products for me, you know, whatever, in Latin America. I don't like lumping it into one region because all the countries are different. Yeah.

And the person in Mexico is very different than the perks person in Argentina and and the app they wanna use. But the common thing is, hey. When I go to use these, I don't really know what the FX rate is. It's not a good FX rate. Definitely not good FX rate. Yeah. And it's like so I'm thinking through, so how do we solve that problem then? Is it integrating Capa? Is it we need more non USD liquidity on chain? Stepping from Altitude even on the show the other day was like, hey.

This is actually a big problem that we're thinking through right now. Like, non USD stablecoin builders come come out of the weeds, you know, so we we can talk with you. How would how would you think maybe it's about that that specific problem amongst We're a year away from a company like Corpay or,

let's say, Pepperstone or ICE. They have their own proprietary frames to do effects that they're gonna start messing with g 20 currencies on the blockchain. So we have to start from there. And then on the second one, maybe if you guys want to integrate with Kappa for good Mexico effects, very happy to do it. Thank you for the shameless plug. But at the same time, the way I see it is, like, people need to build their own effects back offices.

A lot of companies that start scaling and they reach series b, series c, and they're starting to move, like, $40,000,000 in, like, volume per day, not a single provider can cover the book. If I if I had a customer that was sending me $40,000,000 per day, I don't think there's a wake up. I can fill that without having to rely on another person that has pesos or has dollars. Companies need to have their own effects back offices. And what do I refer to this?

They have to acknowledge that they either have to go long or short local currency. And it's either keeping a basket of specific percentages between local currency and dollars so that they can provide their customers a competitive rate. This is why I'm very much a preacher of a company like Dollar App because they figured everything out. That's my bank in Mexico. They're not even a bank. Yeah.

I use them for everything, it's for saving, if it's for investing, if it's for sending payments, because the FX rate and how they manage their FX shop just simply makes sense. And that's where I think that a lot of consumer neobanks haven't taken the hard part of the business because they're still working at scale to own the distribution network. Yeah. We've come from appointing crypto and in stablecoins as a whole, where now everybody can issue their own stablecoin, and that's good.

But that basically means tech as a commodity. I can't go to a VC and raise a series a and just tell them, oh, yeah. We have the best technology. No. I need to tell them, I own the proprietary licenses and the distribution network for this to work out. And we're finally seeing that we stopped doing a herd mentality that the tech is good, the tech is great.

But at the same time, we finally own enough resources to have proper go to market, expanding, like, user base, and finally know by hitting scalability bottlenecks in how you control the distribution to your users, when do you need to go independent with your own effects back office and when you have to rely on others. I can tell you that Capa, with certain payment providers in Mexico, we've reached a point of scale where where we can't use them anymore because they're not ready for the amount of volume we move.

And then we go to a bigger one, and the bigger one just spits us out because we're not that big. So it's what we're seeing. Gray area right now. Yeah. Like, I spoke with a couple of, like, banking charters for us to expand, like, a US pipeline, and they're telling us, like, okay. This cost x a year. And I'm like, the company can't afford this.

So we're finally seeing some bottlenecks in the stable industry where we're finally seeing that when you go big on distribution and when you go big on economics, you're eventually going to crash with one of these two verticals, and you're gonna have to, like, iron this out to go, like, fully manage Yeah. Inside the company. Yeah.

So we're gonna we're gonna wrap up here. Last question, though. So were you at the conference last year? Yeah. Okay. So thinking about how the conference has evolved from last year to this year, assuming they do it next year, which I'm 99% sure they are, what do you hope that we're talking about next year at the conference?

Why Mexico is actually the most important market for sales? Brazil is the biggest one for sure, but there's a thing that they don't have in common. They don't speak Spanish. And at the same time, I think that us Latin Americans don't speak Portuguese. So that's where you find yourselves on a crossroad of we of which market you, like, launch on. We've been going through different theses that a lot of people like Colombia or they like Argentina because of a hyperinflation issue.

I think that people need to start knowing their narrative a little bit more and decide which is the market that I'm actually gonna be the best because we can't silo out Latin America as just one region. I was gonna say that that's it's not. Yeah. Yeah. So I know that Capa is not gonna be the best company in Argentina because of the way that we built the business, but maybe it could be the best one in Mexico and in The Dominican Republic and get a small dent or a small participation in, like, Brazil.

And that's why we should eventually all focus on. I don't think there is a world where one single player cannibalizes everything and builds their own payments Frankenstein that's good for all markets. Yeah. Eventually, the of the world might need to work with the of the world, or of the world may have to work with the or with the, which we already do. Latin America has always had a very biased opinion that everybody that's inside a certain industry wants to screw you.

If we were to head into the conference next year, we need to see each other as friends and trying to negotiate in good faith to push one industry forward. And I think that 80% of the industry is well aligned into that. Yeah. I I hope next year it's a 100. Awesome. Well, I'll say that's that's our hope too at Stable mean, that's why we wanna bring builders together, host dinners. I I we'll have to invite you to our next one

because that's definitely I I I say sometimes jokingly that, like, Stable Dash were the cheerleaders of the industry because we we wanna bring everybody into the room. And like I said, we we all, you know, right what's the what's the phrase? Right? Rising tides lift all boats. So I think that's a that's a great place to wrap here. So that was Juan from Capa.

Go check them out if you're in the non USD stablecoin space, and we'll be right back with be right back after a short break for our next interview from the StableDash conference in CDMX. See you next time. Ciao.