Circle's Chief Economist on Stablecoin Decoupling, USDC Velocity, and the Arc Blockchain

Gordon, welcome to the show. How's it going? Glad to hear. I Almost got a smile. There we go. Confetti, and I love the taglines. Cash guns too. The cash guns are Stable Dash Live branded. Did you see this? Look at this. You see the logo on the Cash Guns? I'm on. You're just doing too much. This is great. Jordan, how are doing today? Wonderful. Great to be here. Appreciate you taking your time. I think you're our first chief economist we've had on, so we're excited to to talk with you today. Chief economist.

How do you how do you define that role? Do you meet someone I thought it gonna be my first question. How do you define that? I remember Your mom asked you, what what do you do, Gordon? She tells her friends. How does she explain it? Yeah. I think part part of it is macro.

Right? Because as a stablecoin issuer, you know, Circle has a lot of interface with the fiat world, with monetary policy, with central banks. I used to work at the Federal Reserve. I seen that side. And part of it is very much micro, mechanism design, game theory, how do we design better markets, how do we design better protocols. And that's the part of business that's more on the engineering side. So it's it's a combination. It's great to have flex both side of the economist's

skill set. Amazing. I would love to start macro if it's okay with you. I am flashing back to one of the last times I was at least in touch with David Duong. I don't know if you're familiar with him, but he's he leads crypto research or I think did. He might have recently left at Coinbase. I remember sitting in a meeting with him, and he essentially just led a meeting for about thirty minutes on the macro state of things to an internal team.

And I just was sitting next next to him, and I was completely blown away by how thoughtful all of these like, yeah. There's everything is related. Everything is connected, and it really does shape the strategy of organizations like Coinbase. How does that relate to you right now at Circle? If we were to go into a meeting with the team, we're in a room, and you're gonna give kind of a state of macro, putting you on the spot here a little bit. But what what are you thinking about?

Give us a little bit of a taste of what's going through your head. Yep. I think there are multiple angles to this. One is fundamental to how stablecoin issuers operate in terms of reserve,

in terms of liquidity, and, unfortunately, enough to have played a role in shaping our reserve standard, our capital framework, our liquidity framework just to make USCC and ERC as stable as possible, both from a primary market liquidity redemption perspective, but also from a secondary market support for liquidity across the spectrum so that that provides the liquidity into the industry.

And and that requires kind of understanding of the reserve instruments, whether how much of our reserve is in t bills versus reverse repo, what maturity, how much liquidity do we set aside for different banking partners in which we park pockets of liquidity all around the world so people can redeem right away. That's a macro question in a way and also a a kind of a policy framing question. On the other side, there is more of a things are all set out control. Right?

Interest rate environment, overall markets for risky risk premium, in which it affects crypto prices, which in relates to also demand for stablecoin. The good thing is we've seen kind of a decoupling between the demand for digital assets, the prices of the major crypto blue chips versus the demand for stablecoin over the last couple of years. So we've seen this continued growth in stablecoin circulation overall for the industry despite, you know, sometimes a downturn in the crypto market. Multiple points.

So I think that's emerging as a thing that you have a true decoupling probably because there is a increased adoption of stablecoin outside of just trading. And trading digital asset is still a very core part of the stablecoin story and how it it rolls. But more and more so there's focus on institutional payments, machine to machine payments, enterprise type of treasury services.

More and more so, we're we're seeing the growth of that taking over than than what's going on with markets, which is probably more relevant to exchange, as you mentioned, with David at Coinbase previously. So that that's more of the macro lens, I I would put it. Yeah.

Many things we can't really control, you know, interest rate. Mhmm. Yeah. It's quite a bit that we have insights into. So give us a little bit you know, Gordon, you your background is extremely interesting, and it I think, I'm sure plays to what led you to Circle. You have Federal Reserve policy work as a background. You're a senior economist senior economist at the Federal Reserve Board of Governors. You managed fixed income at the Harvard Endowment.

Tell us a little bit about your journey into stablecoins and some of these experiences and maybe how that introduced you to the role that stablecoins could play. I'd love to hear more on, like, when stablecoins

first hit your radar and a little bit of a story of how that led you into devoting your career to this med circle. At every stage of my career, whether it was trading fixed income at the Harvey Endowment or later on working on policy at the Federal Reserve, the core problem that I've seen over and over again is the plumbing associated with the movement of money. And that's both at the institutional level, but also at a smaller, even at a level of retail.

And what led me to Circle was a path of first getting exposed to Stablecoin while I was at a Fed, actually. I was in part of the team that worked on responses to the Libra project. You may recall that. That was the stablecoin proposal or project coming out of Meta at the time that have gotten a lot of pushback around that time. While it was a very novel idea at the time, I think the Fed media recognized that that there is macro potential issues with large tech companies issuing stablecoin.

For better or worse, that project kind of went sideways and eventually drifted off the radar. But that was my first exposure to stablecoin. And to also thinking about how do we build Stablecoin that's potentially sound, that is also good overall for both monetary policy and good for the economy and good for everyday transactions in a way that eventually led me to Circle. Were there specific

when you think about the underlying movement of money issues that you said that seems to be kind of a thread throughout all of this? Were there any

moments at any of these places where you were just like like, do do you think of specific moments that come to mind where you're just, like, slightly ripping your hair out with this? Like, I'd love to to be specific if you have any stories there of situations you saw and what would have been different maybe if stablecoins were used. Yeah. I think it it comes in two parts.

One was in my trading career when I used to be a fixed income trader in the relative value type of trading, which is kinda buying one asset and selling another asset. It just, like it really bogged on my mind. Why our two assets are very similar? For instance, treasury futures versus underlying treasuries that have diverging prices. These are basis trades, and these basis trades sometimes blow out of the water in terms of how large a basis trades gets.

And underlying that issue is actually a balance sheet constraint, a a instrument issue associated with the repo market, how repo market, which is the funding market for treasury, how that market functions, what are liquidity constraints, how fast payments could even go intraday between one counterparty to another. That was my first exposure to some of the fundamental market plumbing issues due to the balance sheet frictions I've seen.

To some to some degree, some institutions are able to capture the premium due to that liquidity premium due to the frictions. Large endowments, for instance, were able to do some part of that role. And the other vivid memory was in September 2019. The it was actually a pretty calm period of the market. But one day, the it was mid September, the short term borrowing rate, the repo rate, went from something like 3% all the way to 10% intraday. And that was also due to market plumbing in a way.

It was due to the shortage of liquidity in the banking system overall that could be lent out to the repo market. Some might not remember, but that was actually the turning point from the prior period of quantitative tightening to then quantitative easing and then rolling into 2020 when the pandemic hit. There was a flood of QE afterwards.

But that moment preceded the the COVID level of QE, and that was purely a market plumbing, market structure issue, also driven by, you know, in in some respect, the archaic technology, archaic balance sheet structure that banks have held. And, you know, fast forward to today, you know, why is that relevant? Why is that episode relevant? Because we're in a similar environment again. Constantly, there is a need to settle large amount of payments on more traditional rails, on Fedwire, for instance.

That need to settle a large amount of payments drives the need for demand for balance sheet, specifically demand for Federal Reserve balance sheet, which constantly has been creeping up. And now you have the recent nomination of Kevin Walsh as the future soon to be governor of the Fed, and he has a agenda of lowering the balance sheet intensity, lowering the size of the Fed balance sheet.

That will directly go, you know, head to head with this constraint of the need for reserve, need for banking liquidity from the payment side. And I think stablecoin is actually one of the solutions in which you could achieve dual policy goals. So wind of increasing liquidity in the system and resolving some of balance sheet constraints, but two, also kind of playing that marginal buyer of treasury, which is another issue that's been on top of my mind of

due to the recent rise in long term treasury yields. So I I kinda wanna shift gears a little bit. That was those were you were. Where where are we going now? We see in the tie the title in the banner, the Asian era. You know, Artemis came out with this article a week or two ago on Coinbase. They called out in the article that Coinbase is built. USDC is the programmable dollar. Base has a settlement layer. Their agent kits in x four zero two. Circle has the Circle's agent stack. You've obviously come out with ARC.

How has how is your view maybe of USDC and how you're building the economics around it changed with the launch of ARC and entering this, you know, agentic era of commerce? Has that has that shifted your focus at all, and and what lens are you viewing that world through?

Stablecoin usage has been very bimodal. You have very large type of settlement transactions that's making up the both bulk of the dollar value. But in terms of the number of transactions, a lot of it are driven by these emerging trends of agentic payment, small value, nano payments. And Circle has invested quite a bit of resources in building up both ARC, which is is the purpose built layer one designed to be the economic OS for the Internet, but also we build up a full agent stack.

That's everything from giving agents wallets to having CLI's command line interface for agents, having a marketplace for agent, having nano payment protocols. Of course, USDC has been very central to the growth of agented commerce. I believe something like north of 99% of all the x four zero two payments has been in the USDC. And that's amazing. You know, it's an emerging area of growth, both in terms of number of transactions, and we think in the future will be also in the dollar value of transactions.

And I I think, certainly, there is existing infrastructure that one could use. You know, you you mentioned what what Coinbase mentioned. But for enterprise level adoption, I think the UX needs to be simpler. That's why we built ARC. What does ARC achieve that others maybe have stumbled upon? I think it's one, the UX difference, and two, is the institutional enterprise readiness.

On the UX side, having USDC as direct gas, that just simplifies the complexity of holding another token for gas payment, managing volatility in gas fees, even for agents. Right? If you're paying nano payments, you you wanna have kind of consistent predictable fees for transactions denominated in essentially fiat instruments or fiat fiat linked instruments and having USDCA gas as gas for nano payments makes a lot of sense.

And then on the other side for enterprise readiness, having trusted validators that are institutional grade to settle for to to essentially validate transaction on a very fast chain. Second, having deterministic finality, not not having to wait around for the chain to finalize or sync to to perhaps layer one, for some of the layer twos. I think that's also a huge difference, for traditional financial institutions to be ready. And along with that is also the security guarantees.

We're building quite a bit into ARC, to be quantum resistant and quantum quantum resilient from day one. That is a precompile of quantum ready signatures, because that is also a growing trend that we're seeing that even today, there was an announcement of the US government investing in specific quantum firms.

Because the moment has arrived that this is a real both opportunity and risk, specifically for the blockchain space, you know, it does pose certain amount of risk given the amount of both signatures that could be potentially compromised

and data that's out there. You I'm reading the Wall Street Journal, US to award quantum computing firms $2,000,000,000 and take equities equity stakes. Trump administration hopes to spur a new era of American innovation. So this is what it looks like we're referring to. Gordon, here, I'm just popping this up.

When you think about quantum computing and how that might relate to something like USDC, maybe define that a little bit and and take us through, like, a simplified look of the relationship between what quantum computing is in your definition here and how that might relate with the stablecoin itself and how you're thinking through that. Seems like a forward looking priority for the firm. Absolutely.

Quantum computing utilize a new type of physics. Traditional computing is flipping bits between zero and one, and in quantum, you could be in between the states. And that new type of physics and computing allows you to essentially do computations that were previously just unimaginable. And part of that is also a risk because so much of today's information technology are built on encryption technology standards that is of the traditional sense that it's not quantum proof.

So much of blockchain signatures are built on essentially elliptical curves solving pretty complex problems for today's computers, but quantum computer can break those signatures and kinda back out the private key from the public keys. And that both poses a challenge for the industry, but also opportunity as well for new type of, you know, perhaps quantum being used for AI and and that type of opportunity. Now on the challenge side, I say it's the risk is real, but it's not immediate.

Some estimate put a quantum computer cryptography relevant quantum compute at least, you know, in the five to fifteen year range away. And but regulations are already kind of playing into this. Some of the jurisdictions are already requiring financial infrastructure companies to be quantum ready by 2030. Europe, for instance, and The US, there's a slightly lag behind, but I think the similar type of rules will come out.

So being able to be quantum ready is quite important because you just don't want the keys to be compromised. The many things that existing chains could do, but baking into the chain from the beginning, I think, is also quite important.

I'm looking at the ARC website right now, and I think, you know, you mentioned the the economic OS for the inner Internet, building AI powered economic models. I think it's we have this oftentimes, we have this consumer focused lens on AI. You know, we're also used to using it day to day for draft things from drafting emails to skimming through research reports.

But when we start talking about AI powered economic models at scale with these enterprises, what are you know, without giving away too much, what are enterprises coming to you, coming to ARC and saying, hey. This is one of this is what we wanna build. How do we do it? It's the full stack. It's everything

from simple payments and payments in single currency to payments in multiple currencies having on chain effects. So we have a stable FX protocol as well that's, built on top of ARC to more complicated AI mediated transactions. So we're seeing the green shoots of this already with some of the AI agents being able to, for instance, pay for small amount of inference or make API calls and make fractional type of payments using essentially our our agentic stack.

But what R could enable is the scalability and the stability that's associated with agentic commerce and agent commerce needs. Because we just see so much growth in this machine to machine type of payments that requires blockchains to be not only fast, but also scalable, but also stable

and simple to manage. What about the relationship? May maybe this is getting a little bit outside of your your realm, but I'm always just curious. What's it like engaging these these enterprise devs? You know? Maybe sometimes they're at the tail end of their career.

They're twenty, thirty years into this, and this might feel like the new new scary fad versus, you know, working probably with the, you know, the engineer that's that's coming out of MIT and that's that's fresh out of college right now, and they're looking to start building enterprise solutions. How do you equally serve both of those,

you know, both those personas to build on chain, to build, you know, with ARC? Yeah. Circle has multiple personas. I, you know, sometimes wear a suit and talk to central bankers, and other times, they'll have, like, some ETH conference, for instance. And I think the approach is different. One is for enterprise readiness, really do need to address their core needs related to security and stability and have a uptime guarantee that is acceptable. And that's in part, you know, by regulatory standards.

The for the longest time, the Bank of International settlement have emphasized the need for settlement finality, both in the techno tech technical sense, but also in the legal sense of when is the transaction actually final. And that is something that many of the enterprise level engineers also stress. Can you guarantee that transactions will not get reverted? Can you make sure there is no front running? Those sort of questions come in from the more enterprise side.

Of course, on the builder side, that's the more the twenty some year old type of builders. There's a lot a lot of demand for UX simplification. You know, how can we just integrate this USDC chain to be as friendly as possible, seamlessly as possible for, for instance, neo banking? For that sort of use case, you know, you wanna provide the user experience that's just easy to use.

That's why we made a decision of making USDC into the native gas for ARC, which simplifies the builder process for for quite a bit of users. Gordon, we're looking here on the screen at the reserves

composition. It sounds like this is kind of the world that you live in a lot of the time. You mentioned at the top of top of the show the kind of relationship or the the strategy that you take on where USDC sits and where you're putting really the balances that back them.

Can you speak a little bit to really just the page that we're seeing, the strategy of some of this, and how you think more broadly around the way that you've distributed the risk around keeping USDC stable, which is obviously, like, a very a very core crucial thing to do to do successfully.

USDC is not just a stablecoin. It's I would say it's also a liquidity network. It's a liquidity network in that it allows ease of redemption, ease of issuance in so many jurisdictions and so many financial market centers due to the large web of traditional banking partners that Circle has. So if you look at our reserve balance sheet, know, part of it is composed of treasury, t bills, and reverse repos held in a money market fund managed by BlackRock. That makes up something like 80% plus of the reserve.

But the remainder are essentially spread out in liquidity hubs all around the world in major financial centers that are held on the books of some of the largest banks. And we partner very closely with these banks to ensure that people can redeem easily their sufficient amount of liquidity anywhere. So if you look at the overall amount of both issuance and redemption, that is I I think that's just unmatched. It is a major on ramp and off ramp onto on chain onto the from the fiat world onto the on chain world.

And that's also something we've been building around as well. We also introduced Circle payment network, which is is a network that allows us to leverage the on ramp and off ramp and the liquidity network we have to kind of deliver that last mile for end to end payment for enterprises. So all of this together kind of fits in with our overall mission of improving the economic prosperity of the world and facing with our product stack as well. Yeah. The Circle the Circle payments

network seems to be a really, really crucial piece of this because the way that it's structured and the relationship that it plays with liquidity liquidity companies is so is so key. That that's been around I think it launched, like, around a year ago. Correct? How what what would you say is the kind of progress and momentum around that program and how that's been going? Yeah. It's really interesting to follow that. It's been phenomenal

in terms of adoption and growth. I don't have the specific numbers in front of me, but I think we have something like over a 100 type of institutions, fintechs, PSPs, integrated. The volume has been growing very steadily and increasingly so. And that speaks to this need. Right? People see stablecoin as payments, especially for cross border payments, to be the killer use case for blockchain.

Yet there's the last mile solution of and how do you actually get money from a bank to on chain and then to transfer to a different recipient and off chain again. That part is essentially what CPN is built for. So we have seen tremendous take up in CPN and in the

demand for the product as well. Maybe last thing here before we cut you cut you loose here. Here. This is a visual of how CPN works. I just wanted to pull this up, and maybe as we close, we can kind of walk through this. This is an example of a flow where CPN is directly involved between two financial intermediaries. Could you just, like, as if you were giving a sixty second crash course on the role that CPN plays, maybe walk us through this use case before we go? Yeah.

CPN is a is a network that coordinates between the OFIs

and the BFIs, the beneficial financial institutions and the originating financial institutions. So it it's matching institutions that's in the flow already for payment, so it could be easily onboarded. So flows could go from from a fiat banking account, deposit account to USDC on chain, ending with another endpoint that would offer the off ramp. And in in some cases, we would also step in as well to provide that on ramping off from service.

And a lot of it actually depends on the reserve structure that I highlighted earlier, having liquidity pockets everywhere around the world in major financial centers in a regulated way, in a compliant way. And that's also one of the offerings that this is for regulated compliant institutions to leverage. So it's a it's a different take on

blockchain because of the regulated nature of it, but it's actually what's needed to drive large amount of adoption. Cool. It's awesome. Thanks for walking through this, and thank you for joining us here on the show. Let me bring back Zach here as we

we close out. Gordon, thank you. Well, do the time. Do a part two because I didn't get to talk. I wanted to talk about the circle reserve and kinda how people should be thinking about that program, but maybe we'll leave that open ended for for a part two. Happy to jump on again. Lot to discuss always.