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00:00I'm Emily Mason. I'm a fintech and crypto reporter with Bloomberg News, and I'm here today with Umar Farouk, global
00:05co-head of JPMorgan Payments, and Shamir Halak, head of services at Citi, to talk about stablecoins and deposit tokens,
00:11two of the hottest technologies in digital assets, especially after the passage of the first federal regulatory framework for stablecoin
00:19issuers, the Genius Act.
00:20So just to kind of set a groundwork for our conversation, stablecoins are digital assets designed to track the value
00:27of U.S. dollars one for one. They're typically backed by reserves made up of short-term treasuries and cash.
00:32There's a lot of different types of stablecoins. They can track other types of currencies, but for our conversation, that's
00:37kind of the most relevant. And then deposit tokens are digital assets, are like digital representations of bank deposits on
00:44a blockchain.
00:45That's exactly right.
00:46So just to kind of kick it off, it would be great to hear kind of like a one-sentence
00:49descriptions of the platforms that you've built working with deposit tokens, and then also what client problem that you were
00:55trying to solve.
00:57So in JPMorgan, I think we've been at this technology working on it for about a decade now, and we
01:03have built a significant-sized platform in-house called Connexus, which has deposit accounts, tokens, securities on it.
01:10So it's basically like a public blockchain, but within JPMorgan's four walls.
01:15And then we've also recently issued deposit tokens on other public chains.
01:19You know, for Citi, we've been on this journey, given the fact that we're in 90 markets around the world
01:25with the biggest global footprint.
01:26Our focus has always been in serving the big multinationals who work with us, has always been on being able
01:33to move money around real-time, 24-7, across the globe.
01:37So that's always been an interest. So what we've done using blockchain is really an add-on to what I
01:43would call our existing strategy of thinking about 24-7 movement of money, 24-7 payments around the world, and
01:51the ability to move payments, money, liquidity, and settle securities and cash around the world.
01:55And the real client problem that we were looking to solve is the ability for large multinationals, big banks and
02:02broker-dealers, and fintechs to be able to move their money around, make payments seamlessly around the world, 24-7.
02:08Could you give, like, an example of a transaction and how it would work with Citi Token Services versus how
02:14it would go with, like, the existing infrastructure?
02:17Sure. So maybe, Umar, if I can go first.
02:20You know, so if I think of the existing infrastructure, we've actually thought about that as two separate parallel rails,
02:27and then we've looked to connect those rails.
02:29So in what I would call the conventional rails, banking rails, if you think about the clearing product, where banks,
02:35correspondent banks, send money around the globe,
02:37what we were doing was effectively using banks, using Swift messaging service to move money around, and effectively message banks
02:44and using our central clearing account at the Fed to be able to move money between banks to enable the
02:50movement of U.S. dollars around the world.
02:52What this infrastructure does is, in fact, use exactly the same outcome, but on different technology, which is blockchain.
02:59So effectively, that technology allows us to do atomic settlement, instant settlement of that payment, of that remittance across different
03:09jurisdictions.
03:09So outcome is the same.
03:11What we're trying to do is effectively now link conventional with blockchain technology as well to allow us to bring
03:18more players into the entire ecosystem of moving money around the world.
03:23Could you share, like, some adoption stats today, like how many clients do you have, or some volume figures, just
03:28to kind of put a size of scope on it?
03:30So I think for us, again, quite a few clients were moving the sort of $12 trillion, of which many
03:36RFIs are on the platform.
03:38On the actual blockchain, and this is external-facing blockchain, where people come in and instruct, because that's really where
03:45the delta is.
03:46We are doing, at this point, you know, high single-digit billion, purely in blockchain terms, like tokens actually moving
03:52on.
03:52People are actually facing off with these.
03:54And we believe that that volume, at this point, in terms of a pure blockchain network with proper tokens that
04:00clients can execute on programmability, is actually higher than any stablecoin in the world doing B2B.
04:07So if you look at the stablecoin market, you can look at many studies.
04:10You can look at, like, there's a BCG study, McKinsey study.
04:12There's, like, studies up the bazao.
04:13So Citi is moving about the same, close to a billion dollars or thereabouts on a daily basis.
04:21There are different clients with different agendas.
04:23There are clients who will move money once a day or once a week because it's a holiday schedule or
04:29they've run into a holiday schedule in a particular market and they want to fund up at a particular point
04:34of time.
04:34Then the other clients who are moving billions of dollars daily.
04:37So there is a vast, what I would call, dispersion of use cases across these various types of clients.
04:44Do you expect any more competition on the B2B flows as stablecoin companies try to get access to Fedmaster accounts
04:51via their national trust charters?
04:53Like, is that something that worries you at all?
04:55And then also kind of the deposit flight narrative, like, if stablecoin issuers are able to offer yield or rewards,
05:02like, are you worried about deposit flight?
05:04The point that I think we've all made as banks is that if you're a bank, you should have a
05:11bank charter.
05:12You should be regulated like a bank.
05:15If you are purporting to carry out what, you know, transactions that look like and sound like a bank, you
05:22should have the same capital.
05:23You should have the same liquidity rules and the same supervision and oversight as a part of the agenda.
05:27So, first of all, I would be 100% aligned with Shabir, as in the bank's point of views are
05:32very clear.
05:33And it's less about what you have access to, what charter you have, et cetera.
05:37It's essentially if you're taking the same sort of risk, you should have the same sort of regs, you know,
05:42sort of making sure that you're monitored in a similar manner.
05:46Because if you look back at history, I think a lot of times things have blown up and they always
05:50blow up, starting with leverage.
05:52And leverage always starts because someone wants to do something so they can pay out higher numbers.
05:56We have liquidity controls.
05:58We have to look at all kinds of internal compliance for processes.
06:01We have stress testing.
06:03We have basically, you know, global financial crime where we're doing AML screening.
06:07Like, we do a bazillion things to move every dollar that we move retail or wholesale.
06:12So, those things have to be done.
06:14And I frankly feel that the risk is not so much to the cities and the changing moments of the
06:19world because we have the infrastructure and we have the investment wherewithal to actually invest and innovate.
06:25I do think the risk, there is risk to the smaller banks, community banks, who are actually vital to how
06:31the U.S. system operates and how credit gets generated at the local community level.
06:36And I think they also have been quite vocal on this because I feel they have a bigger sort of
06:40threat factor from this.
06:42Well, and what about, like, I guess, finding ways to work with stable coins?
06:47Like, J.P. Morgan has stayed pretty focused on deposit tokens.
06:50Citi has said it might issue its own stable coin.
06:52It's working with Coinbase to integrate stable coin payments.
06:55Like, how are you thinking about working with stable coins?
06:58We have no issues with working with a stable coin company.
07:00I think it's a use case by use case thought process.
07:02So from it providing banking services, if you look at, you know, some of the stable coin companies that have
07:07gone public, they are good friends of ours and clients of ours.
07:10And we, you know, serve them.
07:12That being said, I think if there was a real demand from our clients to do that, we would go
07:17down that path.
07:18So I think it's not so much that we have some sort of like, you know, existential sort of, you
07:22know, fear or some knee jerk reaction to stable coins.
07:25It's just there's no demand from our clients at this point, especially on the hotel side, which would compel us
07:30to build, you know, those products.
07:32I would just second what Omar said.
07:34I would say a lot of the stable coin issuers are at least the top tier, the top two, three,
07:39four, five issuers.
07:40You know, they would be clients of ours.
07:43And we appreciate their business.
07:45We work with them every day.
07:47We are looking to help them manage their reserves.
07:50We're looking to, you know, advise them as they think about the capital markets.
07:53We're helping them across the board.
07:55When our clients come to us, if you're a company on the West Coast, if you're a fintech in Asia,
08:01if you come to us and say, I've got an app developer that needs to get paid in a particular
08:06stable coin in a particular jurisdiction.
08:09I'm sure that whether it's Citi or whether it's JP Morgan, we will listen to our client and we will
08:14engineer that app developer to get paid in that stable.
08:17So by definition, that means we will be working with an interoperability agenda, an ability to provide and procure for
08:24our client that particular stable coin and execute that payment for the beneficiary.
08:29Do you have any projections of like how much you plan to invest over the next couple of years, like
08:33in this space particularly?
08:34What I would say is, and we've talked about this publicly, that we're investing about a billion and a half
08:39dollars every year just in the services business across the board.
08:45And it's actually a significantly high number.
08:48We've significantly increased this number over the last several years.
08:52So for us, I mean, again, we haven't disclosed the number publicly, but let's just say it's north of two
08:56somewhere.
08:57But we have a slightly different approach, which is we do what Shamir is saying, which is we are uplifting
09:01a lot of our core platforms.
09:02We've been doing it for years and years because you almost, I mean, we said it actually at our investor
09:06day about a year ago.
09:07That's an ongoing journey.
09:08You know, you're always modernizing stuff.
09:10But we do carve out specific, significant investment on these topics.
09:16So in particular this year, we are, you know, like previous years, we're doing a lot of investment on blockchain,
09:20especially as you think about public blockchain infrastructure.
09:23And what do we do there?
09:24We're doing a lot of investment on AI, especially in terms of like how do you, you know, sort of
09:28accelerate because this could be a game changer in other ways when it comes to agentic commerce and agentic payments
09:33because we are both the commerce side and the payment side.
09:35So those things we are investing quite heavily in.
09:38We've never actually discussed the number, but I would tell you that there's several hundred full time people on the
09:44Conexus platform.
09:45And we have more than a couple of hundred full time engineers who've been around a long time.
09:49And frankly, I always tell people like, you know, it's you can teach people blockchain.
09:54It's quite hard to teach people how to do blockchain in a large bank.
09:57As far as like closing thoughts, like what are your next like practical execution goals in this space specifically?
10:04So I think for us, two or three things come to mind.
10:07Again, we want to keep building on the public chain stuff.
10:09We have now tokenized money market funds with our asset management business through Conexus.
10:14We have tokenized deposit tokens.
10:16We have a full tokenization engine.
10:18We have core infrastructure.
10:19So we basically want to battle, want to battle, harden it.
10:22Like right now, the volumes are still low on the public chain, but that could take, you know, that could
10:27take off.
10:27And so we are hardening that.
10:29We are actually thinking about core infrastructure a lot.
10:32And again, this is not a secret.
10:34I've said this in many forums.
10:35I do believe that the world needs better infrastructure, better core infrastructure,
10:39which is more compliant in terms of public chains.
10:43It's actually also not a rent-seeking mechanism where you kind of get stuck and then the fees go up
10:49and the performance is good and the privacy levels are right.
10:52So we are thinking about that quite a bit, both by ourselves and with some of our partners in terms
10:57of what that could look like.
10:59And then we are also, you know, building on interoperability sort of work quite a bit.
11:04And then there's obviously a BAU.
11:06I mean, now that you've opened the Pandora's box of programmability, I can tell you, like, clients have, I mean,
11:10there's no lack of ideas.
11:12So you have to then figure out which ideas you want to build and which ideas you, you know, sort
11:15of want to deprioritize.
11:17So I would tell you, if I look five years out, I would say, you know, this is a world
11:23that is going to change radically, driven by AI and blockchain use.
11:30And so the question is, how do we at Citi think about that future?
11:34And so for us, as I mentioned, you know, that is really the crux of how we're thinking about driving
11:41that entire agenda around our platform.
11:45And one of the things that we're very convinced on is that while we build out some of these capabilities,
11:53there are things that we will do what I call in-house, which is the ability to offer our clients,
11:57the ability to move money within the Citi network, the ability for them to move funding on conventional rails, on
12:03blockchain.
12:03We've got an agenda around that, and we've accelerated it.
12:07We've talked about it.
12:08A hundred clients onboarded.
12:09We expect to significantly increase that number as we go through this year.
12:13But I think where this rising tide that's going to lift all boats is really around interoperability.
12:19So one of the big things that we're working on this year is to say, how do we take our
12:23token?
12:24And, you know, as we think about that partnership with infrastructures, as we think about that use case around paying
12:30out in a stable coin for an app developer, for example, for a West Coast client,
12:34as we think about the ability to tokenize and custody crypto, those are all things in our book of work
12:42that we're looking to build.
12:43Well, thank you both so much for the time.
12:45This was really fun.
12:46Thank you for having us.
12:46Thank you so much.
12:47Appreciate it.
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