CNBC Digital Finance Forum: Crypto Innovators

I want to start with just the broader context here, and we hit this with Mike, but, you know, we're down 50% from market peak. You've got, you know, a lot of money leaving the system, Clarity Act, unclear when that will pass. Yet, Robert, you just raised $82 million. You just took over the entire crypto team over at PayPal, a lot of turnover there. Talk to me about why, even though we're in the midst of this bear market, well down from the market peak of $126,000 for Bitcoin, why are you still seeing so much optimism in your respective corners of the market? We'll just start broad, and then we'll go in on your strategy at both shops. Yeah, so the last 15 years of crypto were defined by crypto-native assets. There's a lot of assets that have been created over the last 15 years. The Clarity Act tries to define how they work with U.S. markets, and anyone can make an asset on a blockchain. What we're seeing now is the inflection point between crypto-native assets and the rest of assets that were created outside of crypto. You know, there's $700 trillion of assets that aren't on blockchains, and we're at the real beginning point right now, the firing gun of those assets migrating onto blockchains. They're migrating onto blockchains because, you know, crypto tokens themselves are extremely portable, they're extremely efficient, they're programmable, they're global, they have these incredible properties. And so the record keeping and the back office of every asset is going to slowly become crypto. And that transition is the biggest opportunity we've had in financial markets probably of anyone here's lifetime. And so that gives me a tremendous amount of excitement, knowing that there's a lot of growth and a lot of change that's going to happen as every asset becomes, you know, cryptographic in nature. I think for me, we step back into like PayPal's history, right? More decades of payments, expertise and commerce expertise. So when you start thinking about payments, and I love what Ivan said, right, it's just money should move better, and it should move at the speed that we should actually deserve to have it move, which is cheaper, faster, 24-7. And so that's candidly what super excites us. We're payments geeks, nerds, you can call us what we want, but that's really what we believe in, connecting people across the world and consumers and merchants and providing them better ways to move money, to have global commerce, to provide more economic stability for people and have businesses thrive. And so we get super thrilled and super excited about day-to-day. How do you take this concept of what is now proved to be it's here to stay and take that and put it into application and actual utility? And that's where we are doubling down and where our focus is into how really to make a difference. Robert, what I find fascinating about this idea of tokenizing public equities is that you have shops like Robinhood and Ondo Finance and they're doing synthetic shares, right? And it's a lot quicker to scale that. You can get things online, but what the trade-off is, is that you don't have governance rights and you're not getting dividends. And so you're doing it like the real way. You're going issuer to issuer, one-to-one, so really a parallel system there, but there are bottlenecks. You just can't move this fast. So what's your job like right now? And we got one of your customers in the room or one of your partners, Galaxy Digital. Talk to me about where things stand right now. Yeah, it's a great observation. So every public company... Oh, wait, this is going to drive me crazy. Your mic is hitting the other part of your shirt. All right, there we go. Thank you. So when a public company trades on a stock exchange today, what's actually happening under the hood? I'll give everyone the 90,000-foot speed run here. So under the hood, when a share trades on the NASDAQ or the New York Stock Exchange, what's happening is all of the shares are held in DTC and different broker-dealers, they execute a trade on an exchange. At the end of the day, all of the trades get added up and the shares move across all the participants. It all gets netted out. And each participant, or most broker-dealers, can take their own security entitlements, their own records, and do whatever they want with them. So Robinhood is something that sits all the way above this system and they can say, hey, we're going to tokenize the balances inside Robinhood. And everyone else can take the records that they have and say, we're going to try to figure out a way to make them move differently. Robinhood can try to find ways to make the security entitlements that they own move faster and cheaper amongst their own users in their mobile app or somehow on a blockchain. But underneath all of that, at the end of the day, you have a company who has shareholders. And what our approach is at Superstate is to partner with that company to be the official record of their shares. And instead of those shares just being something that trades through DTC, something that can also be recorded in token form so that it can settle, be transferred, be used as collateral, or trade on a blockchain or a blockchain-connected venue. And so this is not fast. We can't just say like, hey, we have 6,200 different stocks and turn them all on and upgrade all of them. What we're really doing is upgrading one stock at a time, proving out the mechanics, and hoping and expecting that over time, there's going to be things that really can wholesale this. And that's what I'm wondering. So is that buying or partnering with a transfer agent? Do you have Apple and Alphabet knocking at your door? Because right now, your partners in this room, they're in the crypto space. So they want to make this work. When are we going to see a non-crypto native company come to your doorstep? Or are they there? No, it's the perfect question. Because the first companies that are tokenizing their shares are crypto native companies, right? All of the companies so far have been people that have customers in our industry. They're the ones who understand tokens the best. They're the ones who understand how blockchains work. But that's not where it ends. Where it ends is every company saying there's benefits to having global capital market access, more transparency, real-time trading, all of these benefits and use cases. And so I think what's going to trigger that is watching companies that start crypto native actually take advantage of tokenization in the capital market. It's going to be companies that are using tokenized shares in their IPO. It's going to be companies that are using tokenized shares to raise capital and follow on. It's going to be using companies to, you know, it's going to be seeing them, their shares trade on like ATSs or international venues and more demand for their stock in general. Because at the end of the day, every public company, their lifeblood is the demand for their stock. And as they watch crypto native companies benefit from tokenization, I think you're going to see CFOs and CEOs from other industries start to ask their bankers like, hey, how come we're not tokenized as well? Is your CFO asking that question? I'm fascinated by what's happening at PayPal right now, because last week, I mean, earnings were tied to like a turnover in the C-suite. New CEO is in. You took over the job, what, eight months ago or so from someone who'd been in the role for years. So, I mean, do you feel like crypto is more of a priority than ever, or do you feel like you're having to fight to be, to get the attention of the new member of your C-suite? Let me make a couple of things on that. One, I was actually, I've been with the group prior to the GM role. You were just promoted eight months ago. Congratulations. Oh, thank you. Yeah. But yes, you've been with the team for a while. Exactly. And so we were building in the space when nobody was, in the traditional space where nobody was necessarily building. And so we were really, we really had a fundamental belief to really be the bridge that connects the traditional infrastructure with the crypto ecosystem. And what does that mean? Because like I think of PYUSD and I think of stablecoins, but like, and of course, like you have the, you know, offer customers ability to custody cryptocurrencies, but what's like the cutting edge of like really bridging trad fight of the crypto market from PayPal's lens? It goes back to commerce. Like, and I know that's not like the most fascinating thing for people, but that is literally what we do. We today, just forget even crypto, today from a fiat perspective, we help businesses and consumers connect and globally around the world. We help consumers to consumers connect. We help businesses to consumers connect and businesses to businesses connect and all with just money. So now if I take that and connect that to the digital world in the sense of like digital assets, we're a digital company anyway. So now we're just continuing to evolve in this, in this space and, and continuing to innovate forward. So it's actually fascinating for us. What does adoption look like in terms of like the commerce, like the businesses that are using the platform? It's still early. Look, payments, stablecoins and payments is still an emerging use case. Like it's stablecoins are primarily used for trading and more into that use case than they have into the payments use case. But that's what makes this so exciting because it is no doubt that there's benefits to the technology, that it's 24 seven, that it's instant, that it's lower costs. And especially in cross-border, especially in emerging markets, especially in these, like it's a product market fit is absolutely there, but adoption is not going to be instant. And sometimes you have to be invisible in the layer. And sometimes you have to be, you will be more forward in the layer. And that's what will make payments actually work. Right. And I do think that's interesting when you think about, um, you know, crypto is a solution as an invisible form of financial plumbing, whether it's, you know, in the U S which you have a, you know, a base there, but also PayPal is a huge brand globally. And I wonder, have you, have you been kind of parsing the adoption internationally versus domestic? And also when you talk about that invisible plumbing, what does that mean to you? Is that using P Y U S D for international remittances or just talk I mean, that's like building is an infrastructure in PayPal, right? So it's what you, again, so we've got payment processing, we've got checkout, we've got invoicing. We have so many pieces. We have an underlying payments platform, and then there's pieces and parts that are on top of that are experiences that connect people. So we are on that journey to build and integrate it deeper into our payments platform and into our ecosystem. We started with, um, a couple of products. Uh, last year we announced like a pay with crypto product. We announced payouts with P Y U S C. And again, it's connecting pay with payouts with P Y S C helps connect an existing PayPal product, which is our payouts product and added an additional way that people could pay out and connect to, especially when you think of gig economy and, and marketplaces and stuff, it's really a perfect fit. I wasn't joking when I asked if your CFO is thinking about tokenizing equity. Is that a conversation you've had? No, I mean, like again, like we're focused right now into our payments and into our integration. So it's not really the conversations that work. Yeah. Robert, I want to come back to you because you've got ice and you've got Nasdaq saying that they plan to tokenize equities. What I'm trying to understand one is just like the differentiation, because I feel like what you're trying to create is an independent ecosystem, right? Where, you know, an alternative capital market structure where you can do secondary issuance on chain and buybacks and the entire IPO process would be a parallel system. So how does that align or compete with what Nasdaq and NYSE want to do? It's, it's interesting because I think, you know, the incumbents that have basically close to a hundred percent of market share of existing trading, you know, aside from dark pools and things that happen off exchange, you know, they're viewing tokenization as something that speeds up settlement speeds up trading cuts costs and makes everything, you know, a little bit easier, more efficient, right? They're not viewing it in terms of how do we open up new markets? How do we disrupt where things trade? You know, from my perspective, the advantage of tokenization is that we can create a more open framework where you could have more venues for trading. You could have more issuers. You could have straightforward and simpler settlement, and you can create a system that looks a little bit different than how things work today. And the beneficiaries of this will be issuers who have more access to capital and will be investors who can, you know, use the new tools that speak to them, the better interfaces, the better, you know, applications. And, you know, there will be like a much more wide aperture of innovation as possible by saying, like, you don't have to settle at the exact same way. You don't have to trade at the exact same way. Through tokenization, there's a bigger ecosystem at our fingertips. You know, Mai, something I've been thinking about is, you know, more so on the trading side, but this erosion of confidence that came after the October 10th liquidation event. Five days after that, PYUSD accidentally minted $300 trillion worth of their stable coin. Not to my wallet. And I know that Paxos is tied up in this. But how do you speak to somebody who's skeptical? If a bug like this can still happen, how do you trust, you know, a parallel system where you're not relying on U.S. dollars or USDC, but you're turning to, you know, a PYUSD, which has a smaller market cap? Yeah, I think, like, if you show me a technology that doesn't have bugs, I'd love to see it. So I just say that technology is technology, which is it will always have its pieces and parts that the thing with blockchain is it's public. So there is no hiding around any piece or part of it because it is completely public. Chad, the CEO of Paxos. Is the bug that caused it, like, is it fixed? Because I think you guys attributed it to something on the Paxos side. Is it? It was. And I think that their CEO was pretty public and had gone out and spoken about it. So I won't rehash his narrative and what he's talked about. But there was no there was no customer harm. There was no funds movement. So all of that, again, has been I think the most interesting part out of this part of what you're saying is, again, it comes back to the benefits of the technology. And I think that at the end of the day, it's it is public. It is known you get to see things. There is always errors that will happen in systems, but there was no harm. There was no movement. And I think we we kind of move on from that. I don't think that trust is is eroded or or broken. I think that are reserved. There is attestations on that. All these things are are public. All these things are available. And I think that's that's what makes this kind of this part of where we're heading is really, really interesting. Robert, what do you need from the SEC, from the Clarity Act? I feel like the SEC has given the industry everything that it wanted. It walked back everything it possibly could have. You know, I've had conversations with Robinhood CEO Vlad Tenev, who says I don't even need the Clarity Act to do what I want to do with, you know, tokenizing public equities. Do you need the Clarity Act? What do you want? Yeah. So the Clarity Act is incredible and it will do so much for the crypto industry in the aggregate. You know, it isn't really focused on the tokenization of securities. It's not really focused on how do we, you know, define what a security for something that's clearly security is. It really looks towards all of these crypto assets that have been created over the last 15 years and will be created on chain natively and says, when is it a security? When is it not? You know, in the tokenization world, we're sort of starting from the assumption that, you know, we're tokenizing stocks and bonds and things that are definitively securities. And so Clarity Act is wonderful for everybody, but it doesn't really change too much for tokenization. What is more important to your point is SEC policy. You know, we're still awaiting, you know, what the SEC has referred to as Project Crypto. There's still further rulemaking. There's still further clarification that the SEC will likely provide. And that's what you need. Last question. For broker dealers, for transfer agents, for investors, for issuers. Briefly, are you having conversations with the other companies? Is there anyone you can point to, even if you can't say a name, give me a category of company you're talking to about bringing them? Yeah, I think, you know, we're starting to see a lot of demand, not from, you know, a specific industry vertical, but from like a tier of companies. So companies that are smaller, that are in like the billion to five billion dollar range are ones that are most interested in tokenization. How soon can I see my next announcement? Okay. All right. My last word for us, we're being very good about the clock. So I'm already over time. What are you most bullish on when you think about your strategy? You're helming the team that's running crypto at PayPal. You just applied for a bank charter as a company. Very exciting time. You're like, you're moving the ship. What are you bullish on? Most bullish on in your strategy? It's just the application. The application and utility of stablecoins and commerce. PYUSD or stablecoins broadly? PYUSD is at the heart of it, but there are stablecoins more broadly. Most bullish on, real quick. Public companies raising capital using tokenized shares. All right. Thank you both so much. I really appreciate it.