Supply and Demand: Paxos on What Moves Stablecoins Into Corporate Treasury

Brett Turner (00:02)

All right, welcome to another episode of FinTech Corner stablecoin series. So we've got another great guest excited to dig in. But again, just to kind of tee this up a bit, this whole series is really about learning together on really what's the tokenization of money. our audience, a lot of you are listening, come from the context of like corporate finance, corporate treasury. When is this gonna land in my domain?

But we're also just exploring across a broader surface area. How does this affect, you know, banks, deposit tokens? You got stable coins, you got the whole crypto infrastructure, crypto market. we've got kind of a rock star in that in that market today that we get to talk to a little bit. So all this is really exploring, digging in. We're all learning together. This momentum is picking up. There's so much that's happening right now that we're all excited about. So we're ready to dig in.

so we've got again I'm my my name is Brett Turner, founder CEO of Trovata. We've got Paul Bances who is really a key consultant for Trovata. He leads our stablecoin efforts, and our esteemed guest today is Walter Hessert, head of strategy for Paxos. So you ready to dig in?

Walter Hessert (01:14)

Let's do it.

Brett Turner (01:16)

All right, Paul, any opening comments? or should we stick in with

Paul (01:18)

Yeah, no, great. First

just want maybe Walter to give a little bit of his background, a little bit of how he ended up at at at Paxos and what he's been doing for the last several years there.

Walter Hessert (01:29)

Awesome. Well, thanks for having me on. I love this podcast. I love people that are sort of exploring and thinking about stable coin, especially when they come from like a unique area of expertise. because people always ask, like, well, what are the use cases of stable coin? And the reality is like, well, what are the use cases of money? they're really limitless. And it's just sort of like, you know, what's the marginal user? What's the next use case? You know, and I think the particular area and expertise that you bring in treasury is just like super exciting. So excited for the

conversation and and and really excited that you guys are doing this work creating this conversation around stablecoin utility and use and adoption. I am the head of strategy at a company called Paxos and Paxos is a company that's been in the stablecoin space for a long time. we were founded in 2012 and we have been providing regulated infrastructure for the

Tokenization and the movement of payment assets, other assets, cryptocurrencies. we power a lot of the largest enterprises that are active in the space today, some of the major pioneers in the space. we operate our business out of highly regulated entities. And we've done so out of the most regulated entities in the space for about the last decade.

Having been the first company to get a New York Trust company back in 2015, and then converting that New York Trust company to an OCC national trust company, where we've been operating out of since December of last year. And we have similar regulatory setups around the world so we can serve customers on a global basis. And the reason we've gone about setting the business up that way is because we really believe in the mass adoption of this technology.

and the place where we're seeing the the most mass adoption today is in stable coins. you know, you always hear like this is the area with the most product market fit and the most growth. And it's an area where we're investing as much in the Paxos business as we are in anywhere else. It's our largest area investment, it has been so for the last like four or five years. and you can think about our product at like a high level in in in maybe two different ways. you know, there's the wallet infrastructure.

we power over 20 million active wallets for companies like PayPal Venmo, where I first met Paul, excited to chat about that story. and large FIs like Charles Schwab and you know everything in between. and then the other side is the tokenization side, where we take assets and we enable them on the or we tokenize them onto the blockchain. and we do that across similarly a bunch of different asset classes.

commodities, securities, but most of the work and most of the business activity today is around tokenized fiat as stable coins. I came to Paxos about nine years ago. and I came from building technology and businesses in highly regulated, highly transactional spaces, having spent about the decade before getting into Paxos building in the regulated online gaming space. We were building software for the global paramutual horse betting industry.

at Paxos I've worn a whole bunch of different hats. my title is the head of strategy, but it's a sort of a catch all. And today I oversee the go-to-market teams. So revenue, solutions, marketing and comms, and also the global policy function.

Paul (05:08)

It's

fantastic to have you on your show,

Brett Turner (05:09)

Awesome.

Paul (05:09)

Walter. yeah, as as you said, we'll go back to that origin story. So Walter and I first met back in twenty nineteen in October at Money Twenty Twenty in Vegas. And you know, sort of the the big thing we like to to call out about that it was less than a year after that initial meeting, we went live on PayPal with Paxos as the infrastructure provider for the trading use case of being able to buy Bitcoin, Ethereum, and a couple of other cryptos on the PayPal platform where Paxos provided

the training engine for that, but also again the the wallet infrastructure. And we we were able to sneak it in I think two weeks prior to the date that Walter and I met. So that was a pretty big deal back in twenty nineteen to be able

Brett Turner (05:49)

That's amazing.

Paul (05:49)

to do that. And then obviously Paxos was the issuer or is the issuer of PYUSD or stablecoin in in in twenty twenty three. Walter, you said a couple of interesting things there and and I wanna go back to that twenty nineteen time.

One of the reasons why I was such an advocate for Paxos within PayPal and wanted you to be the infrastructure provider was because I recognized very early that you and Chad, your founder, had a big focus on that regulatory licensing sort of aspect of this. You know, and I think you were a little bit ahead of the curve on that, as you said, having a trust license back in 2015. A couple of things I I want to hear about that. Number one is in those early days, tell me a little bit about the challenge where perhaps others in the space

We're now following that approach. And then they were able to go maybe a little bit quicker with product releases. They were, you know, asking for forgiveness instead of permission a lot of the times. but tell me how you think that sort of put you in in the position to win the hearts and minds of of some of those large financial institutions that you were able to service. And then now, where we're seeing sort of a rush for people to get licensed, how do you preserve sort of some of that competitive advantage that you have at Paxos that you've had for for over a decade?

Walter Hessert (07:01)

Wow, there's a lot of great questions in there and we can probably spend an hour on that question alone. We won't we won't do that. but I do want to just say, man, thinking back to 2019 when we first met at Money2020, I just feel it's like so fortunate that we were connected and got to meet you. you know, most people probably don't know this, but you were part of like a SWAT team in PayPal that did

Brett Turner (07:25)

Haha

Walter Hessert (07:26)

like, you know, one of the greatest transformations and launches ever.

bringing blockchain across PayPal and Venmo. this has sort of become like a popular idea now and every consumer bank and every fintech app you know, has done so or is rumored to be doing so or working on it now. but you're really like a pioneer, right? Block had done it and Robinhood had done it. And outside of them, there really was no one else. And and and of course at that time PayPal was, you know, maybe an order of magnitude larger than those firms.

And it was it was really, really a massive undertaking and it really moved the whole industry forward. I remember, you know, talking to VCs back in 2018 and they were like, that's great. You're like in the stable coin space, but like stable coins are really just for the crypto industry now. And we were powering stablecoin infrastructure for a couple large exchanges, Huobi and Binance, two of the top five largest exchanges in the world. And they were like, That's great, but this is just like for the crypto industry. Like

you could if you could get outside of the crypto industry, then this would be like very exciting. And we agreed. And so we sort of sat down and we're like, who would be the best partner in the world to be able to provide stable coin infrastructure for today? And and like at the top of the list was PayPal. And it was really that fortuitous meeting in money 2020 in 2019. I think that, you know, certainly created the opportunity for Paxos. but I I think probably in in some ways was you know part of the PYUSD stable

PYUSD stablecoin ever happening. And I think that has had, you know, won its own success, but also moved the whole industry forward in incredible ways.

Paul (09:05)

Okay.

Walter Hessert (09:07)

so you know, to your question, I think that dovetailing with that, so like what was different about Paxos then? You know, you had basically everyone in the world that was, you know, building in the blockchain ecosystem, if you go like pre 2018, you know, they were native crypto companies. you know, they were actually built.

for crypto industry. You didn't have like outside players coming in and saying, we need to leverage blockchain. It was just too new. There was some of that idea, and people were talking about that as a possibility, but, you know, one, it was like a pretty uncommon idea. it certainly wasn't consensus. And two, it really wasn't happening anywhere. It was just an idea. And so you you know, at at at that point there really was no need for

infrastructure because you didn't have players coming again it's outside to the inside in the space. And so, you know, what we were building then probably was like ahead of its time. I think going and getting as regulated as we you know set out to do from the outset and where how we were regulated then was ahead of its time. and in some ways that's really like helped our business. And of course there are other businesses that have benefited from taking a different path. You know look at the two largest stable coins today.

you know, the largest issuers are basically Tether and then Circle and then Paxos. and if you look at like those from just like, you know, how does that look? how's that correlated to regulatory oversight? Well, Tether is like the least regulated and say they don't want to be regulated and do everything they can, you know, very openly now to avoid regulatory oversight, and they're the largest. And then you have circle, which sort of took a very different path, which was like they were gonna get a lot of regulatory affiliation and like of

affiliation with very trusted entities and they did a great job building trust through a partnership early partnership with Visa and BlackRock and BNY but the reality is they didn't have regulatory oversight. they sort of had licenses to be able to conduct money transmission type activities market to market but there was no one overseeing the issuance of USDC their stablecoin and then you go to Paxos and all the way back to the first stablecoin that we issued in 2018 we were doing so out of prudentially

regulated entities with a regulator that oversaw not just like how we were offering the stable coin to consumers and businesses in their market such as the state of New York, but really as a prudential regulator, how every activity behind the issuance of the stablecoin was being conducted. and so it's very different. We were regulated like a bank. And people often say, there's no regulation back then. Well there was just most people weren't subjecting themselves to it. And

Paul (11:49)

Yeah.

Walter Hessert (11:50)

so

I

I I think that, you know, that really did play a big difference in the adoption and the success to today. Now, there are a bunch of stable coins that were really huge, that were really not regulated, and they've also blown up. and so there's a little bit of an observation bias looking back to say, like, being unregulated was the best thing to do. There's also like, why are you being unregulated and what are you doing as a result of being unregulated? And that didn't work for a whole number of firms, which would be a different podcast, which would be a really fun one, by the way.

Brett Turner (12:19)

Mm-mm.

Paul (12:19)

Yeah.

Walter Hessert (12:20)

So you know, like a stable coin loopers or something. but I think that you know, it we are at a moment and kind of getting to the second part of your question where regulatory oversight isn't just like a nice to have, it isn't just a is not a different strategy, it's the only strategy. You know, you need to be regulated now and now there's a regulatory framework, you know, and I suspect in a few years you won't even be able to call your asset a stable coin like you can today unless it

Is subject to that regulatory framework. Just like you can't go around and say, I'm a bank. You know, there's a lot of groups that police who can say they're a bank. The FDIC, the OCC, all the state regulators are probably the most common police that say, like, you can't go tell people you're a bank unless you're a bank. That doesn't never happen anywhere in stablecoin. The first question you ask on gets asked on any stablecoin panel is like, define a stable coin. And the answer is like, I can't. There's a thousand different definitions. Everyone calls themselves a stable coin.

but that's going to change. And so regulatory oversight today is critical. I think that for Paxos, having been regulated now Prudentially like a bank for 10 years, now we have OCC oversight today. So we are a federally regulated trust bank, is really valuable. the thing that differentiates us today is the sort of like the the the time period which we have been operating that way. And I think that adds a lot of trust and credibility for the large firms using us. You know.

the licenses and the, you know, kind of regulated entities. We always say in like a healthy sort of like society, government, whatever, you know, regulatory shouldn't be a moat. You know, might just be a head start depending on your strategy, but really price shouldn't be a moat. and that's how we have always thought about regulatory differentiation and our strategy, which is go and look for the highest levels of regulatory oversight so that we can work with the most trusted and discerning firms in the world, many of them themselves

highly regulated entities. and that market has expanded from a very, very tiny market of basically PayPal to now the entire market of enterprises, FIs, and more or less like the whole economy is now looking for stable coin solutions and they're looking for it from, you know, regulated players in the market. And so you know, it it it

You know, sort of felt like the village idiots maybe back in like 2016, 2017, as regulated as we were, you went through a very tough administration in the Gensler area. You that certainly didn't feel good. We have a lot of like scar tissue for that. now it does feel like hey, that has been the right strategy and is still continuing to differentiate Paxos, even as a bunch of companies like you know, are are are are posting about their conditional approvals or submitting applications. That's very

Paul (15:04)

Sure.

Walter Hessert (15:05)

different.

than actually having, you know, subjected yourself and actually having, frankly, even like the the the the internal understanding and resources and DNA to be able to operate as a regulated entity for a decade like Paxos has.

Brett Turner (15:20)

Do Walter, do you feel

Paul (15:20)

Yeah, I know and and

Brett Turner (15:21)

maybe just jump in real quick? do you feel also now like putting in all that that work maybe at the the detriment of maybe pressing on some of the market leader opportunities? In hindsight, you look at that and it's like threading needle it threading the needle is hard because you're trying to, you know, really chart that course, you know. Do you feel like all the bets you're making, maybe that we're kind of restraining some growth opportunities? Do you feel like

Have no regrets because it's all gonna pay off now, or they're still like a little bit, We could have, you know, maybe threaded that needle a little, a little differently. Like if you look at right now, it's still like this massive tidal wave that's happening with banks, all the regulatory players really looking how to get into this, and and they're call all kind of revving up. A lot of the use cases are still constrained around mostly trading. So they're all there. So how how do you feel like?

Did you make all those right choices? Do you thread the needle as well as you'd like in hindsight? how do you feel like your position now kind of moving forward?

Walter Hessert (16:22)

Well, it's hard. It's all like time horizon, right? Like I think in over the next ten years, ten years from now, we'll feel like it was the right decision. Today, if I take like, you know, present snapshot, no, I mean, you know,

Brett Turner (16:31)

Ha ha ha.

Walter Hessert (16:33)

Circle has a couple hundred billion dollars of stable coins and you know, it's an incredible business and you know, it's not a regulated product, but it does have a lot of utility and serves, you know, a lot of like underserved markets with US dollars.

circle has created a really strong, you know, business. I think they have a lot of both of those companies have a lot of limitations to serving the future growth and the expansion of the market that I think everyone now expects. and so I think in ten years we'll look back and say, hey, we did take the right path. But no I'm not gonna sit here and say like, hey, I'm you know,

you know, wouldn't want to have a hundred billion dollars or a couple hundred billion dollars of

circulating issuance today. And mind you, you know, at one point we did have twenty five billion dollars of issuance, but the regulators, you know, came and shut that down. And so they that

Brett Turner (17:25)

Mm.

Walter Hessert (17:25)

was the direct result of how we subjected ourselves to regulatory oversight. We had prudential oversight, and so they were able

Brett Turner (17:31)

Interesting.

Walter Hessert (17:32)

to, you know, really like determine that we wind down that business in ways that, you know, you, you know, I mean the the the

DOJ and the New York Fed, all of these different players at points have gone like very aggressively after Tether. And that is a business that given the way they've structured it, you couldn't, you know, you really can't shut it down the same way you can when you have a prudential regulator regulatory oversight. The flip side of that is all of the trust and the consumer protection, and the institutional grade

kind

of product that you have as a result of that. And so now we're in the moment for that. I mean, now is the time where being regulated really allows you to capture what we believe is the growth ahead of us in the stablecoin market.

Paul (18:19)

Yeah, so I'm gonna focus

Brett Turner (18:20)

Awesome.

Paul (18:20)

on that a bit for and and just to mention I I did have a front row seat for those conversations with the New York DFS for many years. And the same way you credit PayPal with changing the industry, I'm gonna credit Paxos because having been regulated by the New York DFS as a trust, having been a stable coin issuer, I think, helped educate a little bit the regulators, and they're the first ones that came out sort of the guidance when there was absolutely nothing out there except the NYDFS guidance on stable coins.

Which then fed sort of some of what we see in the Genius Act and all of that. That was, I think, you know, Paxos being front and center with them since since twenty eighteen and and difficult times at times, but I think, you know, overall the industry's better as a result of it. So I I did want to focus on that. I know you and Chad and and some others in your group are very active speaking to regulators across the world. So so two things. Just your thoughts on clarity not making it you know, past where it needed to go last week and what

That sort of signals to the market. And when you talk to institutions today, where do you feel comfortable telling folks that, you know, at least this area is settled, you can confidently move forward in which areas we still have to wait? And then the second part, after you talk about that, is I want to talk a little bit about your global sort of approach to regulation and compliance as well. You have a very strong presence in Singapore. You acquired an entity in Europe a couple of years ago. you are licensed in a couple of other areas. Tell me a little bit about.

the difficulty or how you manage sort of what we used to call that multi-jurisdictional compliance, especially now in the world where you have a stablecoin, which is intended to be global, but now you have a series of regulators that kind of want, you know, their oversight over that same stable coin and how do you manage that going forward? So if you don't mind focusing on those two things, I think it's important because a lot of our listeners are institutions that are wanting to get into this area, but just don't understand how all of that sort of mixes together.

Walter Hessert (20:11)

Yeah. I first off, I I I I appreciate the compliment. or you're repaying the compliment to Paxos that I paid you. I you know, I do think we did drive the industry forward in enormous ways. You know, Paxos was behind and continues to be behind the largest enterprises and firms offering blockchain solutions into the market, whether it's, you know, crypto trading or stablecoin payments or stable coin issuance.

Paxos is often sort of the player behind them that's making that possible. because often these big players go out, they have large incumbent businesses, they're very huge, complex, global public companies. And, you know, blockchain is sort of like a, you know, a strategic imperative, but that doesn't make it a top priority. It means it's like a top 10 priority. and so, you know.

The the the approach there is often, hey, who can we partner with in the market? And I think, you know, Paxos is often been like highly differentiated and continues to be very different than anyone else in the market in that we are highly regulated infrastructure that has been operating at scale, serving highly regulated clients.

on an institutional infrastructure basis for a decade. And so that's actually paved a way for a lot of these companies. And I think in some way for PayPal, when we worked together bringing this stuff to market back in 2019, Paul, to actually, you know, enter the market. And that's created, you know, all new types of awareness. That's created new types of adoption. It's created new types of utility. And so I am really proud of what we've done at Paxos, in addition to just building a strong business and how we've moved the industry forward.

And the regulatory strategy, although you know created you know, a lot of pain along the way at times, it did make that possible, and and and continues to do so today for new segments in the market.

I think that your question on clarity, I think that you know, genius is what mattered. You know, we're talking about stable coins here, and genius is what matters. We have a regulatory framework that you know creates stable coins as this payment instrument. the market knows what a regulated stable coin is now. if we didn't have genius today, the market would be in a very different place. Today there is

you know, multiples more infrastructure being laid. We are busier at Paxos than we have ever been working with dozens of of of large FIs, including many GCIBs, and some of the largest companies in the world in providing infrastructure and building new infrastructure now to power stablecoin adoption in the near future. That's all happening, or in in most cases is happening because of genius. and so, you know, we're mid implementation there.

and the market is not waiting, the infrastructure is being put in place. Clarity is very different. Clarity is covering like a wide swath of the digital asset ecosystem. And there were some really good things about Clarity, and you know, there were probably some things that were, you know, just okay about Clarity and some things that we would have liked to have seen better. We are very supportive of the bill, and we think it's unfortunate it didn't get passed. So much work has gone into Clarity and it hasn't been, you know, that it didn't

pass the cloture vote was you know a disappointing moment for the industry because there's so much momentum being created from the US under this administration and that would have just continued that momentum in a lot of ways. But if you zoom out and you say how is that impacting the market? Go ahead.

Paul (23:46)

And and sorry to interrupt off, but one question

one question on that, and and because again, being old school with me back in the day, are you surprised that the stable coin bill was the first that passed over a broader market structure bill? Would you have guessed that back in 2022 or 2023, that we're gonna see one of these get clarity first? Did you think it was going to be on the stable coin side, or did you think we were gonna see sort of a broader market structure bill first?

And

and just wondering what your thoughts on on the c you know, sort of the progression of that where we say the stablecoin one is somewhat settled now and and now the broader market one is still kind of up up up in the air.

Walter Hessert (24:26)

We're very active in DC. It's sort of part of the DNA of the firm. I think part of the it's it's part of how we serve clients. Our clients are large, global, very important firms and companies. they themselves have kind of presences in DC. and the way that we've set ourselves from a regulatory perspective makes policy super important for us. so

We've always been very active in in in DC. and we were kind of active in stable coin legislation, discussions going back to probably like the earliest drafting of what ultimately became genius, which would have been like 2021, maybe 2020, I forget exactly which that was. but we had been active all along. And I don't think we were, you know, I wasn't surprised. You know, we obviously, you know, knew of the power of stable coins very early on.

we had been investing in the space, issuing regulated stable coins at scale since 2018 and starting to work with some of the largest companies to power stable coins like PayPal in 2020. and so we always thought that that was going to be really critical legislation and weren't surprised to see the focus continue there first. On the clarity side, you know, to maybe what I was about to say is it although it's disappointing, I don't think it

you know, anybody really cares that much about it, other than the fact that it's disappointing and would have been a great signal of momentum for the industry. And I only say that from the perspective of where I sit in Paxos and all of these firms that we're working with building infrastructure, no one has changed course. No one sort of said, if clarity, then that, you know, if it doesn't pass, then this. It was, you

Brett Turner (26:14)

Nice.

Walter Hessert (26:15)

know, sort of like a you know, parallel track that

had no bearing on actually what these companies are doing. And so I haven't seen anything as a result of, you know, sort of the developments over the last several months. And I think the industry you know, will continue to build momentum despite where we stand.

Paul (26:39)

Excellent. So so going back then to the international side, because I think something unique is obviously managing all of those different relationships across regulators across the world. Tell me a little bit about that concept of multi-jurisdictional compliance and when you have the global stablecoin that's supposed to by design cross borders and be available all over the world, how you manage some of that that complexity of of regulatory expectations from these different jurisdictions on one token without creating

thirty five different versions that then you have interoperability issues and

Walter Hessert (27:11)

Yeah, I listen, this technology is global. You're right. That is like one of the main value propositions here that we're talking about. You know, why does this, you know, transform the way money moves is because it's global. It's real time, it's global, it's nearly free, it's, you know, better for compliance tooling, et cetera. And so all of these things are like the reasons that we fundamentally believe that all of these use cases will ultimately get traction and change the way that we think about, use, move, money, et cetera.

and then you know, on to other assets. I think there is it's important that we preserve that, the global nature of stable coins. And that really comes from like the right way of like the policy and the legislation that gets passed. you know, if you end up having to have a US dollar stable coin as an issuer that is issued from a different contract, has a different name in Europe than one that you offer in Southeast Asia, than one that you offer in the US.

you really create an enormous amount of friction in what otherwise is a technology and product that is removing a ton of friction in the legacy system. And so it will just hinder the ability for stable coins to reach their true potential. if we can't have sort of unified single assets that operate globally. dollar that's regulated that can be sent from someone on a regulated platform.

in Europe, to someone in the US, to someone in Asia, and can move seamlessly across borders the way that we're expecting blockchain technology to deliver to different products. luckily, you know, I'm really proud of the you know the the the leadership in the US legislation legislation around reciprocity and the rulemaking is sort of being created around that right now coming out of Treasury

exactly how that is implemented. but the reciprocity basically says like if you are have a regulated stable coin in a out of a regulatory regime that the US regulators deem as sufficient or equivalent to genius and US oversight under genius that that asset would become a permitted stable coin in the US and that's really important not just

because there are other regulated places out there where you can issue a stablecoin from, like, you know, out of the EU under Mica or out of Singapore or out of Japan. But it's really important mostly because all of this legislation of stable coin is evolving around the world. And the US is always a leader from a legislative standpoint around financial services, certainly. And so by the US creating that reciprocity in

Our stablecoin legislation, we create the standard or the expectation of that reciprocity globally. And so MJC, the multi-jurisdictional compliance, is you know, is very complex today. It takes an enormous amount, and really no companies have achieved it outside of Circle has sort of has like multi-jurisdictional compliance somewhat.

meaning

that they operate with prudential oversight in Europe, but you can also access that asset that's issued elsewhere, that same asset in other markets in the US. The difference about them is that global issuance doesn't have prudential oversight. And so it doesn't take the collaboration or sort of the reciprocity type of provision to make it possible.

and they really just operate with that prudential oversight from the French regulator, as far as I understand today. And that will most likely change as Genius gets fully implemented. Paxos has we have prudential oversight out of Singapore, we have prudential oversight out of a regulator, the FIN FSA in the EU that is Mica compliant, and now we have an OCC-regulated entity, National Trust Bank that is also.

will be genius compliant when genius is finalized. And so we're able to do this multi-jurisdictional compliance by having the right regulated entities in other places in the world. I I'm hopeful that that gets even simpler for frankly other companies to be able to do over time as a result of the reciprocity provision that was included in Genius and really the leadership it took to put that in there and the foresight because I really think that's important for

you know, the global landscape and the global adoption of stable coins over the long term.

Brett Turner (31:56)

That's awesome. Well, a lot of regulatory. Did you did you ever feel like you're gonna, you know, you're joining a tech startup or you're like, you know, got your hands on the plow for regulatory policy as as much as you've done. I mean, you you obviously know so much about a regulatory you're you're providing an incredible service for all, you know, for everything that's gonna be happening behind you. Like ha is it hard to contact switch between the two sometimes?

Walter Hessert (32:19)

Liz as certainly, you know, at some point you wish it weren't sort of you know, it can be it can feel like a millstone, you know, you're like, everything

Brett Turner (32:23)

I have to that's that's not on the notes. I'm just I'm just so curious.

Walter Hessert (32:28)

is sort of determined, you know, by regulators and that's not really an efficient way to develop products,

Brett Turner (32:35)

Yeah.

Walter Hessert (32:36)

relative to, you know, sort of just developing it purely with like the feedback from the market.

You

know, to have this like governor of regulatory oversight, you know, kind of limiting that and slowing that does just that. It slows it down. and so sometimes you certainly wish you could move faster. I think, you

Brett Turner (32:56)

Yeah.

Walter Hessert (32:56)

know, for us, you know, the North Star is always like, you know, societal wide outcomes and societal wide impact. And so for us, it's just part of the equation. We've never, ever considered

You know, when we're launching any products, like should we just like, you know, ignore regulation or should we just go like find some unregulated path? And that even sounds crazy for me to say, but that is sort of like, you know, the MO or the first operating principle for many tech companies. for Paxos, it's very different. It was always how do we operate within regulated frameworks so that we can create this societal wide outcomes?

Brett Turner (33:30)

No, it's no, I just say that too too because like I could identify like with you know, starting Trovata and just when you're working with with a lot of big corporate banks. I mean, you're the complexity of with corporate finance, corporate treasury is just so different than just, you know, bringing about forecasting for a small business, you know, or you know, using plaid or if you're on the retail core of the bank, none of that really set up on the corporate side and having to, you know, pioneer APIs, do all this, you know, it's just just a whole different world.

And so we've had to kind of also play the long game. You're you're you're it takes a lot longer. It it can be, you know, it's you get these times. I'm sure I I don't just look I it's not on the notes, I'm asking that, but I can identify just because there's times even from in in in with as a builder at Trovata, it's like you're you're like two and a half years on a deal with a bank, and it's like, man, like I what did I sign up for? I mean, it's all worth it.

It's all awesome, but it's it's it's all it you know, I think that's the other message I tell people when they're ask talking about like if you want to be an innovator, it's like it's it's not it, you know, you sometimes you get the like the the fun aspects of the rewards of that, but it's like there's this is not an overnight success. There's a lot that goes into that and and certainly hear that loud and clear from from the the journey you've had of Paxos.

Walter Hessert (34:46)

You it it it definitely like as

you say that about Trovata, it just like you know strikes me about how vastly different business strategies can be. And the regulatory oversight and how that impacts product development, velocity, et cetera, is just one dimension of it. Another one is, you know, being enterprise infrastructure, or you know, an institutional facing business like you are versus a retail. And there's totally different, you know, kind of feedback loops and

Paul (35:13)

Feedback moves

Walter Hessert (35:14)

product development cycles and mentalities completely. And so, you know, you just sort of like have

Paul (35:14)

like mid time. Yeah.

Walter Hessert (35:20)

to pick your lane, I think. And that some of the greatest companies, most of the greatest companies really, I think over time are the ones that say, like, hey, here's our, you know, here's where we're gonna focus and we're gonna stay focused there for absolutely as long as possible. and and and so it it's just a very it's very different business. I ran a retail or a consumer web business before on the gaming side.

You know, Paul, you've been in PayPal and Venmo, which is a both a massive, you know, kind of retail business and a massive SMB business, together. and so it it is really different. I I I can certainly appreciate some of the elements that you're talking about when you're serving like high-end in enterprise on the infrastructure side. You have very long sales cycles, you have much slower sort of feedback loops, and then you know and

Brett Turner (36:10)

Well, it goes into the innovation

cycle too, because there's, you know, at the startup mentality, it's like, yeah, we'll just, you know, lean startup, just fail we'll just fail fast. Fail fast.

Walter Hessert (36:15)

Ship, ship, ship, ship, ship, yeah. Yeah.

Brett Turner (36:18)

And you know, it's like fake it till you make it. None of these things, you don't get to use any of that vernacular here. Cause it's there's no such thing as fail fast, cause it's just if you fail, you're done. So it's like it's just game over. So I think those are the the stakes are very different. anyway. It just it's it's awesome to kind of hear you speak about that. It it's the it is a journey.

And and to see what you guys have done and really again laid so much of the groundwork. I think what's also gets exciting though is you put all that work in and a lot that you know people don't really see. sometimes, you know, I had a mentor of mine and who took a company public, you know, many years ago and and he said he was with the the you know the the bankers and when they were going through their you know road show and stuff like that. And one of the junior bankers on the team says, Man, you guys just came out of nowhere.

And he's like, yeah, just a 12-year overnight success story. So you just you don't get the dozen years that builds up to maybe some of that limelight. But it does certainly feel what's exciting though. It feels like just where the industry is positioned, where things are headed, like the next wave, the next next 10 years, this true transformation that's gonna happen, you know, through the entire global financial system is it's it's gonna be worth it. It's it's super exciting. It just it's it's amazing.

you know, what what the future holds. So hope you know I'm sure that you guys feel the same way. It's it's just biding the time for it, you know, as as those signs, as those things start to unfold, it it it gets more and more fun as you go.

Walter Hessert (37:44)

Yeah, I by the way, I I feel the same way. It's incredible.

Paul (37:46)

I feel the same way.

Walter Hessert (37:49)

sorry, he's getting a little feedback there. that there is just like incredible excitement about where this whole space is going and it's in a really fun space to be building in. And despite all of these different, you know, obstacles and complexities that we subject ourselves to by either being, you know, large enterprise facing businesses or highly regulated businesses or both, at the end of the day, at Paxos, you know, we really, you know

know and we stay focused on the fact that these are all very important and we are gonna differentiate ourselves in the market by do taking these different strategies. But at the end of the day, it comes down to product. And we have to continually win on product despite all of that. And so for our customers, it's it's it's about having the best product for them to meet their needs. you know, the highest level of regulatory oversight and the, you know, best track record and history of compliance, and like the biggest logos.

Those are all sort of like critical and supporting elements of the of what we're offering to the market. But at the end of the day, you have to be able to win on product. Like, can I solve the problems for my customers, you know, in an enterprise business for my customers that are trying to solve problems? Can I help them solve those problems? and you need to just be like laser focused over time on continuing to be able to build the best product to do that. Or at the end of the day, you know, the

most regulatory oversight and, you know, the whatever customers you want first aren't going to matter. You have to have the best product. And that's how we think about you know, the business at Paxos.

Brett Turner (39:21)

Awesome. Well well maybe just shift gears a little bit into more of the you know corporate finance, corporate treasury space, use cases. I mean, one of the things that kind of stood out when, you know, when you're starting is just a couple comments. I just kind of wrote down like definitions. It's almost like what like you said, what is a stable coin? Nobody really knows. Like it depends, right? And I think the one of the things too is that you know, for a lot of folks on the corporate finance, corporate treasury side.

These use cases haven't really happened yet. There's a lot of risk barriers. There's a some some blockers still. But I think what, you know, just to level set a little bit, you know, one of the things that's playing out too is that again, the the way banks operate, you know, they have deposits there that are a liability on their balance sheet, and then they lend money.

And then obviously a lot of other things, but that basic construct now when you have stable coins that are kind of sitting with in custody and an asset manager, it's really a different instrument So maybe break down a little bit of of you know a deposit token, tokenized deposits, stable coins, like what how you know, maybe give our audience a little bit of how you define that, how you see those different instruments.

Are they the same? Are they all gonna be obfuscated? Is it all gonna be interoperable? That is anybody ever gonna matter at the end of the day? Like, but it seems like from now until maybe then in the future, maybe when it won't as much, like that's that's a a very different world and a pretty big gap before that happens.

Walter Hessert (40:50)

Yeah, I get really excited about this stuff and I think about it broadly as like tokenized, you know, forms of payment and forms of money. and, you know, stablecoin, in all of its different iterations and definitions have largely been the focus over the past, you know, half decade plus. And now, you know, people are starting to talk about, of course, over the past couple of years, tokenized money market funds. Now tokenized deposits are a real focus. And, you know, you had this sort of

argument between, you know, tokenized or debate between tokenized deposits or stable coins. And I just think about, you know, this as like a technology. And this technology that as sort of you know, one expression of stable coins is also going to have expression of other tokenized forms of money. And, you know, since we're an enterprise-facing business that is served, you know, providing infrastructure to firms that are want to leverage blockchain technology, we really think about how this is like

really empowerful, powerful and transformational to not only tech companies but also to banks. I personally am really excited about you know, where tokenized deposits are going to go here. especially since you know you have this idea that a tokenized demand deposit can be the reserve for a stablecoin

that really changes, I think, once you get banks into the space, and we know that's all happening now. you know, Paxos is working with, you know, literally dozens of large banks, many of them some of the largest global banks, on you know, stable coin and blockchain infrastructure opportunities. And so I I think that as banks come into this space, the way that we you know.

Tokenized deposits will move from just sort of like this idea in innovation land into like a real, real important part of the ecosystem. And there'll be reserves for the stablecoin. there'll be products themselves that users use. And it really ultimately is going to bring, you know, just more and more users and more and more wallets and more and more assets on chain, in in ways that are going to create like all new types of opportunity and possibilities.

Brett Turner (43:16)

No, that's that's great. Well, yeah, on on that, as we kind of push into that a little bit too, maybe going back a little bit of the or origin story of kind of how the intersection, you know, it's it's public. We Trovata has partnered with Paxos on on what we're doing and trying to bring that really into more of the corporate sphere.

with all of the workflows and kind of within Trovata and and all of that. shout out to Ryan Zacharia for making the introduction. It was a little over a year ago and and I'm sitting with him too. And as I'm starting to go deeper, I think one thing that that became a little bit of a catalyst in the industry is too is just Circles IPO that happened maybe 15, 16 months ago now. That was a it was just a good, I think good for you know rising of the tide in some ways, awareness.

We're starting to kind of look more at, hey, let's bring this into our ecosystem. Are we ready yet? Like we got some incredible use cases. I think I kept hearing too from maybe folks in the industry saying, like, what are gonna be the next use cases? We're trying to get, you know, stable coins into these use cases. Why isn't it really in corporates? And then I'm kind of sharing, well, here's some of that divide. But we we've kind of dug into that and figured out, like, let's these are perfect use cases for how the the utility of it, the corporate governance within a

within within a platform where all that's done today. Let's bring that in. And so I I think also the so I show up. I maybe just kind of you know go back to that moment. I I I show up, here's this crazy guy coming in talking about this whole corporate use case. It's it's not it's it's not conventional right now. It's happening. What were your thoughts too of maybe had had you already kind of seen at some point it's gonna find its way into corporate, maybe you know

hearing a little bit about the Trovata story could make sense. You know, maybe take go go back when we were first talking about it of of where that kind of intersected with Paxos and and your guys' journey.

Walter Hessert (45:12)

Yeah,

well, first definitely just second that shout out to the Jam FinTop guys who introduced us. I I remember we kind of like got an email introduction in the morning and you know, in today's world that might mean like

Brett Turner (45:24)

Mm-hmm.

Walter Hessert (45:24)

a Zoom call in a couple of days, but we were in an office together, despite you living on the West Coast and me in the East Coast in about an hour and a half after that email introduction. and

Brett Turner (45:32)

Ha ha ha.

Walter Hessert (45:34)

I think like what immediately got me so excited, and I think Paul, you were in there with us too. we all kind of were in a room together. just funny.

this is the first time maybe we've all been in a room together since. so to speak. we were in a real room then.

Brett Turner (45:45)

Yeah.

Walter Hessert (45:48)

but what you know what I what I just loved about what you were doing is and what I love about the Trovata business, and I tell people this all the time, is that you were kind of like people talk about all these use cases and like you can rattle off like you know the obvious five, yeah, treasury and access to dollars internationally and cross-border payments and

you know, supply chain and you know all you all of these like micropayments, all of these things where it's like, these are obviously good things for the properties of stablecoin to be able to solve. you know, like, they can, you know, they're like very cheap to move. And so very small increments are sensible for them to move in that stable coin. Or you don't have to have you know five

different intermediaries to move an asset across border and take a few days. You can do it instantly. And so cross-border makes a lot of sense. Or in Brazil, it's hard for a retail person to be able to have an US dollar account. And so access so like all these like things, they are use cases based on properties. But they don't actually solve it because you to solve a problem, you have to really like understand the user. And what you brought to you know to my awareness and what I think you've brought what makes like the

Trovata plus stablecoin, so exciting for not just Paxos, but I think for the whole stablecoin space is such a deep understanding of the user, the use case. and and and what I really loved about the way that you were thinking about your business was exactly like down to the the buyer in the firms. great, it has all these properties. Yes, we can move it instantly and

you know, it's not like a day lag to liquidate a money market fund, so I can put some liquidity over here. So you sort of figured out how the properties were the the characteristics of stable coin made a great solution to the problem, but then you actually understand the understood the whole market, the technology, why things are done the way they are, and all the way down to the exact buyer and what their motivations were to then create a solution.

That for me as was as good as any application I've seen in the market at understanding the full, you know, the full value proposition of inserting stable coins as part of a solution to a business challenge today. And so I think that was like really, really special, and is like continues to be what makes me so bullish, not only about Trovata, but frankly about the whole treasury use case, is your deep understanding about how the transformation practically happens.

Brett Turner (48:22)

Well I appreciate it. Yeah, I promise I wasn't trying to fish for a compliment there, but it was great to hear your perspective. I think, yeah, that's what continues to get excited as we could talk to customers about it too. I think our our, you know, maybe just sum up kind of what we're saying is like we just want to do things. We just want to just get it done. Now it's it's one thing talking about these things, another thing actually doing it. And there's a lot of dots you gotta connect to do that. Let's just do it and do that for clients and then let the let them get their hands on the levers and start doing them themselves. And I think that's

Walter Hessert (48:51)

Yeah.

As a stable coin issue

Brett Turner (48:51)

in a nutshell what we're trying to do. So it's it yeah, what it feels like we're

Walter Hessert (48:54)

as a stable coin issuer, I can only know so much about each use case. And so when I got to like you, who are such an expert in it, and I would go to this like someone who's running a treasury, and I'd be like, listen, you know, you know, as long as it's structured this way as like a distributor of the asset, you can get the yield, you know, like rewards from the stable coin that make it economically make sense and it's super cheap to move and you can move it 24/7 and then it'd be like

Cool, that doesn't really matter. That's all nice. And then you figured out like exactly the incentives of that person to make the buy and the credit to the platform that they were using and all of these different mechanics that again are just so specific to the use case, to the buyer and the transformation. That if we could just have that happen over those five different use cases, and there are people doing that, that is ultimately,

Brett Turner (49:39)

Yeah.

Walter Hessert (49:39)

you know, what has to make you bullish about this is the application layer that is underway right now. but that's

Brett Turner (49:45)

Yep.

Walter Hessert (49:46)

really what has to happen to make these sort of

ideas of use cases become true use cases, that level of understanding and commitment to solving the problem based on that, you know, deep understanding.

Brett Turner (49:55)

Yep.

I I think that's what what we loved about kind of the Paxos story and also just what resonated in, you know, just you know, working together as partners is just because for us, like, yeah, the stakes are high. You you've got to provide, it's not just kind of doing it in a one-off, like point solution. You've got to provide all the other stuff that they're currently doing in a traditional way. And now you've got to bring that in to in one complete governed access, one where all your workflows are being done.

You can't just need to go outside of that and doing sort of shadow payments and you know, some point solution here or there. You could do it, but if it's not in the context of all that, it's probably not gonna go mainstream. So I think that's what we've been working hard to do. And I think that's it is it is a big challenge. I think so. Maybe one of the along those notes, you know, what anybody on corporate finance or corporate treasury is kind of listening to this, is like, okay, but I get all that, and it seems like the use cases are great, and I'm sure you know.

they're starting to kind of line up in people's minds and even connecting at odds for those that do that and know that how that needs to happen. they can kind of see that. But I think there's also sort of the, you know, the risk register about like, okay, if I'm gonna consume this, I'm gonna use it. So maybe I, you know, what where do you see if you have any thoughts or advice on maybe some of our customers, where do we get started? How do how do they view the risk? Is this safe for them to use? I think some of that is dispelling a little bit of the

The myth, early adopters kind of typically kind of paved the way. But what are your thoughts around that? What advice would you give to folks on the corporate finance and treasury side of, you know, how to use this, how to really teach, you know, from a governance perspective or even up to the board level if needed, how this is going to be okay to get through the risks and consume it and use it.

Walter Hessert (51:45)

I

mean, I would tell them to talk to Brett. first and foremost, that's where I would send them to, you know, as far because ultimately, you know, I don't understand the way they think about risk. That's the thing about the app, you know, you understand the incentives, you understand the disincentives, you understand the risks of all of those profiles. And, you

Brett Turner (52:03)

Yeah.

Walter Hessert (52:03)

know, the reason that issuers are never going to be the ones that create three trillion dollars of stable coin demand, we can just create supply. The demand has to be created by people who really understand the risks and the incentives.

building great businesses and great applications at that layer to solve these problems, right? Like ish, I can't like I can only go

Brett Turner (52:22)

Well

Walter Hessert (52:22)

around and do podcasts and talk about how great stable coins are, but that doesn't really create any demand. You know, you have to solve the problem. And so what I can just tell

Brett Turner (52:27)

Well, so w yeah.

Walter Hessert (52:30)

them is like, you know, the obvious things is today you have like, you know, Fortune 500 companies that are holding it as treasury. you have, you know, a a regulatory apparatus that is, you know, telling corporates I, you know, know

secondhand from like you know credible sources telling I've heard where corporates have been told to just treat it as cash. and you know we have a regulatory framework that aligns with that that holds issuers to the same standard. And so you know from an underlying asset you know you want to be comfortable with the issuance and you have sort of the regulatory oversight as one way to do that but you can also go deep into

the issuer to understand, you know, how we operate at sort of like the level of a bank, from, you know, an oversight and security and soundness perspective,

Brett Turner (53:22)

I bingo. I I I I think that's part of it too is

Walter Hessert (53:25)

to provide that cover that that that comfort.

Brett Turner (53:28)

I yeah, I think one that's one of the things too is like is is just the aspect of like it's different than putting money in a major bank and then I'm gonna do a wire transfer. So Paxos, like you guys were one of the top players, but

Paxos, maybe there's not enough brand recognition on that side is like, okay, I so I think what was good too is with all of this you know regulatory awareness about around you know how you guys treat it, how you guys focus on that I think the the you kind of mentioned it, comfort. I think a lot of this is like get comfortable with it, understanding like where their money's going, how that's gonna get moved, the safekeeping of that. Like we're not we're not talking about like, you know.

I'm just gonna park a couple hundred bucks and I'm gonna move it to my my cousin, you know, overseas. It's like now you're talking about our average payment is about two and a

Walter Hessert (54:19)

Billions of dollars. Yeah.

Brett Turner (54:21)

two and a half million dollars, right? Yeah.

Walter Hessert (54:25)

Yeah. I listen, I think that that

Paul (54:26)

Yeah.

I right.

Walter Hessert (54:29)

Sorry, he's got a lot of feedback there. Just a heads up, I do have to hop here. I've got someone waiting for me in an interview. So sorry we're running at time here. I'd be happy to continue the conversation. It's fun.

Brett Turner (54:38)

yeah, yeah.

Walter Hessert (54:38)

but I I'm gonna have to hop here in second. You wanna me do you wanna you wanna close out?

Paul (54:41)

Yeah, I'm having my microphone's

Brett Turner (54:41)

Well that's

Paul (54:43)

getting feedback. So, Brett, why don't you land the plane and then we'll edit some of this out. But my mine's giving feedback for some

Brett Turner (54:46)

Yeah. Yep.

Paul (54:48)

reason.

Brett Turner (54:50)

Yeah, well well, a great discussion as always. Another great episode. Thanks so much, Walter, for joining us. really appreciate you carving out time to meet with us and being on the podcast.

Walter Hessert (55:00)

Thanks, Brett.

Paul (55:00)

Thanks.

Walter Hessert (55:01)

Thanks, Paul. Thanks for the partnership. Brett. it's really great to work with you and exciting to have this conversation. Keep on doing this.

Brett Turner (55:12)

Awesome.

Paul (55:14)

Always good too.