A New Infrastructure Layout for the Internet

This is a Closer Look at Founder, Chairman and CEO of Circle, Jeremy Allaire. He saw the possibilities of the Internet while still in school and he founded his first company with his brother called, Allaire, an early pioneer in the web platform market that he eventually took public. Then he created, Brightcove, an online video platform used by media organizations worldwide that he also took public in 2012. Jeremy Allaire, joins former SEC chairman Arthur Levitt to talk about the company he founded Circle, a consumer Internet company whose stated mission is to make it possible for anyone, anywhere to help change the global economy.

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Episode Transcript

Speaker 1 (00:00):
This is a closer look with Arthur Levitt. Arthur Levitt
as a former chairman of the u S Securities and
Exchange Commission, a Bloomberg LP board member, a senior advisor
to the Promontory Financial Group, and a policy adviser to
Goldman Sachs. This is a closer look at founder, chairman,

(00:21):
and CEO of Circle Jeremy Alaire. He saw the possibilities
of the Internet while still in school and founded his
first company with his brother, called a Laire, an early
pioneer in the web platform market that he eventually took public.

(00:42):
He then created bright Cove, an online video platform used
by media organizations worldwide, that he also took public in
two thousand and twelve. The following year, he saw the
future of money and founded Sir, a consumer internet company

(01:03):
who stated mission is to make it possible for anyone,
anywhere to help change the global economy. He joins me,
Now for a closer look. Jeremy, you've said that your
original interest in the Internet was from around when you
saw a decentralized network could disintermediate governments and media companies.

(01:29):
You don't have a degree in engineering or business, but
political science, So how did you wind up in technology. Yeah. Thanks, Um.
You know, I started tinkering with technology when I was young.
I was sort of one of these, you know kids
that was lucky that we had an Apple two in

(01:50):
our house in theies. What it really was in in
uh in n when I was in college, that I
was so lucky and that I got access to a
high speed Internet connection in my dorm room. Um. And
it was just a transformative experience to connect to this open,

(02:12):
decentralized network and where information and communications could move freely. Um.
It was obviously not the Internet we know today, but
the fundamental, the kind of fundamental model of this open, global,
permissionless network was there and it was very self evident
to me, and so that inspired me to learn as
much as I can about the technology, which which I

(02:35):
did in the ensuing years. In two thousand and thirteen,
you co founded circle which started first as a consumer
finance company using the blockchain technology. What exactly is Circle
pay and how has it changed since it debuted in

(02:55):
two thousand and thirteen. So when we started the company
in two thousand and our team, UM, we had been
very excited about and inspired by cryptocurrency and by what
it suggested to us about what the future of the
global financial system would look like. And having watched the
prior twenty years where decentralized open networks transformed how the

(03:19):
information industries were, how information broadly could be exchanged and
utilized globally, we saw something very similar happening in the
world of finance and money. We wanted to build out
a new kind of global financial institution, but build it
all on top of the kind of cryptocurrency infrastructure and
um and and really you know, continue our continuing to

(03:40):
pursue that. When we started, you know, building the first
pieces of our platform in two thousand and thirteen and
two thousand and fourteen, the technology was pretty limited then.
You really just had bitcoin and uh, a lot of
these things that we wanted to do eventually, like represent
or elaborate forms of financial assets, create contracts around those assets.

(04:07):
Those were things that were conceptually possible, but no one
had really implemented the technology for them. So when we started,
we really just started with how could we create an
experience for people to be able to pay anyone anywhere
and exchange value with anyone anywhere in the same way
that we can exchange content instantly globally frictionlessly, UM and

(04:30):
without cost. And we've we did that initially by building
on top of the Bitcoin network, and we did that
with dollars and euros and pounds as the starting currencies
UM and that's obviously evolved that the product still allows
people to make those kind of friction less instant payments
between people UM, but the technology instead of Bitcoin, we've

(04:52):
been moving our own architecture to what are called stable coins,
or taking traditional government issued money fiat money and tokenizing
it and allowing dollars and other currencies to actually be
cryptocurrencies and work with the same benefits of cryptocurrency as well.
How does the company differ from PayPal or Venmo? How

(05:19):
is Circled different? We'll say there's a lot of different
pieces to what we do as a company UM And
actually one of the most important things to understand is
that kind of payment as a utility. We actually don't
think there's a business model in payments. We think that
payments will go to zero in the same way that

(05:43):
you know, sharing information is just a free service on
the internet, or communicating with video is a free service
on the internet. Publishing your opinion globally to anyone is
a free service on the Internet. We think that technology
a combination of things mobile computing, cloud computer, blockchains, cryptocurrency,
and AI. We'll get us to a place where basically

(06:06):
exchanging value with anyone, whether you're a person or business,
is just going to be a commodity free service. So
one really critical difference is UH companies like PayPal um
their core business model is charging a fee for facilitating payments,
payments between people or payments from people to businesses. We
just don't think there's a business there, So that that's
one really critical difference UM. And so everything we do

(06:29):
there is a free service, and therefore it's not actually
a source of revenue for us. The other though, is
that you know, Circle has a suite of services. Do
you regard the company Blockchain as a competitor. No, we
don't really see blockchain as a competitor. UM. I think UM.
You know, they have a wallet product UM that I

(06:53):
think has some success for people who hold bitcoin or
ethereum UM, but they don't really pete in a lot
of the other places where we operate, so UM, they
don't run an exchange platform, they don't run a We
also run over the counter trading service, which is one
of the largest in the world. That's not a space
or whether they're competing or stable coins or um and

(07:17):
certainly being a platform for issuing securities and helping companies
raise capital over the Internet. That those aren't businesses that
they're in. I think there might be some limited amount
of overlap UM in the wallet space, UM, but that's
pretty limited. Are you looking to get a banking license? UM?

(07:38):
So Circle today is one of the most licensed and
regulated crypto companies in the world. We have money transmission
licenses from every state where we require them. Where the
first company in the world to receive the New York
Bit license for digital currency business activity in the state
of New York. We have an e money issuer license

(08:01):
throughout the UK and EU, and then of course recently
the broker dealer license. UM. Our general philosophy is, if
there's an activity in our business that requires a license,
then will of course pursue that UM a banking license. UM.
You know, there's certain activities that you can perform within

(08:23):
the regulated banking sector. UH. You know, taking deposits and
rehypothicating those deposits is obviously one of those activities. UH.
You know certainly there are others as well. Those are
not businesses that we're currently in UM, but I can
see in the future areas that might require us to

(08:43):
have a banking license, and that's something that will you know,
closely evaluate U in particular as as governments try and
come up with new types of charters for financial institutions
that are more technology driven, and I think in particularly
are we're quite interested in when central banks and national

(09:04):
banking regulators and to some degree securities regulators embrace crypto
native finance and what that looks like and figure out
what the right kind of licensing and supervision scheme is
for these types of businesses, which, as I like to say,
it's a bit of a square peg round whole problem.
About a year ago you launched circle invest. What is

(09:28):
this and what currencies are available for investment? Circle invest
is a product that allows customers in the United States
to very easily invest in one or more UH digital assets. UM.
What we tried to do with that product is created

(09:50):
an experience which was really for an investor who hadn't
yet been active in the cryptocurrency space, who wanted a simple, trustworthy,
easy to use service where they could in a few
taps on their phone, connect their bank account, invest you know,
uh instantly up to ten thousand dollars with very attractive pricing,

(10:15):
and invest in you know, the the top digital assets.
So today Circle invest include support for I think around
twelve different crypto assets that includes major you know names
like Bitcoin and ethereum, but it also includes UM you

(10:36):
know other I think really interesting digital assets like Stellar
or eos Um, privacy coins like z cash and manero, uh,
as well as you know, tokens that are interesting for
the utility that they provide to people, but which people
have have sought out and purchased, like zero x and

(10:58):
the basic Attention token. So it's really tried to make
it simple for people to get involved in investing UM. Uniquely,
we created features that are really straightforward for investors, such
as by the market, where you could just essentially buy
based on a market cap weighted factor all the different

(11:19):
assets in the markets that we offer, or by by category.
So you're interested in currencies that are focused on payments,
you can buy investing payment digital assets, or say you're
interested in digital currencies that are focused on privacy, you
can sort of invest in the privacy assets so again
try to make it really simple, seamless, and it has

(11:40):
a lot of built in educational content that's really written
for someone who's new to these markets. Uh. And so
so it's you know, it's a very user friendly product.
It's very very well rated. Um. And so if you're
new to this space or new to investing in this space,
it's a great way to start. Last year, you acquired

(12:01):
Poloni x in exchange that apparently needed help. And I've
read that your long term mission is to build a
multi sided marketplace where anyone can build tokenized assets. Tell
me about that. Why did you want the x sure?

(12:21):
So when you know, when we look at you know,
cryptocurrency technology and digital currency technology, UM, what we really
see is essentially a new infrastructure layer for the Internet
that allows us to build applications that center around value exchange.
Sort of the first wave of the Internet was really

(12:43):
around building applications around kind of information exchange, data exchange, etcetera.
But the sort of missing layer has been how can
people and people in businesses safely interact in financial arrangements
actually over the Internet and mediated over the internet. And um,
you know, in two thousand seventeen, a phenomenon happened that

(13:07):
everyone you know, I saw and took notice of, which
was this whole idea of initial coin offerings for I
c O s, And all of a sudden you had,
you know, basically anyone with a white paper, uh launching
a token raising capital, and of course everyone could see
that there were huge problems with that. You recently launched

(13:30):
Circle Research. What's the purpose of that. Yeah, so our
you know, our business serves UM both retail and institutional customers,
and Circle Trade, which is entirely institutional, you know, provides
you know, trading and market making services to UM you know,

(13:54):
hedge funds, crypto funds, you know, industry, um in str's
family offices, you know, all these types of folks. And
what you find is in this in this area of
digital currency and digital assets, there's an incredible amount of
detail behind all these different projects and technologies, and we

(14:17):
really saw the need for really high quality technical, industry
and market research that we could create UM and offer
for as a free service. So anyone in the world
can sign up at Circle dot com Slash research, but
really you know, trying to provide you know, unbiased, very

(14:39):
high quality information on major themes and categories in this space.
It's part of the maturation of this from a kind
of early adopter retail speculator market and into a more
mature institutional market where they're serious research done around all

(15:00):
the different types of assets that exist. And so that
really was at the core, and that's done really well.
It continues to grow the subscriber base every week and
would encourage anyone who's interested in in depth research in
this crypto asset world to uh to you know, sign
up for free at Circle dot com slash research. You've

(15:20):
developed a dollar peg stable coin called usd coin. What
is a stable coin and what's the purpose of the
u s d C for your business? At the core, um,
you know, we see this this new infrastructure that exists

(15:40):
for uh. You know, financial applications on the Internet, built
on blockchains, so many different financial applications, you know, they
need a price stable currency to really function. So if
you want to make a payment, obviously the sender recipient
of payment ideally would like the payment in a price
stable asset. If you're investing in something, or maybe even

(16:04):
say you're borrowing capital or your or your lending capital,
you really want to have that in a price table currency,
and the leading cryptocurrencies like bitcoin are highly volatile because
they're really designed to be more like a scarce commodity
like gold, which is inherently going to have volatile pricing.
But we happen to live in a world where there

(16:26):
are quite a few, uh you know, central bank currencies
that have a wide wide adoption and have price stability
as a really core attribute, US too, are being paramount
amongst those. So what we really wanted to do is
bring the technological benefits of these public blockchain networks and

(16:47):
marry those with the price stability, liquidity, and banking system
connectivity that comes along with the US dollar. So rather
than try and do that by ourselves, we created a
new technical standard. It's an open standard, it's all published
as open source software, and we created a new membership

(17:10):
based consortium called Center, and we co founded that with
one of the other leading in companies in the crypto industry,
coin Base, and have now launched this and US dollar
coin is unique in that it is a standard that
multiple issuers can implement. So if you tokenize dollars from

(17:31):
your bank account through Circle and you have these dollar tokens,
you can use them on the Internet, someone might receive them.
If they want to then redeem those for dollars in
a bank account through coin base, they can go ahead
and do that. So it creates a kind of open
scheme where you have interoperable and fungible dollar tokens. The
really important thing here, though, is that what this allows

(17:54):
is it allows you to take the power of a dollar,
which is you know, a trust trustworthy you know, sovereign
credit risk essentially, and liquidity, and marry that with the
technological innovation of cryptocurrency. So you can now take a
dollar and transmitted to any internet connected device or person
in the world in seconds, with settlement finality in minutes,

(18:18):
with very high levels of security, and with a tiny,
tiny cost which is in the in the pennies today,
which in the next year or two will approach zero
in terms of cost. And that's really powerful. That's just
never been possible before. So we're seeing the introduction of
these stable coins like the US dollar coin really marrying

(18:41):
the real world money with the global financial system. And
the last comment here is just once you have that
in place, you can now create investment contracts that utilize
those dollar coins. Canadian regulators made several proposals for crypto
trading platforms, including requiring registration as an investment dealer and

(19:07):
requiring insurance to protect investor assets. Do you think these
makes sense? Yeah, I mean this is uh we do.
I think if you're running a real dealing or or
running a market exchange business, there does need to be registration.
You need to know who's running those businesses. You need

(19:30):
the assurances of the fiduciaries. You need um, you know,
robust custody solutions that are ensured as well, and that's
a very you know, a new phenomenon. Securing all these
different cryptographic keys is different than custodying stock or or
other historical types of financial instruments. Um. And you need

(19:51):
market surveillance, uh, you know, to focus on things like
market manipulation. You need k y C A m L
programs and counter terrorist financing programs. So you really you
need regimes that you know, protect consumers, protect markets, and
protect society. And so what form those take is that

(20:13):
a single regulator at a national level. Right now, in
the US, it's a patchwork of state regulators with some
supervision from folks like CFTC on certain issues with emerging forms.
Of supervision potentially from the SEC, so it really varies
by country. Japan, for example, has a single framework. They've

(20:34):
just been updating it and it and it looks like
a brokerage type license, and it has custody requirements and
collateral requirements and many of the expected I think you
can expect to see those kinds of frameworks rolled out
all around the world. And in fact, there are smaller
countries that are racing ahead of larger countries companies, you know,

(20:57):
countries like Bermuda, which has one of the most comp
intinsive cryptogatory frameworks with the still superputter. I think you're
seeing proposals from the UK, France, other larger jurisdictions as well.
Right here in the United States, SEC Chair Clayton has
warned that what investors expect is the trading in the

(21:19):
commodity that underlies and e t F makes sense and
is free from the risk of manipulation. It's an issue
that needs to be addressed before I am comfortable. Now,
what kind of regulation do you think would make the
SEC comfortable? Yeah, you know, I think. Um, the e

(21:41):
t F question is one that has vexed a lot
of people for a long time. I think the market
manipulation issue is one that people are focused on. I'm
not an expert here in terms of, you know, the
right way to think about risk in terms of oosure
for investors. I do think some of the e t

(22:03):
F proposals are are very well thought out in that
they're you know, they're targeting ETFET accredited investors, not at
the average person, so clearly individuals who are better able
to make risk decisions. UM. I think also we are
seeing a real stratification between kind of the regulated, trustworthy

(22:29):
exchange platforms and the you know, kind of offshore folks
who aren't really played by the rules. And um, I
think we still nonetheless see you know, I think real
real market pricing taking place for these commodity assets, and
we're seeing that reflected in mature infrastructures such as futures

(22:53):
and derivatives that are also in regulated contexts. And so
I think a lot of the market infrastructures there. I
think there is this stratification of regulated exchange entities. Uh,
and I think all of that adds up to being
I think ultimately should be sufficient for EPs product in
the space. Are you comfortable with the SEC s approach. Well,

(23:17):
so on the E t F question, that's one thing.
I think. The other area is really around, you know,
how do you classify all of these different types of
digital assets? And I think UM, the SEC staff guidance
has been we think, maybe too overreaching in terms of
defining what is UH an investment contract versus you know,

(23:41):
what is a commodity or utility and UM and I
think there needs to be evolution there and that may
need to come through new rulemaking, that may need to
come through acts of Congress. But I really think we're
dealing with, you know, the these crypto assets can take
on many conforms. They can begin their life as a

(24:02):
investment contract. They can evolve into being commodities as they
become used and decentralized. But you also may have crypto
assets that you know, have features that very much are
like securities, but also features that very much are utilitarian
and consumable by end user consumers, and features that make

(24:24):
them look like payment currencies. And you can have professors
that have all three of those. And that's just a
new phenomenon. It hasn't existed before. The the custody requirements,
the market structure requirements, the accounting treatment. All these things
are brand new and haven't been faced before, and so

(24:46):
just attempting to say, hey this, this looks like, you know,
the how a test um isn't necessarily going to allow
the innovation to flourish. I think one of the really
critical things here is we're seeing this new layer of
the Internet be built, and we want to allow entrepreneurs
and technology creators and computer scientists to really innovate on

(25:10):
what is inherently, immediately and instantly global technology. This is
a closer look at technologist and Internet entrepreneur Jeremy Alaire,
currently CEO of crypto finance company Circle. He has more
than two decades of experience building and leading global Internet

(25:34):
software platforms and online service companies. In two thousand and thirteen,
he co founded global crypto finance company Circle because he
says money should work like the Internet, be open, secure,
free and everywhere, and he aims to transform global economies

(26:00):
with a simple, less costly technology for storing and using money.
Jeremy ah Lair, thanks for joining us. By the way,
if you have comments about the show or suggestions for topics,
please email me at a Closer Look at Bloomberg dot net.

(26:23):
That's a closer look. One word at Bloomberg dot Net
and follow me on Twitter at ARTHA Leavitt. One word.
This is a closer look with Arthur Levitt.