Welcome to Epicenter, the show which talks about the
technologies, projects and people driving decentralization
in the blockchain revolution. I'm Sebastian Kucio, and I'm
here with Fedeka Ernst. Today we're speaking with Spain
Valtels, who is one of the founders of Manarium.
Manarium is an issuer of. Euro E, which isn't authorized
and regulated euro token for Web Three and it's available on
Polygon, Ethereum and Gnosis. And it's an interesting product
because it allows you to very easily on board and off board to
any Euro, European bank account. And so we're really excited to
talk about Manarium, how it works, the regulatory framework
in which it exists, stable coins and all kinds of other things.
So Spain, thanks for joining us today.
Thank you. So before we get started, maybe
getting a little bit of background on yourself and how
you became a founder of Manarium.
Well, I was always fascinated by technology and size when I was
young, so ultimately I wound up doing a physics degree in
experimental physics, but I also complimented that with an
engineering degree at Stanford essentially.
And when I was a staffer, I was back in the late night.
itwasthe.com boom and then a subsequent bust.
I was messing around with cryptography for various reasons
I was just really, really curious about.
So I had the foundation, the cryptography, and then going
back to Europe, started working for companies there in tech and
starting my own companies there. I was really curious about the
financial system. And living in London in 2011,
I'd been age investing and investing in various tech
companies. In Europe I was came across
Bitcoin. Accidentally, I came across
Bitcoin because I did. I went on holiday to California
and met somebody in California, asked me what I thought about
Bitcoin and I was. I became very curious and
started looking into Bitcoin. And I immediately graphed the
potential relevance of Bitcoin for the financial system.
Thanks to the preparation I had in cryptography and also the
fact that I'd been involved in some activism trying to rebuild
Icelandic financial system after 2011.
So Iceland was the epicenter of the 2008 crisis.
Almost everything that could go wrong went wrong in in the
Icelandic financial system. There was a systemic crash for
the backs the UK, the British financial system almost went the
same way. And so it drove me to start
thinking about how to build a more resilient financial system.
And one of my friends had just been appointed to the Board of
Governors of the Central Park of Iceland following the crash in
2008 to help rebuild the financial system.
And we started talking about Bitcoin, but Ethereum came out.
We had been fortunate enough to meet the talent at one of the
early Bitcoin conferences. We took note, and we started
thinking about how it could put assets on chain.
Like Italic anticipated that Italic predicted and wanted to
do in his white paper, we very, very soon came to the conclusion
that the key dependency of implementing the italics vision
of putting assets on blockchains was to put a reliable form of
Fiat currency on trade. Now, together with two other
founders, we joined up to start on an area based on the premise
that Fiat was. A reliable link to Fiat currency
was needed to essentially help Vitalik's vision to unfold into
the mainstream economy and to build a more resilient financial
services. So what year was that when you
founded Monarium? So Monarium started in stages.
It started as a commissioned report for financial institution
that was. Are completed in six months
starting late 2015 into early 2016.
We started with by meeting with the back of England, the
research department, Harvard, Berkman Center, but also
consensus in New York and people who were actively hacking in the
system as they were back in the day.
Robert Sam's in London. So we started with this by doing
like a thorough research report on the.
On the implications, systemic and also the implementation as
it was envisioned at the time we started mining ether.
We started writing smart contrasts and due diligence in
the entire stock as it were from the regulation to the
technology. And we came to the conclusion
that Ethereum was a viable system in some way, shape or
form or some fork of Ethereum would be a viable system.
But at the same time, we came to the conclusion that we needed to
be our licensed, regulated institution in the major
jurisdiction to be able to put Fiat money on Chip.
So in a way, I mean you guys have been around in blockchain
terms almost since the get go, right.
So basically if you look at kind of like the stablecoin system
today, I mean there's kind of this clear dominance of.
Tether and USDC and then kind of in the decentralized space we
kind of have die. So Yuri, the sable coin that you
guys have launched, never really made it into the limelight so
far. I mean often that's kind of just
because people are late to the party, but you weren't late,
right? You were there from the get go,
so. We were there from the get go,
but we started with a very different approach.
We do diligence all. The regulations, relevant
regulations in the major jurisdictions because we we are
fundamental premise was that Fiat money has to be regulated
and will have to be regulated in major jurisdictions in some way
should before so. So we we looked at all the
relevant licenses in the major jurisdictions.
We kept to the conclusion there was only one major jurisdiction
with relevant license that is Europe and that's called the E
money and that's now been enshrined with my car.
So our regulation first approach took us inside the system, so we
can scale now inside the system, whereas the other stable coins
have come up against the various regulatory wars.
And in my view, I think it will be very, very difficult for them
to overcome that those obstacles unless they try to retrofit
themselves on to regulations or try to restart themselves as
regulated entities. So the other thing that we
discovered as well after we got our license.
Is that we started closed trial better settlements on chain
using virus tokenized assets primarily invoice is working
with the Danish company back in the day and trade shift which
transacts hundreds of billions of dollars globally in supply
chains and we're thinking about always how to disintermediate
the same way. It's a Toshi thought about
disintermediation and italic as well.
It's like how do we. Put money on trade to settle
invoices so they can move and be finest all the way through the
stack of the supply chains. And how do we put money on
chains so we can help small companies in supply chains
factor or get oral against their invoices that they are able to
issue against a much bigger, more credit worthy companies.
So, so discovery, we're going through these.
Stages and these trials we're using Euro, Sterling, dollar and
and ISIL the croner. Even we we discovered also it
made no sense to us that we should issue money through an
exchange. Why would you ever go to an
exchange to buy money let alone unregulated proxy from it.
So so we we we came to the conclusion that the only way for
Fiat money to reach on chain. In a major way, in a scalable
way, would be to link a blockchain to a major currency
payment system. So when the pandemic ensued,
instead of issuing the negative interest rate environment for
cryptocurrency speculators, bless them, I'm one of them.
We set about to build a connection to the SEPPA systems
in Europe because we're licensed in Europe and we're authorized
in Europe. And the main currency of Europe
is the euro. And so we've figured out a way
to essentially mint money directly from a bank account on
chain and redeem directly from on chain back into a bank
account. So we're the first company
arguably properly regulated in a major jurisdiction to issue Fiat
money on chain. And also we're the first company
that that essentially does away with the on ramp because our
money is money that we issue is transferable.
Directly back into the back account, there's no rap, There's
no indication. I think that's an important
distinction that that your your, your money is regulated and that
it transfers directly into a bank account and I think looking
at Manarium, so just kind of describing the way Manarium
works is you have this Euro stable coin, that euro stable
coin. Stands as a balance on
essentially a Euro Seppa account and you can transfer those Euro
stablecoins is immediately into the SEPPA payment system and
vice versa. So you can send money to this
iband account and then you know EUR Euro E's stablecoins pop up
on your Ethereum wallet. So, but but what's important
here is that this stablecoin is actually a payment instrument
that is also regulated. It's not like a USDC or
something like that that you guys are having to do that, that
kind of onboarding when you use Euroe or using a regulated
payment instrument. No, exactly, because we
discovered this secret hiding in plain sight the fact that Europe
has had the stablecoin regulation since 2000.
It's called electronic money. It's been used for prepaid
cards. It's been used for mobile
wallets. It's been used for online
payments. It's been used by transfer wise.
It's been used by PayPal, it's been used by Revolute to provide
services. All we did is we sought a
license to issue that form of regular fee of money on chain.
We first company authorized to issue that type.
You know of money on chain and it's won't one exchangeable for
bank accounts. It is intended to be fungible.
With CAF, it's an electronic surrogate for notes and coins.
That's what it says literally in the directive.
It's just plain old though. That's what it is.
So because we're licensed as an electronic money provider, aka
fee at stablecoin provider, then we are inside the system and we
can safeguard inside the system, we can be on boarded by all the
regulated financial institutions.
To safeguard and also to perform payments, we can link up to the
system, the SEPPA system in a way that unregulated companies
will never be able to. And so we issue these what we
call Web three I bands to our customers and these Web three I
bands are beautiful. They what they do is that they
essentially receive funds from inside the banking system and
they route them to Web 3 wallets and then you can go the other
way around. And So what we've in principle
done is that we have linked the European banking system with €11
trillion worth of cash to blockchains to web.
Three in our view, in my view is almost like the biggest wallet
that's out there is you can go back and forth seamlessly.
Absolutely. I've actually onboarded a few
people into Monaro myself, because.
When I started using it, I'm an Abbott Monarium user.
When I started using it, it just basically before Monarium when I
kind of wanted to go in and out of crypto, you had to go via
centralized exchange, right? So be it kind of like Kraken or
by Nans or Coinbase or whatever you want, but basically you send
money there, like it takes 2 days to kind of appear in your
account and then you kind of buy.
Crypto from there. And basically it's it's a
terrible user experience and it's also quite costly, right.
So basically this magic of kind of just having this, I ban you
send money to this shows up in your wallet basically all the
kind of crypto natives I onboarded to this, their mind
was completely blown. And I think that's super
beautiful because it's such in principle in the way it works,
it's such a simple offering for the user.
And the functionality is so limited, but I can only imagine
kind of all the kind of parts that you needed to kind of get
in a row in the back end to kind of make it such a good user
experience. No, I mean and that's part to my
dev colleagues hacking away during the middle of COVID,
making sure that you know, double testing and triple
testing or all these interfaces that you have to connect with.
Because we indirectly connect to SEPPA via currently 2 providers
in Europe inside the Eurozone and getting that straight is it
was a major development achievement also.
It's not just the concept of moving the money in and out, but
also you have to build on top of the Treadfi interfaces and
provide with a beautiful experience on the other end to
make it easy to use in Defy. So my hat does to my dev
colleagues who were not on this call, but my it was a phenomenal
achievement on their behalf. I'd like to talk a little bit
about this Euro stablecoin this Euroe or Yuri.
I don't know how you pronounce it properly, but yeah.
And in this, I like this E money regulation.
So it's a directive that I'm not super familiar with.
So maybe let's talk a little bit more about this directive and
how it applies or how it can apply to stable coins, because
what's striking about what you said earlier that we effectively
have this regulatory framework in Europe since 2000.
Well, in the conversation about Mika and the EU crypto
regulation, and certainly Nika too, there's a lot of talk about
stablecoins. And so how is it useful to have
another piece of regulation when from your perspective, we
already have the required regulatory framework for this?
Electronic money has served as a technically neutral, and I'm
quoting this from the relevant directive.
It's a technically supposed to be a technically neutral
standard for digital cash. That's what it's supposed to be,
and that's how it has served for over 20 years on prepaid cards
and mobile wallets, etc. Right now along comes Satoshi
and then metallic, and then a number of other people who
start. To call up these, you know
phenomenal shared ledgers where you can read and write and issue
your own tokens, right. So E money is, is, is in
financial terms is is the same whether it's on prepaid card or
issued on a Ledger. It is always safeguarded in the
same way and it always is the same requirements which
essentially it has to be over collateralized by 2% is
safeguarded in segregated. Accounts so it's really the
user's money. It's your money on trade and the
spirit of defy and it's so it's principle is the same it's
supposed to be. You can safeguard either with
banks it's your choice as an issue or in high quality liquid
assets. In AAA we safeguard the both
cover funds in triple-A short duration instruments with a
global asset management company. So essentially it's your money,
it's. On chain, in the same way we owe
money on a plastic card, if you had like a prepaid card, right.
So the main difference which is the interface, it's a token on
chain as opposed to a plastic card.
So we just, we think it's there's no need to change the E
money regulation in any way shape or form just because
there's a new technology and the original legislators didn't
think that either. Now micro comes a lot and micro
resolves a lot of uncertainty in many ways.
It brings under the regulatory umbrella of traditional consumer
protection in financial services like the service providers and
the asset issuers, which is great.
And then it recognizes the E money as a way to issue Fiat on
chip. So that's one strike for micro.
Just recognizing E money is the way to go inside the European
Union. Number two, however, it imposes
some additional constraints on emony which are not in place in
the original Emony Directive. So it fragments the Emony
standard and makes it more difficult to issue emony or
blockchains than on other technical mediums, which in our
view is wrong. It's not a big showstopper, but
it is in sense anti competitive. Because it requires for example,
E money issues that issue E money as token or chain to
safeguard at least 30% with banks, which is not the
stipulation in the original direct.
So it's anti competitive because this forces the E money issuers
to rely on the banks and it introduces them as
intermediaries where they're not really necessary, which
increases the cost also ultimately to the issuer.
Because the bags take their spread.
So I think there's a lot of things that need to be redone in
my car in the second iteration of my car, including removing
the additional restrictions that are posted on e-mail issuers by
my car. Now this is something that the
UK hopefully will, has not or will not repeat or replicate in
their digital asset rules, so I haven't been able to look at
the. The final outcome of the UK
legislation. But they typed the HM Her
Majesty's Treasury was going to build on the robust framework of
E money, they said, going into the legislatory process.
And America does not have to repeat that mistake either.
So Europe was almost, I would say they've made an own call,
Not a massive own call, but a little bit of an own call.
By imposing additional restrictions on e-mail issues
under MICA, a lot of all the things are really great, for
example, the consumer protection clauses that are imposed on the
on the service providers and at the same time putting like asset
pressures tokens into a very clear umbrella of how they
should be licensed and authorized etc.
So I think overall MICA is very good for Europe.
But when it comes to issuing money on blockchains, it opposes
restrictions which are, in my view, totally unnecessary.
Why do you think Mika too and imposes these additional
restrictions and effectively breaks from its technical from
the technical neutrality of the E Money directive?
Is it for political reasons or are there other reasons you
think? I would.
Well, to hypothesize, but I would suspect that it's #1.
It's a knee jerk overreaction to what?
Legislative spheres and perhaps lack of understanding of this
new technology And #2. Possibly the incumbents, bless
them, are lobbying for their own interest.
So we'll be. I bank on that second on that
second assumption pretty hard. So what do you guys do with the
money that you have to hold in custody for your customers?
We safeguard in AAA funds short duration with a global asset
management company that is based in Ireland and authors regulated
in Ireland. So if we issue E money to you.
And you said this money, you said this €100 from inside the
system. We made the €100 to euro on
chain. We sent the bulk of it to this
to this global asset management company which has triple-A short
duration assets packing it. And then we hold what we think
we need for redemptions with a back inside the euro zone.
We haven't disclosed these packing partners, but.
And we will discuss them at some point.
So I assume this is also Monarium's business model,
right. So basically for the customers
and kind of moving money on chain is free.
There's no fee on kind of having the account.
And basically you can do separate transactions from the
account for free. Basically for the user, there's
no charge, but you kind of get the yield.
From the assets that you put in custody with the Irish provider.
So our customers, we have direct customers, companies,
individuals such as yourself, but our main goal to market is
to arm the builders is to make what we've built available to
all the web three builders out there.
We want to share it with them so they can use it to build
services in D Fi. We believe that D Fi is this
phenomenal technology. That essentially enables open
banking in a way that's never been possible before.
We think it's essentially defy is open banking austerity,
that's what we call it. So our main go to market is to
serve the builders including builders such as the closest pay
for example and whoever's building in closest court.
The Monarium offering as a user is free, right.
So basically I sign up for an account, I don't pay a fee for
that. I can do separate transactions
for free. I can on and off ramp for free,
which is typically points that exchanges take a major cut,
right. So basically all of that is free
in Monarium and I assume your business model is that kind of
the you get the interest from the assets that you put in
custody with your Irish custody provider.
Is is that correct? That, that is correct.
I mean, do you pay when you move money from Deutsche to Parable?
I mean it just moves inside the SEPA system.
It may. Be something.
It depends. So basically if I think for on
most private accounts you don't pay, but on business account
accounts, I think there's different years and I think we
pay something like 9 euro cents per transfer.
There you go. So so.
Our thinking or model or philosophy is the same.
Moving money on chain and off chain should be as seamless as
the experience inside track. So we make money holding your
money, safeguarding your money while you move your money around
our chain. So we collect the interest just
like the backs do. We're making our offering
currently free. At some point we'll stop
thinking about imposing. Or start charging for some of
these services, but it will be in the same way as the banks to
try to make it as light and burden less for the user as
possible. And I'd like to add also our
main go to market in that sense is to arm the builders.
We want to share what we've built with all the web free
builders up there. So we want to make it as easy
for them to import their customers.
And for their customers to use our services as possible.
Why do you think that's not taken off so far, right?
Because basically in my view kind of Monarium on and off
ramping is kind of definitely best in class and in my view
kind of it seems like a super solid offering.
But if you look at like the total Ure on chain and it's you
know on the order of like 10 million or so, it's not.
Not huge amounts compared to say USCC or Ted.
And what do you attribute that to?
Because we're really, really early.
What three is just like any technological innovation as is
going through waves of adoption. We went through several waves of
adoption and then we hit the pandemic which massively
distorted the monetary system. And totally gave rise to a
speculative bubble like we haven't seen since since very
long time ago, not since 2008 at least.
So all the focus in web tree building has been on supporting
speculative activities, which means unregulated stable coins,
which means exchanges, centralist exchanges.
We've never believed in that future.
We always believed that D5 would be the way to go.
And so we've always been building for the builders of D5.
Now that there is the last speculative bubble is over and
the technology stack is maturing and we're seeing all kinds of
services coming out there that there are we try to remove it to
Medi race then we think are the time is right for our regulated
authorized table coin with the direct connection to a payment
system to serve the builders. That serve the mainstream
economy, mainstream individuals and mainstream companies.
Maybe let me push back a little bit here.
So let me talk about USDC, right.
So basically, I don't want to talk about tether because kind
of tether redemptions are notoriously difficult and so on.
So maybe let's kind of not talk about Tether, let's talk about
USDC. I understand they're not
regulated, but in a way they are an extremely serious company.
That is taken seriously in the space that kind of custody's
user user Fiat in various bank accounts and kind of then issues
them on chain. I totally understand they're not
regulated, but why do you think they have kind of they have
gotten so much adoption while you guys haven't when kind of
you're offering is similar? Well, we just launched
officially about, you know. Under a year ago, number one,
that's number one, we didn't launch until we had the
connection to set by and place in a scalable way.
So that's number one. And but two, I think that I mean
there's waves of adoption, there's different types of
instruments that will serve the community in different ways at
different stages of the adoption cycle.
So USDC was and Paxos, bless them both good enough for the
speculators. But now it turns out that know
what that they're building on licenses that are being
challenged by the US government. And I'm not saying that, you
know, that's right or wrong. I'm just saying.
But it goes to the extent that even the issuers themselves,
like Jeremy Allaire of Circle, is calling on Congress itself,
the main legislative federal body in the United States, to
remove the regulatory uncertainty of these tokens that
he's been issuing on check. So this does not surprise me
because we did our due diligence on the regulatory stock before
comes a conclusion that European E money license was the way to
go. We spoke to lawyers in the
United States. We spoke to the OCC even at some
stage there is no federal license in the United States for
stable coins and it turns out that these these licensed.
That they have been building on Paxos and USTC are not really
intended for holding all people's money and reflecting
all people's money in the way that the European licensing
regime is. So that means that you guys have
issued a Euro stablecoin, right? But in the interface I also get
given the option to kind of hold the krona and.
British Pounds and USD on chain. How does that work?
We decided to focus on the Euro because Euro is the main
currency of Europe. So we built an interface between
the set bar and blockchains and we're our main focus is on
serving our customers that want to use Euro check.
But the actually the first currency which don't chain a
Euro E money license in 2019 was the Icelandic Chroma that was in
July of 2019. The month after we got no
license approved by Isla the regulator.
And then so officially the Isla, the Krona is the first fully
authorized Fiat currency on chain.
We followed shortly thereafter with trials using EUR at dollars
and sterling and we're able to issue both dollars and sterling
at scale when we decide to focus on dollars and sterling.
The European E Money Directive allows the issuers to issue E
money denominated in any currency that qualifies in a way
that you can safe keep it in the correct way.
That's one thing that Mike also breaks is deadly because Mike
essentially makes it more difficult to issue non European
currencies on trade, which we think is not really necessary at
all. Cool.
I'd like to talk about Cbdc's. I know a lot of our listeners
are probably gonna like roll their eyes at this topic, but
it's it's an interesting topic because it I think for a lot of
people, they see it as a concept that is at best useless in the
face of like cryptocurrencies and other stable coins, and at
worst a very sinister. Attempt by governments and
central banks to fully control the flows of money and and
particularly in the hands of their citizens and there are
some some fears there that CDD C's become a Chinese like social
scoring system or become integrated in like very very
pervasive system of of surveillance.
So your your cofounder Jan was previously the chairman of the.
Icelandic Central Bank Supervisory Board and you know
he's talked about the right approach for for central banks
as they enter this world of digital money.
And in a world I think where we could qualify as having a
broader diversity of money like assets and and a greater E to
create money like assets. You know what are your thoughts
on on central banks entering this space broadly?
A bit back in the brick and mortar day, did you ever go to
the High Street or Main Street and and make it posture
withdrawal at Central Point? No.
My A look OK so central bikes are not set up to serve non
financial institutions or consumers.
If they want to do so online it will require a major policy
change. It is not really up to them to
do the KYC AML experiment and explore with the interfaces
that. Are needed to show different
market segments. I think CBDC is not going to
happen. I think it's a really bad idea.
And it's not just me who thinks this.
It's like senior economists at the IMF have actually argued for
the opposite, that instead of central banks experimenting with
CBDC, what they really should do is to take these non back
decentralized issuers. Like E money companies and give
them full access to central bank facilities and issue digital
currency through that. I think that's by far the best
way to go. This idea is articulated in a
beautiful paper by two senior IMF economists called The Rise
of Digital Money, issued in 2019.
I encourage everybody if I read this paper because coming from
the opposite side, from the technology stack, this is the.
I I think this is the canonical paper in Trot Fire, which
explains how the Trot Fire field system should be set up to make
it decentralized, resilient, robust.
So CBDC shouldn't happen, and it's not going to happen in
mind. But the ECB has announced A CBDC
project, and as far as I know, people like Kissing like out.
They're very bullish on this idea.
And you know, very fairly have offered fairly bearish
sentiments on on the on private stable coins.
Do do you think that at the highest level of EU policy
makers there is a desire to want to control more of the monetary
stack and and get into, you know, doing KYC and you know, is
there, is there something more sinister here that people should
be concerned about? I wouldn't call it sinister, I
would call it didigist and in the fresh spirit.
Right is there is a tendency always a government to to expand
the approach on the private sector to a certain degree and
vice versa. There's this cost of tension
between private public in these these countries that we call
democracies and and free market countries in the world.
I think there are the ECP is totally over itching.
I think it's totally. Misunderstanding its mandate.
And I think they should just back off.
And instead of trying to compete with many of the companies that
they're supposed to be serving and in some cases regulating,
they should instead support them.
So I think they're absolutely on the wrong track and they should
totally cease to experiment with CBC.
So in the ECB foray into the CBC?
Ram the current ideas that every citizen will only be allowed to
hold a limited amount of EUR with the ECB to to protect the
the remaining banking sector legacy and non legacy.
Because basically the the fear is that citizens will just want
to hold. Their assets with the central
bank rather than with the retail bank, How do you see that?
That's also what the economists have proposed is that what you
can do is you can give non banks and banks separate reserve
facilities at the ECP or annual central bank, so you could
control the influx. An outflow of money in a way
that's similar to how you incentivize the banks to to hold
or not hold money with central bank, right.
So there's ways of managing that risk of flight as it were away
from the banks. But what is also important to
understand is that I think introducing a non back
alternative for holding money and and issuing money.
On blockchain or any other technological medium, it is a
way to essentially put checks on the backs and make them more
responsible in their behavior so that they are more mindful of
the outflow at risk as it were. If they make in the case that
they add loss, the backing system is not going to go away
and it should be a core part of the international system.
But it is highly inefficient. It is very inefficient because.
Number one, it transmits liquidity really, really
inefficiently and of the tool it's very expensive to set up a
back and maintain. So it's it's the backs need an
alternative as it were to keep them competitive and but of
course you have to experiment with the alternatives in
responsible way. So it's not to increase systemic
risk Now I think the way to do this is to Open Access. 2
central bike facilities, 2 non bike issuers.
But of course you have to be mindful at the same time that
you want to perhaps put caps on, how much the back issuers could
safeguard with these central bikes etc.
But that's more of a deep macro discussion that I'm prepared to
do on the epicenter at this stage.
Let's maybe kind of go to the smaller realm of.
I Bands and EU banking kind of on a practical level, right?
So what have been your biggest challenges working from within
and out of the SEPA system? There's a lot of challenges.
SEPA system is you would think SEPA system is standard, but it
isn't and each financial service provider has different types of
limitations of SEPA, so it's getting SEPA to work.
Building on an interface that is stable and consistent, and it's
supposed to follow the seppa standard, it takes a while.
So so seppa. Maybe just sorry, sorry to
interrupt. Maybe just describing what the
SEPPA system is could be a good starting point here because I
realize that probably a lot of our listeners are in the States
and or not in Europe and don't really know what SEPPA is.
Seba is essentially at the core, it's just a bunch of XML files.
So it's one back says I want to credit something to your account
and debit from my account or vice versa.
They sent an XML file to a centralized intermediary and
boom it. Then it clears.
So one back debits and one another by credits and your
money mortgage. So that's all it is.
But it's relatively new way of moving money in that sense
because Euro is a very new currency.
So the the main payment systems for the Euro got built
relatively recently. So it's XML files as opposed to
something even more so. But all it is able to do set bar
is to debit from your account and credit to somebody else's
account inside this system of European.
Euro supporting backs, right. So but what we do is essentially
built on top of a payment provider inside that system.
We accept whenever there's ASAP payment instruction that comes
to us, we receive money from inside the system.
It's credited to an account that we hold on behalf of the
customers and that. We issue and return a token
corresponding to the inbound on the blockchain.
Now going the other way, we receive a burn instruction
essentially from a blockchain and burn €100 from Gnosis for
example. And then what we do is that we
send into the separate system. Okay, we know where it's coming
from. This is our Xerox address, so on
our chain. That is linked to a customer
that we support and then we send it back to wherever it's
supposed to go. The magic here is that we used
to start that a customer that has our Web 3 ibot in their name
can receive not just from their own account, but from any
account inside the system. So if you hold a Web 3 ibot that
is linked to your Web Three wallet.
You could receive from any of your friends, from companies
that you're billing or from any account that is inside this
system EUR, and then you can send also outbound to any iPad
using our web free service. iPad services work, so you can send
back to your friends and suffer whatever you want or pay a bill.
Wherever you like. We actually have a customer that
paid their tax bill recently in the Netherlands using our Uri or
chain. They borrowed the money from the
blockchain. They sent it into Zeppa with a
string. Zeppa has a wait for you to send
like a comment or a string along with the payment into Dutch
Dutch tax authorities bank account.
And then next time they had a statement of their tax that that
payment was reflected. So my monarium I ban is a
Spanish I ban. How do you determine kind of who
gets what nationality of I ban? Or does everyone get Spanish?
No, we're about to support more ibots.
Ibots were set up in the days, but.
Everything was kind of regional in Europe.
So the iPod is constructed to have first the country prefix
and then a institution identifier and then a bank
account identifier and a bunch of other stuff.
So but it's it's really irrelevant in the modern day and
age because we ultimately safeguard the money inside the
eurozone, a AAA in Ireland, in a bank in Estonia.
So it doesn't really have. Yeah, yeah, the prefix that you
use that has nothing to do with how the money is safeguard.
It is totally archaic and and it reflects the the Europe as it
existed before the four freedoms and the European Union.
It is modern form came about. Well I I I I agree that it's
archaic I I don't know if I think it does make I think that
the. The I've been prefix I think to
to certain institutions does make a difference.
My feeling interacting with Seppa and like neo banks and
traditional banks in Europe or at least in France feel it feels
like there's a multi tier system where you have traditional
national banks at the top. You know like the Deutsche Bank
or BNP or you know Santander or whatever like these big national
banks that effectively control most of the banking sector.
And then there are sort of second tier banks and payment
service providers who are you know the neo banks, the N 26 is
the revolutes who are operating in the SEPPA system but are very
much relying on the traditional banking system.
And what I've experienced is I've experienced a lot of what
we call I band discrimination which is a either an institution
like your. Or a company like it could be
your cell phone provider or your electricity provider refused to
withdraw funds from an I band that doesn't start with the
country in which you're in. And I've actually recently
encountered a situation where I tried to withdraw funds from
sort of like a life insurance policy type, you know,
investment account to, you know, a bank account outside of France
that I own where it was outright refused by.
By the French financial institution.
So I think a lot of people experience this.
I've been discrimination, which is actually illegal in Europe.
You know, Article 9 of of the SEPA regulation prohibits it.
Is this something that your customers have encountered and
how do you think, How do you think we should combat this?
Cuz like it, it's contrary to everything that I think the
European Union or the sort of ethos of the European Union
stands for. We intend to offer more.
I bans the market. Let the market decide.
If you want the German I ban, we'll provide it to you
eventually. It's in our road map to support
more country I bans. I ban is the standard that
exists not only Europe but also in some places outside of
Europe. So it would be happy to support
whatever country I ban essentially that our customers
would like to have, I mean do. Make your own iPad is almost our
philosophy in that way, ship or form.
But at the same time, I think long term with Fiat and
gradually we're going to move on chain.
We will Start Stop thinking in terms of iPads, we'll stop
thinking in terms of also 0X. It will just be there will be
some something seamless, there will be some identity on top of
all of that. That masks all that identity.
It's like we don't really care about IP numbers, do we?
I mean. And they're hierarchical and in
another way shape or form And iPad should, you know, not
really be an issue inside the common market of Europe.
And I regret that, you know, but it's still a fact that in
people's heads that that they, the Europe is not yet united
enough that people think of in European terms as opposed to
country terms. Do you think that this I've been
discrimination is? Motivated by political for
political reasons or is it compliance pressures that banks
have like? What's the reasoning behind
this? We all have our prejudices about
which are which. Our biases are built in based on
our experiences, and I think regrettably it's just a
manifestation of the fact that Europe is not integrated enough
yet that people. Still fake in terms of country
code, There's some I would say perhaps there's cultural
divisions that people more comfortable dealing with people
of the same type culture. So it's just a reflection of
this human trait and and the way to counter it is #1 okay, give
people what they want. If you want the Spanish Ivan or
Estonian Ivan or Danish Ivan, then you know that's you could
have whatever you want but at the same time realize that you
know. With respect to Europe, for
freedoms should make it irrelevant where you vote, your
money and whatever the prefix of your iband account is.
Which countries outside of Europe use the IBAN?
Or maybe which other countries don't use the IBAN system?
Well, the Europeans for the Americans for example.
And it's 4th of July, Happy 4th of July.
The Americans don't use ibots. The Americans have their own way
of doing things in many ways, and they have their own routing
systems, routing number, account numbers, which is more archaic
than the European system because it's older, it's been built,
more European systems are built more recently.
I'm not aware of the biking systems.
I've not looked deeply into many biking systems outside of
Europe, but I know that parts of the Middle East and I think
parts of South America. Use iPad, which is the European
standard. So European standards in banking
are actually relatively widespread.
Not as widespread as the European mobile standard, GSM,
but which became the dominant standard in the world.
But they spread, it seems, naturally to countries that are
affiliated with Europe through traditional ties or something
like that. Okay.
And so basically to kind of. On board as a user of Monarium
and to get an IBAN you have to go through like KYC, do you have
jurisdictional constraints? So kind of say, I mean I'm very
obviously a German person and I was allowed to go through it,
but say if I were a US person or an Argentinian, would I be
allowed to get a Monarium account?
The way it works in Europe is that we.
Have common European laws that support the four freedoms, which
means all the regulators are supposed to operate in the same
way we have licensed in Iceland. We are passported across Europe
so we can serve anyone inside of Europe.
We could onboard anybody that's inside of Europe, but not
outside, except with the permission of a regulator and
except with the permission of. The local regulatory replacement
we intend to serve, there's something called reverse
solicitation in finance, which means that if you're not really
seeking to serve somebody outside of your jurisdiction,
they can come to you. But well, right now we're still
a very small company and and Europe is a big marketplace for
us. We focus on European customers,
meaning the European member States and the UK and
Switzerland. Okay.
So now we've talked about nation states for a while, let's talk
about the D5 ecosystem and stables that we've seen there,
right. So basically there's
fundamentally different stable concepts that we see on a daily
basis. So there's like the fully off
chain backed kind of like you guys and circle and probably
also tether and so on. And then there is over
collateralized on chain, so kind of the maker dies of the world
and. And then there is the Algo
stables, right? How do you see this landscape A?
Lot of what is happening on Chain actually will eventually
come inside regulatory umbrellas because it seems to be new, but
it really isn't new. What is really new on blockchain
for example, like Bitcoin, it is an asset that is truly virtual.
Backed by energy consumption, proof of work and it has no
representation in the physical world.
But the qualities of Bitcoin nevertheless are similar to
another traditional currency, gold, in a way that the European
Union recognized that. So it brought the Bitcoin out to
the same value added tax umbrella as gold.
So UV unit has already recognized, well, we have this
phenomenal virtual thing called Bitcoin, which is backed by
essentially entry consumption. It's got the same properties and
qualities as gold. So it's a pure virtual
commodity. And Bitcoin, my view is a
beautiful construct in the technical ways and all the ways
as well. Now on the other hand, you have
these come from the other side assets they're trying to
replicate or already exists. Like traditional money, Fiat
money, like what we're doing and there's different ways of doing
that. So our view on that was to go
using a vehicle and a regulatory license that was already proven
and tested, baffle tested over 2 decades in a major jurisdiction.
In a sense you could say E money that we built on, which is the,
in our view of the ultimate stable coin.
Is algorithmic in a way that there is a, there are there are
constraints on how you can safeguard the assets.
You must only safeguard with high quality, liquid, low
volatility assets and you must over collateralize.
You have must have a buffer of your own capital to protect
against fluctuation in the value of the underlying assets, right?
So, So in some sense that's. An algorithm so to speak and we
which is, which is proven and tested because the money has
been very robust over the past the two decades.
Coming from the other side you look at you know if you want to
construct the algorithmic stablecoin that's supposed to
reflect something then where do you start where do you start
where if your premise is, how do you back it and where do you
back it and. When it goes to Fiat, regular
money and stablecoins, the safest way in my view is always
to back it up with assets which are high quality, low
volatility, highly liquid, and denominated in the same
currency. So for all these other
experiments for Fiat, stablecoins, algorithmic or
otherwise, less than you know, good luck to them.
But be mindful of the risk if you try to back it up.
With something that's denominated in another currency,
something that is not even denominated in the currecies
like commodity because it always just increases the volatility,
sometimes it decreases the liquidity.
So just be mindful of what you've tried to reflect and try
to connect it with the way you're supposed to back.
How do you see the onboarding of real world assets into kind of
the naturals here? That is the big wave ahead real
world as it's on trade, that's what we're really seeing in our
pipeline today. It's it's not just it's
equities, it's all the securities like ass and back
that in my view that that will be the big main wave of
adoption. We're seeing some of the early
mainstream adopters coming to us now.
And starting implementing such projects ranging from carbon
credit tokens to asset back debt and ETF's of equities.
So it's just brilliant that's the big wave of adoption is
coming out and that type of asset or tray needs #1A
regulated Fiat token on trade to South against.
And #2 it needs a direct connection to the payment
systems of the major currencies because these use cases are not
going to come online unless there's reliable Fiat on chain
which is directly redeemable into back out, we provide just.
Very cool. I just onboarded Monarium like
today and so I'm really excited to start using it and I can see
all kinds of use cases for this. Including personal, but also
like business use cases. So what can people expect in the
coming months and how can people start using the linear?
Well, mate, go to markets, always been to arm the builders.
We have this direct consumer, direct company offering almost
as a showcase. So if you come to us and onboard
as a user directly or for your company then you'll find we'll
serve you and we'll. Please tell us what we are doing
because we love to. The market is still discovering
what you could do with money on chain, but when it comes to the
builders, the web, three builders, it's for them.
We're almost like listening to what they're telling us, what
can happen. And the main builders that are
coming to us now are these tokenization platforms that are
bringing real world assets on chain.
And that's going to be a huge wave of adoption and we much
bigger than the crypto speculative bubble that we just
went through. And unlike also the speculation,
these are recurring use cases that they're not going to go
away. If you should take down our
crypto today and, you know a few speculates would be out of
pocket and they would be, you know, hurt.
But if you take, if you take down pay polo strike, a lot of
people measure, business would cease to exist.
So the challenge for Defy is to get into the economy and start
serving the economy in a sustainable, repeatable way and
which brings real value to real companies and real users.
Great. Well, I think that's a great
note to end on and I think we certainly agree with So and
thanks you for coming on the podcast today.
Thank you. Thank you, Shane.
Thank you for joining us on this week's episode.
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