In the era of regulation, regulation always keeps pace with the development of the industry. Regulation is not an opponent of innovation, but a responsible partner.
Article author: Echo, MetaEra
Source: MetaEra
"Currency stability, national regulation, and market value growth" have become the hottest topics in the stablecoin world this year. However, in the current stablecoin market, users are increasingly confused: Can stablecoins break through encryption restrictions as market demand changes? Will the availability and liquidity of stablecoins be affected by changes in the regulatory environment in various places?
In order to find the answer, MetaEra had an in-depth conversation with WSPN founder Raymond Yuan, discussing several topics including "Stablecoin 1.0 and 2.0", "Stablecoin License Application" and "The Role of Stablecoin in the PayFi Ecosystem".
The following is the full interview:
MetaEra: You have proposed the new concepts of stablecoin 1.0 and 2.0. In your opinion, what is the biggest innovation and improvement of stablecoin 2.0 compared with stablecoin 1.0?
Raymond: I think the most significant improvement of Stablecoin 2.0 compared to Stablecoin 1.0 is reflected in the product and user experience. Looking back at the 1.0 era, USDT and USDC, especially USDT, have existed for nearly 10 years. However, if you ask non-cryptocurrency users today about their impressions of USDT, most of them have only heard of it but have not actually used it. At present, the common phenomenon of stablecoin 1.0 is that the degree of productization is not high. Most of them do not have their own wallets or their own APPs. That is to say, the application scenarios of Stablecoin 1.0 are mainly limited to the field of cryptocurrency. And we believe that stablecoins should play a more important role in future payment systems. The goal of Stablecoin 2.0 is global asset allocation, covering a wider range of scenarios such as US stocks and daily consumption such as booking flights and wine, and transforming from "electronic payment" to "digital payment".
MetaEra: WSPN recently completed a $30 million seed round of financing. I would like to congratulate you and the WSPN team. Can you share what you think is the most attractive thing about WSPN to investors?
Raymond: Thank you. We feel very lucky to have received so much support in the early stages of the project. We have received investment support from 6 well-known VCs, 2 strategic investors, and several exchanges. During the entire interaction process with investors, we received the following feedback:
First, we have built a strong enough team. In addition to myself from CTH, our team members also include professionals from different backgrounds such as Paxos, BUSD, Visa, Alipay, UnionPay, etc. This diverse team composition can make up for each other's shortcomings and also bring out each other's strengths. I have full confidence in our team.
The second point is about our understanding of the medium- and long-term development of stablecoins, that is, a clear description of the future vision of stablecoins. Our goal is not to compete with other existing stablecoins in the existing $200 billion market, but to work together with industry colleagues to expand the market boundaries and expand the scale of stablecoins from the current $200 billion to $2 trillion or even $20 trillion. This goal is the direction we will work together in the next 5 to 10 years. Our philosophy is more based on incremental logic, that is, seeking market expansion and growth, rather than playing a stock game in the existing market.
The third point is our unremitting pursuit of products and user experience, as well as our emphasis on diversified usage scenarios. Because many of our investors come from the traditional payment field, they firmly believe that payment technology will continue to evolve with the advancement of underlying technology. They believe that about every 10 years, the payment field will usher in a new technical system upgrade. Our persistence in products and user experience, as well as our focus on a wider range of usage scenarios, coincides with their investment philosophy. This is one of the reasons why we can impress them.
MetaEra: WSPN has launched its first stablecoin, WUSD, and is also planning to launch the Euro stablecoin WEUR. Can you tell us about the design and issuance mechanism of WUSD, and how it ensures stability?
Raymond: WUSD is a fiat-backed stablecoin that is tied to fiat currencies in the real world at a ratio of 1:1. This means that in order to issue $1 of WUSD, we must deposit the equivalent $1 in reserves at a designated custodian bank. Only after completing this step will we have the right to mint and distribute the corresponding number of stablecoins. This mechanism is a distinctive feature of WUSD and is similar to how other fiat-collateralized stablecoins such as USDC operate.
The operating mechanism of WUSD covers many aspects. On the one hand, it will continue to be closely related to digital currency transactions and is expected to circulate in all leading cryptocurrency exchanges in the future. In addition, we hope to apply WUSD to a wider range of fields, especially in cross-border payments and actual payment scenarios, such as bulk trade transactions and other fields with practical application needs, to increase the penetration of stablecoins in the payment field. In addition, we are also closely following the market dynamics of the euro stablecoin and observing its gradual growth in market share. Europe has a relatively complete and friendly regulatory environment. We look forward to the growth opportunities of stablecoins of other currencies after the regulatory framework and ecosystem are fully prepared. But for now, our focus is still on the US dollar stablecoin WUSD.
MetaEra: WSPN has always adhered to the principle of compliance first in the field of stablecoins and adhered to the concept of "no license, no operation", which is well known in the industry. The company is actively applying for or has obtained corresponding licenses in many countries and regions around the world, including the United States, the Netherlands, and Asia. In this process, will the application process for stablecoin business be different from that for exchanges? Are there any regional differences or interesting discoveries in the application process in various countries and regions that you can share with everyone?
Raymond: I think stablecoins are currently facing a huge development opportunity. Many major markets and financial centers such as the United States, Europe, Hong Kong, and Singapore have already or are launching their own stablecoin regulatory frameworks. As one of the first applicants, we are actively applying for these corresponding stablecoin or payment licenses so that our business can operate under a good compliance framework system.
My understanding is that the core of the stablecoin license is to ensure the legality and compliance of the source of funds, as well as how to safely keep these reserve assets and ensure that they are under safe custody and supervision. At the same time, it is also necessary to ensure that the reserve assets and the issuing management company can achieve bankruptcy isolation, that is, even if the issuing entity encounters financial difficulties, it will not affect the safety of customer funds. This is the framework we have been working hard to improve over the past few years.
Finally, regarding information transparency, how we introduce credible auditing agencies and third-party institutions to provide asset proof and corresponding information disclosure mechanisms is crucial for all users. Users need to have a clear understanding of the custody and use of reserve assets, which is also an important part of the stablecoin management process.
As for exchanges, since they are not within our business scope, it may not be convenient for us to comment. But what is certain is that the nature of these two businesses is very different, and they will correspond to different regulatory departments and different license categories in terms of supervision.
MetaEra: Are there any regional differences in the WSPN application process in various countries and regions, or some interesting discoveries that you can share with us?
Raymond: This is a very interesting question. We realized very early that to realize the grand vision of stablecoins being widely adopted globally, we must achieve compliance and implementation in multiple regions around the world. This will inevitably differ in details due to differences in regulatory frameworks in various regions. Therefore, how to complete this process with higher efficiency and lower cost is a question we have been exploring.
We will soon start running an AI-driven internal regulatory framework - the Compliance System, which is designed to automatically adapt to different regulatory requirements around the world. The system consists of three key parts:
First, we prioritize compliance with regulatory requirements in all regions around the world and ensure our operations meet these basic compliance standards.
Second, we will leverage AI’s automatic learning capabilities to track the latest regulatory changes and trends in each region, as well as their focus, in real time.
Then, we will use AI to conduct a large amount of in-depth on-chain data analysis, so that our internal compliance management can go beyond regulation. We will set higher compliance requirements for ourselves internally and take early prevention and more comprehensive risk management measures for many risks.
Through such AI-driven compliance systems, we can meet global regulatory challenges more efficiently and cost-effectively, ensuring the compliance and robust operation of our business around the world.
MetaEra: The concept of PayFi has been very popular recently, and WSPN has also joined the Conflux PayFi ecosystem. Can you share with us what role the WSPN stablecoin will play in this ecosystem and its potential impact?
Raymond: As a stablecoin issuer, it is very important to maintain a relatively neutral role and achieve multi-chain compatibility. We have also been paying attention to the development of Conflux. We believe that Conflux itself has high security and high throughput technical features, which is very suitable for financial activities such as stablecoins that require large quantities, high speed and high security.
So at that time we chose Conflux as our ecological partner, and we also deployed our stablecoin smart contract on Conflux, and actively promoted the use of our stablecoin in the entire Conflux ecosystem. From the development experience of the entire industry in the past 10 years, the success of a public chain is inseparable from the circulation of payment tools such as stablecoins. Once these payment tools grow and develop in the public chain ecosystem, it will inevitably bring about a large increase in transaction volume and an increase in on-chain transfer volume. In addition, it is very convenient for other developers on the chain to expand their applications, because at this time, it is no longer necessary for everyone on the chain to issue their own stablecoins. If a public chain ecosystem has a high-quality stablecoin that is widely accepted by everyone, then it can actually be automatically executed in other applications, because on the same ledger, it will automatically connect to the stablecoin, thereby developing their own ecosystem. This is our expectation for the future of Conflux. We hope to grow and develop the Conflux public chain ecosystem together with the Conflux Foundation and all developers in the Conflux ecosystem.
MetaEra: WSPN has invited the former president of Visa to serve as a director. We have seen that in the past six months, many executives with rich experience in the international payment field have joined. How does this echo the strategic layout of WSPN?
Raymond: The full name of WSPN is Worldwide Stablecoin Payment Network. We understand that stablecoins play the role of tools in it, but our ultimate goal is to realize the function of a payment network, that is, to use stablecoins as a tool for circulation, and ultimately to transition existing electronic payments to digital payments, and establish a more efficient, lower-cost, and more secure payment network system worldwide.
Therefore, we are in urgent need of talents with global operation experience to join our team. As the world's leading card organization and clearing and settlement institution, we look forward to drawing on the rich experience of Visa's executive team and learning how to surpass Visa and the existing system in many aspects. This is our original intention of inviting them to join.
At the same time, we are very grateful for the trust we gained from many senior financial professionals in the early days. They are willing to bring their resources, networks, and years of experience and knowledge to our platform to help it grow and develop.
MetaEra: You mentioned that the success of stablecoins depends on the prosperity of the entire ecosystem. So what specific plans and actions will your CTH Group take in building this ecosystem?
Raymond: In addition to payment, CTH also has its own investment institution Fundamental Labs, which has invested in more than 200 companies since 2016, including some exchanges that are already doing very well, leading infrastructure, and a large number of middleware and applications. In the future, Fundamental Labs will focus on the two fields of Crypto payment and AI.
As for stablecoins themselves, Fundamental Labs will focus on investing in upstream and downstream companies in the stablecoin industry chain. For example, a large number of startups mentioned earlier provide withdrawal services for stablecoins, and some startups provide other types of services such as digital banks and digital wallets for stablecoins. These will be the focus of investment in the future. We hope to generate more opportunities for cooperation with other startups and innovative companies in the ecosystem through various means such as investment cooperation. I often say that the realization of a grand vision does not depend solely on the efforts of a company, but must depend on a joint force, on some excellent entrepreneurs and entrepreneurs with innovative spirits, and everyone works in the same direction, and then everyone finally realizes the vision together.
In this process, as a company that has been working in this industry for many years, CTH hopes to support other startups in the ecosystem and carry out various forms of cooperation with them to jointly promote the realization of our vision as soon as possible.
MetaEra: What challenges do you think Stablecoin 2.0 will face in promoting changes in the global financial system, and how is WSPN prepared to meet these challenges?
Raymond: I think there are both challenges and opportunities: The first challenge is that traditional financial institutions need time to learn and understand the emerging field of stablecoins, which is a big challenge. However, we can see that major financial institutions including Standard Chartered Bank and JPMorgan Chase have begun to take action. They either use stablecoins to achieve inter-bank transfers or cooperate with other stablecoin institutions in the market. We have also cooperated with several well-known banks. So, although challenges exist, the difficulty of these challenges is gradually decreasing with the passage of time and the deepening of cooperation.
Another challenge lies in regulation. A relatively positive trend is that the United States, Europe, Hong Kong, and Singapore have successively drafted and issued their own regulatory bills on stablecoins. By clarifying the boundaries and specific content of regulation, this will make the regulatory boots of the entire market fall into place, which is actually beneficial to the development and growth of this industry in the long run.
Another issue is how regulators can maintain continuous communication with the market in the short term, listen to the voice of the market, and regulate the industry without harming innovation. I think this is a common topic. We are willing to work together with all regulators to maintain open and transparent communication, enhance mutual understanding, and accelerate the entire learning process, so that supervision can be closer to the market and the industry can better understand the original intention of supervision.
In addition to talking about challenges, I also want to talk about opportunities. In fact, stablecoins bring huge growth opportunities to the global economy.
As far as our current financial system is concerned, according to incomplete statistics, more than 1.7 billion adults currently do not have bank accounts and do not have any form of financial services. Even for those customers who already have bank accounts, the types of financial services they can obtain are very simple.
In the future, if we want to further deepen global integration, or achieve rapid global growth in the digital age, incorporating more people into the financial system is a problem that must be solved. In other words, we must achieve financial inclusion, so that everyone has this opportunity and channels to access financial services, so that more people can have better financial services. This is a huge opportunity that stablecoins will bring.
In addition, another growth comes from transactions between machines in the future AI era. Our own judgment is that a large number of transfers and transactions will be initiated by machines, from the payer to the payee. Under the current transaction type, the existing financial system cannot support this type of transfer, but this type of transfer will account for more than 50% of the entire economy in the future. This is a huge incremental market. We hope that our stablecoin can serve the emerging automated machine transactions and machine transfer scenarios well.
MetaEra: In your prediction, how will the stablecoin market affect global investment trends in the future? Can you share your insights?
Raymond: The current size of stablecoins is roughly around 200 billion US dollars. As for the growth of stablecoins themselves, my personal judgment is that it will grow to 1 trillion US dollars in the next three years, and it will exceed 10 trillion US dollars in the next five years.
Regarding the impact that the growth of stablecoins will have on financial transactions and capital markets, I have the following views:
The growth of stablecoins is conducive to building a unified global financial market. Because the current stock market and a large number of other financial transactions are relatively fragmented regional markets. For example, the US stock market, A-shares, Hong Kong stocks, London stocks, and Tokyo Stock Exchange, a large number of stock transactions and asset transactions are confined to specific regions, making it difficult for some long-term institutional investors, even high-net-worth individuals and investors with a desire for global asset allocation, to conduct very efficient asset management. Their investments are forced to be divided into different regions, and they will use many platforms at the same time, which will lead to a large increase in costs and friction. We hope that the growth of stablecoins can promote the formation of a unified trading market as soon as possible, such as trading stocks, crude oil, bulk futures, precious metals and even foreign exchange in the same trading market.
We hope that after the introduction of stablecoins, trading will be a 24/7 globalized peer-to-peer transaction, which will turn a fragmented regional market into a global unified market. The trading time will increase from an average of 6 to 8 hours per day to 24 hours per day tomorrow.
MetaEra: Hong Kong has also launched the Hong Kong dollar stablecoin, and many institutions are involved in its construction. How do you view the competition between Hong Kong and Singapore in the Web3 era? Who do you think will become the Asian center of the decentralized Web 3.0 track?
Raymond: I think one of the most important spirits of Web3 is the spirit of decentralization, so I don’t think Web3 will have an absolute center, whether in Asia or globally. A more ideal architecture is that we have seen Web3 active in multiple cities, such as Hong Kong and Singapore, which have become very active nodes of Web3. In addition, New York, London, Berlin, Lisbon, Dubai, and San Francisco are also joining the ranks. I think this is a more ideal architecture. In a more ideal architecture, there should be multiple nodes active at the same time, rather than a single center.
As for the competition between Hong Kong and Singapore, I think it is very benign. Everyone is trying to maintain a balance, how to achieve effective and adequate supervision while not harming innovation, and how to continue to provide sufficient development space for emerging industries. I think this is what both regions hope to achieve. On the one hand, they are competing with each other, and on the other hand, they are also learning from each other. I think this kind of healthy competition can promote each other's improvement. Ultimately, they will provide the industry with smarter and more effective regulatory solutions, which will be very beneficial to the long-term development of the entire industry.
MetaEra: Because the recent hot topics in the market are all focused on the United States. Previously, WSPN US CEO expressed the hope that the United States would speed up its regulatory pace. As the global regulatory landscape becomes increasingly clear, can you use one sentence to express WSPN's attitude or call on everyone?
Raymond: In the era of regulation, one thing we all need to understand is that regulation always progresses in the same direction as the development of the industry. Regulation is not an opponent of innovation, but a responsible partner. This is my personal understanding.
