How President Trump's Digital Assets EO Impacts American Innovation, Crypto Taxation, and Dollar Dominance

Webinar Recording and Transcript with Economists Garrett Jones and Alex Tabarrok

The following is a recording and transcript of the February 27, 2025, webinar on President Trump’s recent executive order on digital assets with George Mason economics professors Alex Tabarrok and Garrett Jones.

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to vkozakar@mercatus.gmu.edu.

Jessica Paska: I wanted to welcome you today, the Mercatus Center at George Mason University is happy to host this webinar. I'm going to turn it right over to Alex Tabarrok to introduce himself and get us started.

Professor Alex Tabarrok: Hi, everyone. Thanks for joining us today. I'm a professor of economics at George Mason University. And today I'm going to share my screen and we are going to be talking about President Trump's crypto executive order and what it means for American innovation, crypto taxation and the global dominance of the dollar. Okay, so let's get going. I'm going to pull several key sentences from the crypto order, including the first promoting and protecting the sovereignty of the United States dollar, including through actions to promote the development and growth of lawful and legitimate dollar backed stablecoins worldwide. So, first of all, what's a stablecoin? Well, you know, we all know the price of Bitcoin and Bitcoin fluctuates, you know, it's 120, it's 80 today, you know, it goes up and down. It's actually not a good transactions medium for that reason. So, despite what Satoshi Nakamoto wanted, it's not a good transactions medium. Stablecoins, in contrast to Bitcoin, are designed to maintain a stable value, typically relative to an already established currency. So, most of them, most of the stablecoins will typically be tied in one way or another to the US dollar. So USDC is designed to always be worth a dollar. And the way that they do this is typically they will have high quality collateral backing every stablecoin. This could be a little sort of little dollars in bank accounts. More often, it's some high quality interest bearing collateral, such as U.S. Treasuries. And we'll come back to that a little bit later. There's also some other types of stablecoins which are backed with other cryptocurrencies, so-called algorithmic stablecoins. They're less popular. We'll be talking about those less. Now, the reason why stablecoins are important is that very quickly they have become absolutely huge in terms of transactions volume. Crypto has found its product market fit, if you like, in stablecoins. So from basically nowhere in 2016, 2017, stablecoins are now doing, depending upon who you believe, up to like $27 trillion in transactions volume. Now, that $27 trillion, some people argue that, well, a lot of it is just computers trading back and forth, so you need to look at so-called organic trades. If you do that, you get a smaller number, but it's like $8 or $9 trillion.

I'm going to point to the data on the screen. This is actually from Visa. And Visa says that stablecoins are doing $8 or $9 trillion in transactions volume, which is just a little bit less than Visa. Now, in actuality, especially as we are moving forward, stablecoins are increasing in transaction volume. So, my guess today is that stablecoins are now doing more transaction volume than Visa. But in any case, I'm giving you the conservative estimate from Visa that they're doing trillions of dollars in transactions volume. So, they're important. Now, you might ask, well, why? Why are people flocking to stablecoins? And there's a couple of reasons. U.S. residents have access to dollars. And despite what some of the crypto enthusiasts might say, the dollar is actually a good currency, relative to every other currency, the dollar is a good currency. It's quite stable and predictable and so forth. But other people in the world have access to much worse currencies. They don't have access to the dollar. It's hard to get a, if you're not a U.S. citizen, it's hard to get a U.S. bank account. So, if we think about Argentinians, for example, before Javier Milei came along, they were facing inflation rates of 250% a month, a month, 250% a month. So, they were using stablecoins to protect their wealth. Second kind of related reason is that, you know, finance in the developed world, banks actually work reasonably well, and they're reasonably trustworthy. Not always, you know, even in a country like Canada, bank accounts frozen. In the United States, people have been debanked and so forth. But overall, pretty good, again, relative to the rest of the world. In the rest of the world, it's much more common for bank accounts to be frozen and even to be expropriated. So, for people in the developing world, they may be using stablecoins as a store of value and a means of transactions because they don't trust the banking system. They would rather trust math than the financial institutions. So those are two sort of ideological reasons for stablecoins. But perhaps a more important reason for the normies is that actually payments are pretty expensive. Payments are pretty expensive. If you want to send a remittance, you want to send some money back home to your family in Guatemala, for example, to send $200, an average remittance will cost you like $12, okay? The same payment, if you send it via stablecoin, like Coinbase's stablecoin platform Base, cost you less than a penny. There's some $33 billion in transactions costs, transactions costs alone for remittances, just for remittances. And remittances are tiny compared to business-to-consumer and business-to-business payments, which I'll show you in a minute. Those types of payments, business-to-consumer, business-to-business, they're cheaper. They're cheaper than remittances, but they can still be pretty expensive. You know, credit cards, we're talking about, you know, 2.5% on average, right? That's not nothing. And again, in principle, at least, crypto assets can settle transactions much faster. You can have almost instantaneous finality, and they can settle much cheaper than it is possible to do by using the old rails of the banking system, which haven't changed that much since the 19th century. Now I mentioned that remittances are pretty small. So, we're talking, you know, less than a trillion. Business-to-consumer payments, like that's cross-border payments, $4 trillion. Business-to-business payments, again, cross-border payments, we're talking $40 trillion. Now if you could reduce the transactions costs on $40 trillion of payments, you know, even reducing that 1% or 2% or cutting it in half, okay, even better, right, that's a potentially a lot of money. But it's potentially, you're a small VIG on a very big $40, $40 trillion worth of cross-border payments is a big deal. So that's why people are interested in stablecoins. And in fact, you can see this. This is a tweet from Patrick Collison. And if you don't know, Patrick Collison is the very, very smart CEO of Stripe, the payments company, one of the best payments companies in the world. And Patrick says, stablecoins are room temperature superconductors for financial services. That's a good term, a superconductor for financial services. And he thinks that stablecoins are going to be very big for the payments business. And he's not just spouting off, he's putting his money where his mouth is. And in fact, Stripe just bought, okay, last year in October, the stablecoin platform Bridge for $1.1 billion. So really smart people in the payments industry see that stablecoins are going to be a big factor moving forward.

Now, as I mentioned at the beginning, the stablecoins are typically backed by some high quality collateral, often U.S. treasury securities. So, in fact, the treasury estimated last year in October that $120 billion in stablecoin collateral is directly invested in U.S. treasuries. And this is probably $140, $150 billion today, because stablecoins are growing in transaction value. But even at $120 billion in treasuries held by stablecoin providers, that's about the same as the amount of treasuries held by Saudi Arabia or South Korea. It's more than the amount of treasuries held by Mexico or Germany. It's small, but significant. But that is significant and growing. It's less than Japan, but it's growing. This is a good thing. It's a good thing for the United States. State greater demand for U.S. treasuries lowers interest rates. That's a direct effect. And more generally, I believe that it is good for the United States that people transact in dollars. Having the United States as the global reserve currency is good for U.S. citizens who want to transact and buy abroad. It's good for trade. It is good overall for the United States. So, the United States has been the reserve currency. And as we move further and further into the digital world, into crypto world, into the digital world more generally, then we want to keep the U.S. dollar dominance. And stablecoins are the way to do that. Now, there are some risks, because stablecoins are a bit more expensive than U.S. dollars. Stablecoins essentially are quite similar to banks. They give out dollars and they hold collateral. And so, there's some risk there and some possibilities for regulation. I think my colleague, Garett Jones, will talk a little bit more about that. Now, I mentioned they're doing these -- stablecoins are involved in trillions of dollars worth of transactions. Now, I think it is important that we acknowledge sort of the potential downside of this or negative. A lot of these transactions are in so-called meme coins, OK? Also called sh-- coins, OK? But I won't say that in the recording, right? It's a lot of speculation, OK? It's not obvious that there's a lot of transaction. There's a lot of real value, not a lot of real economic value being created here. Now, I will note two things, two interpretations of this. One, one of the reasons that we have seen all of these meme coins, which literally do nothing, OK? A meme coin has just got some memes of Doge, Pepe, Trump, Melania, OK? Does nothing, serves no purpose. It's just got a name and some meme associated with it. One of the reasons we've seen the growth of these is that it's the only crypto, more or less, which the SEC has allowed. The SEC has said, if your coin does something, if it serves a useful purpose, if you're going to build, if you're going to use that coin to produce further value, we're going to regulate it as a security. And that doesn't fit with the crypto world, and that has not worked. On the other hand, the SEC has said, look, if your coin does nothing, it's not a security. So, we don't regulate it. So, I'm hoping that with better regulation, we will see more coins doing useful, purposeful value-creating work. And that also is the second way of thinking about all of this transactions volume. So, we can think about what has been going on as really a sandbox, as a practice for decentralized finance. So, the tools, the security, good and bad, all of the developments of DEXs, which are decentralized exchanges, all of that has been practice. It's been practice for getting real world assets onto the blockchain. So today we've got $170 billion, slightly old, but maybe $200 billion worth of stablecoin doing these trillions of dollars in transaction volume. We have very few other real world assets, maybe $13 billion worth of other real world assets on chain. But that is going to change. We are going to see more and more real world assets, mortgages, bonds, stocks, treasury securities, not just from the United States, but from other countries. Mexico has put some of their treasuries, their bonds on chain. This is creating a more, lowering transactions costs, increasing liquidity, making these assets more available globally, increasing the demand for these local Mexican assets in the case of Mexico, lowering their interest rates. So, there's a lot of reasons to get assets on chain. Making programmable money, making it much easier to create different products on chain, creating a much more innovative financial system. So that's where we're going. And I think DeFi, the meme coins, has been practice for that. We're not there yet, but we're getting there. That's stablecoins. What else does the executive order says? So, another point in the executive order is that it's going “to protect and promote the ability of individual citizens and private sector entities alike to access and use for lawful purposes, open public blockchain networks without persecution, including the ability to develop and deploy software to transact with other persons without unlawful censorship.” And we've seen the beginnings of this. So, it looks like the DeFi broker rule may not go through. We'll see. This is in the last days of the Biden administration, like literally December 27th, 2024. Treasury and the IRS finalized a rule to make DeFi protocol builders, software builders, brokers. And that's just a fundamental misunderstanding of decentralized finance. There's a reason why we have regulation of brokers. It's because you are giving someone your money. And you want to trust them because now they have control and access of your funds. You open an account with Merrill Lynch, you're giving them your money. You're putting your money into their account and they control. So, there is a reason for regulation of brokers. A decentralized finance, however, is a software protocol. There is nobody who gets control of your money. There is no broker. There's nobody on the other end who has access to your account. It is just software, which makes it easier for people to transact and trade with one another. But you never, you have self custody. You are not giving control of your funds over to another institution or purpose or another institution or process. So, there's no entity to collect customer information. There's no one there to issue a 1099. Bitcoin cannot issue a 1099. There is no Bitcoin company. There is no, it is just software. It is just software out in the ether, quite literally. And this broker rule, it threatens innovation, not just in decentralized finance, but in crypto economics more generally. So, one of the potential promises of these crypto technologies is to build protocols without firms. Okay, firms are great. I love firms, but they may not be perfect for everything. So, another possibility, for example, is to think about Uber without a firm. So, imagine software, which simply allowed drivers and people looking for a ride to connect with one another. Okay, it is possible to do that with software alone, without a firm, just using a protocol. And if you make the software a broker, it has to issue 1099s or whatever. It's not going to happen. It can't happen because there's no company there. So, the promise of these crypto software, the promise of crypto economics is to do a lot more without intermediaries. And we're going to have to change regulation to meet that reality. Next kind of example, reducing the prosecution of people who have created interesting uses of the blockchain. One example, prediction markets, particularly in elections. So, prediction markets are great, great institutions for predicting everything from elections to elections to movie box office revenues to pandemics. Okay, currently, they've been governed by a pretty complex legal framework, mostly from the CFTC. And particularly when it comes to election prediction markets, the CFTC has only allowed small dollar bets, small dollar amounts from academic-run prediction markets like the Iowa prediction market, the restricted large dollar ones. In October of 2024, a court had ruled that the CFTC had failed to prove that prediction markets for elections harm consumers or voters, and they legalized them. Polymarket, which is an unregulated crypto-based market, which got a lot of attention in the recent election because they correctly predicted a Trump win, better than polls. They got a lot of attention, not all of it good for the developer, Shane Copland, who was, his apartment was raided, the FBI took his computer, he took his phone, things like that. It is currently illegal for US citizens to bet on these markets, to bet on a crypto prediction market. That, I think, again, is inconsistent, at least with the spirit of the Trump executive order. So that's something which should be looked at, is are we prosecuting people who are using blockchains to produce useful markets, the executive order says we shouldn't do that. Another example, Tornado Cash, more controversial. This is a cryptocurrency mixer, which is designed to increase anonymity. The US Treasury's Office of Foreign Assets Control sanctioned Tornado Cash in August of 2022. The Fifth Circuit said that Tornado Cash smart contracts were not property, they couldn't be sanctioned. The U.S. DOJ, however, is still prosecuting the developers of Tornado Cash for allegedly facilitating money laundering and sanctions violation. But again, this is software that operates so that its owners have no control, so that is, owners is actually the incorrect word, so that its writers have no control. The authors, yeah, authors, not owners, the authors never control the money, so it's not a money transmitter, okay? It is software which people use, but the software author does not control how the money and how the software is being used. Again, the software is just out there in the ether, and it shouldn't be illegal to write software. Finally, “protecting and promoting the ability of individual citizens and private sector entities alike to use public blockchains to participate in mining and validating”. And I think, if you don't know, so the holders of cryptocurrency are the people who are And I think, if you don't know, so the holders of cryptocurrency often do participate in mining and validating. So, for example, if you own some ETH, which is the security, which is not, excuse me, I shouldn't say security, which is the token, which is the currency of the Ethereum blockchain, okay, you may stake some of that and earn some more ETH, okay? You earn some more ETH while you're staking. Now, this has created quite a bit of complexity in the tax system, okay? It's quite a bit of complexity and uncertainty, because suppose that in November of 2021, for example, you earned from staking one ETH worth, let's say, $4,800. The IRS says you owe taxes immediately on that $4,800. But in April of 2022, when you come to pay your taxes, the ETH might only be worth $2,700. These are reasonably accurate numbers for this period of time, okay? So, you actually could owe more taxes than you actually have, right? That is quite possible. So, you can see the complexities here. This is like taxing apples when they're grown on the tree, rather than when they are sold, okay? And it creates a lot of problems for taxation for individuals. So, I think my view is that one should tax the staking, the ETH gains, only when sold, okay? This would simplify things. Now, note this is not about avoiding taxes, okay? Not about avoiding taxes. If the person holds ETH and the ETH goes up, and they sell, then they would owe more, okay? It's about simplifying the tax system and making it easier to do with the executive order, spirit of the executive order, which says we want to make it easy for anybody in the United States to participate in mining and validating, and simplifying the tax system would help to do that. Okay, that's it from me, but I want to turn it over to my colleague, Garett Jones, who is also a professor of economics at George Mason University. And Garett is also an expert on stablecoins. He is the Chief Economist for Blue Chip, which is a way of rating stablecoins. It's like the Moody's of stablecoins. How do you know your stablecoin is actually stable? How do you know that it's not going to—they're not going to rug you, they're not going to run away from you? Go to Blue Chip and check out the quality of different stablecoins. Garett?

Professor Garett Jones: Oh, well, thanks very much. So, I'm going to talk a bit about stablecoins, the SEC, and financial innovation. And as Alex mentioned, I am Chief Economist at Blue Chip. We give letter grades to stablecoins, A+ through F, and nobody so far has gotten an A plus, but there are quite a few Fs, and you can find our ratings on bluechip.org. Glad to take questions about that in the Q&A. Really, what I did is I applied a lot of the things that I've learned from my GMU colleagues, Alex, Tyler, Larry White, great folks to have on board giving advice. So, if you want to understand money, our team at GMU is one of the best places to learn about it. So, Alex talked about the White House's EO on crypto regulation. I'm going to talk about what the SEC has been having to say about that in the last couple of weeks. So as some of you know, SEC Commissioner Hester Peirce has been put in charge of a task force that will come up with the SEC's own rules regarding crypto regulation. And she's our former colleague at the Mercatus Center. And long ago, she was my editor on a book project where I contributed a chapter, and she was a great editor. Just the right level of politeness and demands for improvement, which is just what you want in an editor. So, she has a one-page statement. I don't want to give people homework here, but her one-page kind of very personal statement called “The Journey Begins”, I think is one of these things that's worth reading if you really want to see what her take on crypto regulation as part of her broader worldview is. And she spent the last few years looking at some decisions from her SEC colleagues when she was in the minority, and she didn't like where that was going. And she was clear about that in various public settings. She's friendly with a lot of folks. She's well-liked in the crypto community, I can say that.

At the same time, people should be aware that she is very happy to strongly prosecute crypto fraud cases, consumer protection, making sure that the standard rules of commerce where you can't lie to people, where rug pulls get punished, for instance, that's something that she's on board with. And this balance between enforcement and innovation is what she's interested in. I think it's little surprise that in just the last week or so, the SEC has approved new kinds of stablecoins, one in particular, that actually allowed people to pay interest. So, for a long time, there had been regulatory uncertainty about whether if a stablecoin paid interest the way your bank account pays interest, did that run afoul of securities laws? Could a stablecoin only be $1 for $1 all the time? And outside the U.S., people were holding these yield-bearing stablecoins, and now people inside the U.S. are allowed to do that. It's a small innovation from the point of view of maybe a lot of people, but it really changes the demand for stablecoins, I think, in an important way. And getting this balance right will be important. So ,Alex earlier showed this, that Visa slide, the slide from Visa Capital, showing how really huge the trades have been in stablecoins and how they've just skyrocketed in usefulness over the last few years. If you read the fine print on there, Visa says, hey, we're actually, this is Nic Carter's slide. And Nic Carter is very deeply involved in the world of crypto. He is a partner in Castle Island Ventures. He's created a new stablecoin that people, for whatever reason, don't call a stablecoin, called Athena. And he's also made a lot of attention in the D.C. world because he helped document what people call Operation Chokepoint 2.0. He collected a lot of evidence of people who were being debanked because they had sometimes quite tangential links with the crypto industry. He did a lot of very deep Twitter threads that got a lot of attention. On that issue, surprisingly, he's never testified before Congress, to my knowledge. I think that he's the kind of person that knows a lot about the field on both the political and the economic sides and is very interesting to talk to. I've got to speak to him twice briefly. And so that data is from a great presentation that I really recommend to you where Nic Carter says that stablecoins are going to evolve much like euro dollars did and that the U.S. is now going through at high speed the same process that the U.S. went through back in the 70s. So, after the U.S. went off the gold standard, after Nixon closed the gold window, Bretton Woods fell apart, inflation took off, European banks found that they really quickly lost access to U.S. dollars. They really liked being able to get U.S. dollars back when this informal weird kind of gold standard existed between the U.S. and Western Europe. And they loved being able to just make deals in dollars, to borrow money in dollars, to borrow and lend in dollars. Very convenient. What happened when the gold standard broke down? Europeans tried to find their own way to create fake dollars. We call them euro dollars. What euro dollars are is dollar-denominated accounts that exist outside the U.S. They originally started off just in Europe, but now they're everywhere. But we still call them euro dollars. So, they're dollar-denominated accounts. You can go to a French bank in Paris, you can go to a British bank in London, and with a little effort, get a dollar-denominated account. Why? Because people like dollars. It's the universal currency. And for a long time, the U.S. Treasury didn't know what to think about this. Should we like the fact that people are making essentially fake dollars overseas? Now really, a lot like with crypto, they weren't that fake. They were actually overwhelmingly backed by U.S. dollar deposits that sat in New York. But the Treasury's like, what if other people are making dollar-denominated accounts and they're not using our banks? Is that a good idea or not? It took the Treasury a long time to come to the position that, yes, that was actually good. That it was good to have European banks needing dollars. And even if it wasn't good, it was more or less inevitable. So, you might as well make lemonade out of the lemons if you thought they were lemons. And this process is what's been going on with the world of stablecoins for a while, right? People have been wondering, well, these dollars are outside of the regulatory purview of the U.S. Aren't people going to use that for bad things? I mean, euro dollars clearly were used for things that the U.S. might not have been crazy about. Shouldn't we be worried when people are using U.S. dollars to, you know, perhaps evade sanctions or engage in gray market or black market transactions?

The same concerns have been replicated. And so, what Nic did is in his presentation, he shows, hey, look, the learning process that happened, that took from the 70s until the 90s, really into the global financial crisis, to happen with euro dollars, is happening in basically a 10-year period with stablecoins. Stablecoins. And in the global financial crisis, for instance, in 2008, European banks that had dollar-denominated accounts, they were under a lot of pressure. And so, they pleaded with the U.S. Treasury, hey, give us access to, you know, to your lending facilities. And the Fed found ways to do that. They decided that basically lending freely, and getting paid back, but lending freely on good security to these European banks was actually good because it helped maintain dollar dominance around the world. And so, the same thing will likely happen in the world of stablecoins. As Alex mentioned, stablecoins definitely raise demand for U.S. treasuries. And a benefit of these stablecoins being around the world is that when there's a crisis and stablecoin funds are put under pressure, whether they're in the U.S. or overseas, the U.S., the Treasury, the Fed, can together find ways to lend to these folks, and that gives them leverage, right? If you lend to somebody in a crisis, you can start making good asks of them. But also just making sure that the dollar is the lingua franca of the global financial community helps make America the dominant focal point for transactions. So Nic Carter's, that graph, as I mentioned, is Nic's, and the fact that Visa itself thought it was so good that they were going to use it in their report is a sign that he's a credible witness on this issue, and he's been very good on these issues. So, as Alex mentioned, most of those trades in that graph are just for cash parking between high-speed financial trades, right? That appears to be the majority of those transactions. So basically, if you sell your Bitcoin and you want to buy some doge, well, a lot of people in between will hold it for a few minutes in USDC or some other stablecoin. So, it's basically a way to park your cash, just as when people sell stocks, they'll park their money in cash for a while before the next transaction. You very rarely directly sell a share of IBM for a share of Tesla. Instead, you park it in cash in between. The same thing is happening with the world of stablecoins. Very handy, but not what we think of as routine day-to-day transactions that the public are using. So, it could stay that way. I don't think it will stay that way. I mean, but even if it were, that's actually a very good use for a form of money to be able to facilitate high-speed financial transactions to make money work faster. Stablecoins can do this because they are cryptocurrency and they can be programmable, right? There's much less need to have a person involved. So high-speed automatic transactions, getting people out of the way, letting people do other things other than just file paperwork, very useful way to make good on Satoshi's promise. El Salvador, though, shows us some limits if we're hoping to quickly make stablecoins a part of regular payments. Bukele in El Salvador tried to make crypto as legal as possible. He made Bitcoin an official currency in the country. And aside from a quick burst early on, only a tiny percentage of remittances to El Salvador are made in stablecoins or any other kind of crypto. So, getting the last mile problem, which was important in the world of the internet back in the 90s, like we can build all this internet that goes from city to city or from country to country, but who's going to pay to put it in that last mile into your house? That last mile problem is a problem with many retail services that involve network effects, where there's obviously a huge increase in returns benefit to building out the whole network, but then, “gosh, how do I turn my stablecoin into some dollars or some pesos or some francs that I can actually spend?” That last mile problem sits there with every currency. It's not unique with every form of currency, not unique to crypto, but it's one that crypto has to solve. So, as Alex mentioned, this thing of the question of, are crypto fees that much lower than credit card fees? Yeah, obviously. Your typical exchange fee for using a, from a merchant's point of view of using Visa or MasterCard is 3%, right? They're paying 3% for that. Why are they willing to pay 3%? Because customers, A, because customers like using credit over cash, but also cash is just a hassle to manage. It's expensive. It can get stolen, take some space. All the metal coins are really expensive to take care of, and people still want those. So, moving to electronic transactions actually is worth it from the firm's point of view. But at the same time, crypto does, as I mentioned, face that last mile problem. Like, if people are not going to live in a world where they're doing all this work, people are not going to live in a world where they're doing all their transactions on the ether, where we're all just Venmoing each other, like 60 bucks or 80 bucks after dinner and a night out. If we're actually going to turn it into money at some point that we care about, that involves going from one network to another, from one medium to another. That turns out to be expensive. So, crypto fees, obviously very low. Wire transfer fees are really low too. Electronic funding, all forms of electronic funding are quite inexpensive from the point of view of the people who are running it. But look at what credit cards offer that crypto cannot offer right now. That buyer and seller financial front end, handling the network, paying the cost of the network, various forms of fraud insurance, the ability to refund, to ask for a refund and have a pretty good chance of getting a refund. Even if you just don't like the good or you think it's broken, if you say it didn't show up. Part of what Visa and your various issuer banks are doing for you, Visa, MasterCard, whoever, they're acting as a form of insurance. They're acting as an insurance company for you. And that's a really valuable product to consumers. Stablecoins are basically the equivalent of a fire and forget missile, right? Once you press the launch button on your transfer, if it turns out you got one digit wrong in your 16 or 24 or 36 digit secret code you were using to send to the person, that money's gone. That's just gone. There's no way to get that back. There's no way to do a pullback of that cash for the common modal transaction. So, the world of crypto is definitely a world of buyer beware where customer autonomy and empowerment is taken really seriously. And if there's one thing Americans don't like, it's being responsible for their own decisions. So, I really think that for Stablecoins to compete as a retail front end product, they'll have to find some way to offer these consumer and retail services. Fortunately, Stablecoins can be written in ways that involve things called smart contracts that can have elements of this. Ethereum created by Vitalik Buterin was the most famous version of this. He created the most famous Stablecoin, excuse me, a form of cryptocurrency that allows people to write software that has extra conditions on it. And that extra conditionality built into it can be essentially like a terms and conditions. Smart contracts often get overhyped, but they are still underutilized as a way to basically solve whatever problem you're thinking of in terms of Stablecoins and cryptocurrency more generally. So smart contracts as a way to build law into software code is something that I hope you and your bosses are thinking about over the next couple of years. Finding ways to make that legal with safe harbor protections for people who try out new things in this world of crypto experimentation will be really valuable. So, finding ways to turn smart contracts into safe-to-practice, safe-to-practice sandboxes for customers, that's gonna be very important in the future. But getting that, when we look at who's using it now, so when we look at the Stripe acquisition that involves the use of Stablecoins, I think it's gonna be important to keep in mind that those are going to be overwhelmingly business-to-business transactions and businesses can work out their problems in the backend behind the scenes in ways that don't really hurt folks. So, customers don't have to worry about it. I think that's gonna be a form of where we're gonna see a lot of innovation right now. When you talk to people in the field, let me see if I can, yeah. If you talk to people in the field who work on this, one of the reasons Stablecoins turned out to be useful is because they work 24/7. If you wanna say, what's the value add from firms, from the point of view of firms who are engaging, who are jumping into the world of crypto, they are into the fact that crypto markets are open nights and weekends, right? Our main most liquid markets for stocks are the sort of 830 to four markets, right? And crypto markets can and often are extremely liquid after hours. So that's a form of a crypto benefit that doesn't fit into these galaxy brain software innovation boxes, but it's just, wow, it works when I want it. Just like I as a normie can do bank deposits in the middle of the night. Now, big financial institutions can do a $10 billion transactions in the middle of the night and be sure that they're getting a pretty good price. So liquid markets 24/7, a definite value that a lot of people would like to take advantage of, especially in a global economy. So, this question of whether stablecoins do need regulation, this is very much a public choice George Mason kind of question. A key question whether they need regulation is when a crisis happens, do you think the president's going to bail them out? So, in the global financial crisis, money market mutual funds were basically a form of a sort of stablecoin, an unofficial bank account, an unofficial checking account that was backed by often short-term securities, just like stablecoins are. These money market mutual funds, which were a huge part of the U.S., didn't have any official U.S. government insurance from the FDIC. Nothing on paper said that, hey, if you get in trouble, the government's going to bail you out. But as soon as they got in trouble during the financial crisis, the Fed found a way to bail them out. So, whenever bailout, if you think that in a crisis that bailout risk is high, then it makes sense to regulate those stables now. So, you can say all day long that you're going to be laissez-faire and let the chips fall where they may when the crisis hits. But if you're laissez-faire every day except the crisis day, you're not laissez-faire, right? People in financial markets have a hunch of who's going to bail them out. And we kind of know that there's a lot of too big to fail, too risky to fail, too connected to fail that exist out there in the real world. And that's a reasonable argument for going in and regulating stablecoins to make them safe so that you don't have to bail them out. It's a little bit like requiring a fire insurance. Excuse me. It's a little bit like fire departments requiring houses to put sprinklers in, right? You know, we know you guys, you know, we're going to show up. We firefighters are going to show up if there's a fire. So, we want to make sure there's less chance of a fire in advance. So that's something to think about. So, this SEC task force that Hester and her staff are working on are going to shape rules that last for decades. And it's probably going to happen really fast. So, this is a case where the next six months, nine months, at most 18 months, is going to shape the rules of financial technology for decades. These rules are sticky. These rules last. And stablecoins are, so stablecoin rules that come out of the Senate and come out of the SEC over the next few months are -- you and your co-workers, you and your bosses are going to be shaping the future in an important way. I do think stablecoins are more likely to be a brand extension of the U.S. dollar than they are a form of competition. People can debate that somewhat, but I think it's, by now, the fact that a loan that boosts demand for treasuries is important enough to think of it as a net positive rather than negative because if there's one thing the U.S. government needs right now is a lot of people who need U.S. treasuries. So that's going to help keep our interest rates lower. And the balance between innovation and protecting against systemic risks is something that all finance has to deal with. And so I hope that you and your colleagues take some lessons from the global financial crisis and from the world of euro dollars in coming up with the ways that your bosses are going to come up with rules for stablecoins. Thanks.

Alex Tabarrok: Okay. So, I think we can take some questions. There's a few questions in the Q&A, Garett. Can you see those?

Garett Jones: Oh, yeah. I didn't close the bookmarks on the right side of my screen. It's one of my people, one of my folks asked. So yeah, I should have done that.

Alex Tabarrok: So, I'll take the third one.

Garett Jones: You take the first one while I'm digging around.

Alex Tabarrok: I'll take the third one. I'm going to leave you. Garett used to work in Congress. I'm going to assume knows more about Congress. What is the current state of the market for algorithmic stablecoins? And I think the question there is how trustworthy are they? How much can you trust the algorithms? It's very clear that the algorithms can go wrong. We had the Lunatron fiasco. So, I think the market is going towards dollar-backed stablecoins, which is the ones, by the way, which the executive order supports. So, the executive order does not support any stablecoin. It supports dollar-backed stablecoins, right? And that is where USDC, Tether, that is where the market is focusing. There seem to be more trustworthy that you actually have a reserve there. The algorithmic stablecoins, like maybe, I'm not saying they'll never work, but I tend to trust them a little bit less than some of the reserve-backed stablecoins. Should I buy crypto? If you have some, look, crypto is, it should be a small part of any person's portfolio, like stocks, bonds, a little bit of crypto. If you want a high-risk crypto, you know, high risk, high reward, you know, have some fun, it's fine. Do not put your retirement account in crypto. Do not put any money that you cannot afford to lose in crypto, but diversify, you know, you should have a little bit.

Garett Jones: Yeah, I'll dive in on this question of algorithmic stablecoins. And yeah, algorithmic stablecoins, in general, are quite risky. I'd say that most of our, the vast majority of our Fs are something that you could, at Blue Chip, are something you would call an algorithmic stablecoin. Part of the reason is because sometimes the algorithms are written in unclear ways that involve, that make rug pulls easy, where you kind of take people's savings. And that doesn't mean everybody's, the people doing it are necessarily bad, but when the door is open, you just have to worry about it, right? And some algorithms are very poorly written algorithms. Some algorithms are designed to back the coin by just printing more of some kind of alternative meme coin to try to pay for the stablecoin, and try to back the stablecoin. That's a very risky form of backing for a stablecoin. The Terra Luna disaster, which happened a couple of years ago, was a version of that. But at Blue Chip, I have to say that we have given an A to an algorithmic stablecoin, and that is a coin that is over-collateralized by about 250%. So normal banks want to hold maybe like 105% of their assets for every liability. So, if you're holding $100, if you say you're offering people $100 worth of US dollar deposits, you hold $105 in assets to back that up. And that might be treasuries and loans and whatnot. But that's because those assets are pretty safe. Crypto is so volatile, an algorithmic stablecoin that's backed by crypto has to be massively over-collateralized. And that makes it capital inefficient. You have to invest a lot of stuff that just has to sit there and chill. Athena is a stablecoin that I mentioned that Nic Carter has that's trying to find a way to square that circle. At Blue Chip, we haven't officially rated it yet. I have my own personal opinions I'm glad to talk about in other settings. But algorithmic coins can work in principle. But the nice thing about a centralized stablecoin is there's a boss in charge. So when something goes bad, you want to have like a firefighter that can come and put out the fire. Algorithmic coins are controlled by software. And the question is, do you trust software enough to solve the problems that you haven't thought about? Like I can't come up with an algorithm for a firefighter to fight a fire. I just need a person in the house who just is an expert and knows what to decide. So, can you have someone who just comes in and runs things, makes big decisions in a crisis? That's what we give up when we switch to algorithmic stablecoins. There are benefits, but that's a cost. I'll answer this question that you mentioned about current legislative efforts in Congress. I've read parts of Senator Hagerty's draft Genius Act, which is a stablecoin bill. And that has some parts that would make stablecoins safer overall if they would comply with that. So, for instance, Circle USDC, which is the largest US-based stablecoin by far, it's connected to Coinbase. Right now, in our judgment of Blue Chip, they are not fully bankruptcy remote. If there were a bankruptcy, there's no guarantee, there's no credible assurance that a bankruptcy judge would look and say, okay, USDC depositors, people who hold USDC stablecoins, you're first in line for getting your money back. That's what you want in a bankruptcy if you are an investor and have something that you feel like is a bank account. A stablecoin should feel like a bank account, and those people who hold them should come in first in bankruptcy. You know, it could be that we can't tell what would happen in a bankruptcy if hypothetically it happened, but it's possible that the judge would say, well, the USDC people are kind of important, but there are all these workers who didn't get paid their salaries, and the people who watered the plants at the Coinbase headquarters didn't get paid, so we're gonna pay them first. And then if there's money left, we'll pay the USDC folks. So if you're not in front of the line, that's a real risk to depositors, to stablecoin holders. What the Hagerty bill does, what the Genius Act does, it says, as far as I can tell, I'm not a lawyer, but it says, these depositors, people who hold stablecoins go front of the line when there's a bankruptcy. Absolute front of the line. And that would be a big step forward for depositor safety, for user safety. Just saying, if it ever goes down, not that we're saying it will, but if it does, these guys go to the front of the line. That's important. It would also require more credible audits, which would be good news. It also would ban basically lending out your assets on the sly and not telling people. That's called rehypothecation of your assets. And basically secretly lending out your treasuries so that you can raise some money so you can go buy some risky stocks on the side, for instance. People might do things like that. It would make it very, very hard to do that. And so overall, those are two really good improvements. It would, not that every coin should be like that, but it would make the average American coin safer. There are probably weaknesses in the bill too, but those two strengths are worth noting.

Alex Tabarrok: So, I will answer this question by Jim Copeland. Hello, Jim. Which is about the taxation of staking. Jim points out quite correctly that if you're given a grant of stock, the stock is valued at the moment the grant is given. And maybe a year later, the stock has gone down. So, isn't this really the same thing? Yes and no. So, I think there's a couple of key differences. One is that very few people are granted stock. And when they are, the CEO or whatever, they have lots of good financial advice. And it only happens very occasionally. On the other hand, with staking, we're talking about millions of people who get staking rewards every day, sometimes multiple times a day, like multiple times a week, right? So, you have millions of people that are gathering these awards. They're financially not that sophisticated. It would be quite difficult to handle all of these transactions. It doesn't just happen once or twice in a lifetime. This is happening continually. So, I think there should be a, one way of thinking about this is like a de minimis kind of rule, that if it's below a certain amount, okay, then you're not taxed until it's realized, something like that. But the big difference is that we're talking about millions of people many, many times a day. It is in principle the same as stock, but in actual practice, it's quite different. Will we see a significant increase in companies issuing their own stablecoins? I think yesterday, Bank of America or Goldman Sachs, one of them said that they're gonna-

Garett Jones: Bank of America.

Alex Tabarrok: Bank of America. So, I think we're gonna see, yeah, lots of innovation, lots of competition in this field. We want, that's good. We're gonna see things we're not predicting right now. So, I think that's an interesting move forward.

Garett Jones: Alex, what do you think about Esther George's question there? I'm gonna make it live.

Alex Tabarrok: Yeah, so the question is, is the benefit, the demand for U.S. treasury debt held by stablecoins, is it larger than the bailout risk and moral hazard as we saw with money markets? It's a very good question. I'm not sure, look, I mean, the answer depends upon is the regulatory framework good, right? If the regulatory framework is good, then the answer is probably yes. If it's not good, then the answer is probably no. So, either, the good thing about crypto so far is that actually because it has been so distinct from the U.S. financial system at large that you can have these big swings in crypto prices which don't affect housing prices, which don't affect consumer demand because it's just so isolated. Now that is gonna change. That is gonna change because we're moving towards a world in which digital assets are just gonna become more common. So, although I understand the question, I think there's no doubt that we are going to be living more and more of our lives online. And so this is gonna happen whether we like it or not. And we just have to proceed forward. There isn't really a lot of choice like Euro dollars. There just wasn't a lot of choice and there's not a lot of choice here either unless we're gonna confine ourselves like the Amish to, you know, we're gonna say no more digital, we're not gonna move, we're not gonna own digital progress. It's not gonna happen. So, we're coming to the top of the hour. Garett, is there anything you wanna conclude with?

Garett Jones: Yeah, I wanna point out that during the global financial crisis, when the reserve fund, the first MMMF to break the buck, helped set off the early part of the financial crisis. That's when the assets basically fell by 3%. They went from being worth a buck to being worth 97 cents. That was enough to set off a huge financial panic. Stock markets can collapse massively and nobody freaks out. Like 10% stock market drops, people complain about it on the internet, but they're not changing their world. 3% prices in assets for things like stablecoins can set off a huge panic. So, the rules people use to think about money, the safety of money are just different than the rules we think about for other parts of our financial lives. So, keep that in mind when you're thinking about what kind of rules can set off a freak out. 3% is enough.

Alex Tabarrok: Right, so you guys have a tough job. You're gonna have to manage the traverse between innovation, which we all want, and between safety. And that's not easy. I think the previous administration got this more-or-less wrong. I think we do need to move forward. This is the world which is happening, whether we like it or not. And it's really important that the U.S. take the lead. Okay, the world is going digital. The world is going decentralized finance. The world will be using stablecoins. And it's very important that the U.S. take the lead, maintain dollar dominance, maintain innovation dominance, and set the pace for the new world which is happening. So, thank you all for listening. And feel free to contact Garett or myself. And thank you all.

Garett Jones: Thanks very much.