Public Key Podcast

Reshaping the Future of Stablecoins: Podcast Ep. 146

January 21, 2025 | by Chainalysis Team

Welcome to season 3 of the Public Key podcast! New Season, New Hosts, New Look. The global stablecoin legislation discussion is increasing every day, but if you have a framework in Singapore, that’s independent from the EU and the U.S., it defeats the whole purpose of having a stablecoin that’s supposed to be frictionless and make global payments easier. In this engaging episode, Jason Somensatto, Head of North American Public Policy at Chainalysis, talks all things policy with Lesley Chavkin, Head of Global Public Policy at Paxos, as they explore this evolving landscape of crypto policy and the intricacies of crypto regulation.

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Public Key Episode 146: The Future of Money: Are Stablecoins the Key to Global Payments?

The global stablecoin legislation discussion is increasing every day, but if you have a framework in Singapore, that’s independent from the EU and the U.S., it defeats the whole purpose of having a stablecoin that’s supposed to be frictionless and make global payments easier.

In this engaging episode, Jason Somensatto, Head of North American Public Policy at Chainalysis, talks all things policy with Lesley Chavkin, Head of Global Public Policy at Paxos. They explore this evolving landscape of crypto policy and the intricacies of crypto regulation, the potential for stablecoins and the impact of policy-making on the future of digital assets.

Lesley explains Paxos’ global operations, including their strategic expansion in the EU and the implications of the Markets in Crypto-Assets (MiCA) framework, while sharing a behind the scenes look at their stablecoin partnership with PayPal’s PYUS, and the essential need for a robust federal regulatory regime in the U.S. to reinforce the US dollar dominance globally.

Quote of the episode

“ There’s a real value from U.S. leadership and national security position to really support the development of well regulated U.S. Dollar stablecoins as a way to bolster the U.S. Dollar and keep it the world’s reserve currency.”  – Lesley Chavkin (Global Head of Public Policy, Paxos)

Minute-by-minute episode breakdown

2 | Lesley’s career from the public sector with the CIA and Department of Justice

4 | Navigating crypto policy through global government and financial sectors

6 | Paxos: The “OGs” of blockchain infrastructure for enterprises

8 | Understanding the digital asset stakeholders that have an impact on policy

11 | The difference between a trust structure and a traditional bank

13 | Navigating the challenges of EU’s MiCA stablecoin regulations

16 | The role of stablecoins in payments and US dollar dominance

22 | Terra Luna: Understanding why all stablecoins aren’t created equally

26 | Explaining away concerns to regulators about financial crime in digital assets

33 | The need for a stablecoin federal regulatory program in the USA

39 | The future of stablecoin regulation and global financial innovation

41 | How governments could benefit by using stablecoins

Related resources

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Speakers on today’s episode

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Transcript

Jason 

Welcome Lesley Chavkin to the public key Podcast. I’m Jason Somensatto. I am the head of North American Public Policy here at Chainalysis, and I’m joined, as I mentioned, by Lesley Chavkin, who is Head of Global Public Policy at Paxos. Thanks so much for joining me today, Lesley, I thought I would start by helping the audience learn a little bit more about you and your past. We both have similar titles as Head of Public Policy, and I think my experience has been that folks who have a crypto policy title usually have a varied background in terms of time in the government, time in traditional finance and whatnot. And I think the same is for you. And so maybe you can walk us through a little bit of your background, including maybe starting with what your experience within the US government was like, Yeah,

Lesley 

for sure. And I agree. I don’t think there’s any one template for policy roles in the crypto world, so you’re totally right. So I started my career after graduate school in the US intelligence community. I started at the Central Intelligence Agency, the CIA. I was an economic analyst there. And, you know, it’s a funny thing to say out loud. It never comes up in conversation. I was very fortunate, because I finished grad school, really, at the height of the financial crisis, no one was hiring except for the US government. So I was very lucky to get that role. You know, for the intelligence community, the job at CIA is you’re providing objective analysis on foreign countries, on global developments, to the president, National Security Council, other policy makers, and you are helping inform their decisions on foreign policy and national security. And I was there for about five years and doing anything related to cryptos before that, but I quickly found out in my time there that I liked being on the policy making side a lot more less on the informing side. So I was there for about five years, and then I moved over to the US Department of the Treasury, and I spent a number of years there. I had a variety of different roles. Sort of unusual, if you talk to other folks who have been at Treasury, because I kind of got a tour of the building. I was a senior policy advisor covering the Middle East and Turkey. I ended up becoming one of our financial attaches. I was based out of the Arabian Gulf for three years, and then I finished my stint at Treasury as a macro economist covering Africa.

Jason 

Yeah, I think that tour through the building that you were talking about probably is super important now for what you do, because at least my experience is that in terms of, you know, what does crypto policy mean? There’s not really, you know, a specific vertical that is crypto policy. It is where does the crypto industry intersect with the government? And it happens to intersect in so many different ways, right? Obviously, chain analysis. We focus law enforcement, national security, very heavily, but then treasury, financial regulation and kind of every area that you can imagine. So I would I would guess that experience has probably served you well in terms of having that broad understanding of the various functions and offices and purposes of the government in your current job?

Lesley 

Yes, the alphabet soup that is the US government as a whole, but definitely the Treasury Department. And it’s funny, because, you know, when I was at Treasury, crypto was never my, you know, dedicated portfolio, but when I was an attache, so I was based out of Doha, Qatar for three years I was there, 2017, to 2020, and it just happened to be at the time that Libra was in front of everyone, right? So not only was the US government looking at it, foreign governments were coming to me in the Gulf asking, what is this? What should we make of this? And then at the same time, most of the countries in the Gulf, when I was out there, were going through or preparing for their fat F mutual evaluation. So Financial Action Task Force, it’s the global watchdog for money laundering and terrorist financing, and these countries were preparing for their regular evaluation of their legal and policy regimes and and I was really impressed to have these pretty small countries be able to look at their existing frameworks and try to figure out, okay, well, how do we incorporate digital assets? Everyone’s talking about it, but what is this going to mean? What tools can we use here? And it was particularly interesting because at the time and still today, when you look at what the illicit finance risks are in the Gulf and how illicit finance is moving. It’s not digital assets, right? It’s moving through money exchange houses and cash smuggling. But the fact that they said, Okay, we want to understand this innovative technology, even if it’s a very insignificant source of illicit finance, and we want to build a framework that captures it, because we don’t know what the future is going to look like,

Jason 

Yeah, that’s really interesting. I think one thing that might surprise people who haven’t been in the US government is how few roles actually are dedicated to something like understanding crypto instead, it is really a matter of, when does it intersect with, kind of the traditional areas that you’re focused on and like, I think that puts a. Heavy onus on the Government writ large, whichever department or agency you’re talking about, to be kind of proactive, right? Because, to your point, hey, this is something new that’s coming into the area that I’m traditionally used to dealing with. And like, how am I going to think about this problem? How am I going to address this? And it sounds like you kind of got to experience that firsthand. Well, you’re obviously not in the government anymore. You are now at Paxos, I guess maybe give the listeners an understanding of how you ended up at Paxos, and then maybe what your role is like at Paxos. What are you guys working on? What do you specifically do in your kind of Global Head of Public Policy role? Yeah. And

Lesley 

so my kind of journey into digital assets and eventually to Paxos, it started when I left treasury, I moved into banking. And, you know, I touched crypto when I was at Treasury, when I was an attache, so I was familiar with it. Did a little more when I moved into banking, and I was very interested in it, particularly around payments. How could this be used for payments? How could I address some of the problems in payments? And I thought, Okay, well, I could stay on the outside looking in, but I’m probably never going to learn it the way that I want to, unless I’m working directly in the industry. So I ended up leaving a bank, and I moved to stellar Development Foundation, which is a layer one blockchain network, and then eventually to Paxos. Paxos is the leading regulated blockchain and tokenization infrastructure provider. So we use technology to trade tokenize and custody assets for enterprise clients. So we work B to B. We’ve worked with some big names you’re probably familiar with in the past, like MasterCard, Bank of America, PayPal, which we can talk a little bit more about, but it’s it’s been a fantastic experience so far to be at a company that you know has been in this space for a long time. Paxos has been around since 2012 and for a young industry, I feel like we are definitely one of the OGS, so to speak.

Jason 

Yeah, I would definitely say you’re kind of an Institutional Name within the crypto ecosystem. And look forward to kind of digging into more of the different areas where you guys are doing business. Because I think you mentioned you’re kind of B2B, so it doesn’t look as consumer facing as probably a lot of the crypto industry does. I want to spend a second on specifically on your role, because I think one of the things that I experience kind of a similar role is like, I’m not really great at explaining what I do, because I kind of do whatever pops up or wherever I can be helpful. But I’m always really interested, for somebody with kind of a similar position, how do you describe what you do? What is the kind of day to day look like? What are the issues that are, that are top of mind for you? Yeah,

Lesley 

and it’s a it’s a big job, because Paxos, we’re a regulated Trust Company in New York, but we also have a global footprint, right? So we operate in Singapore, we operate in Abu Dhabi, hopefully soon in the EU as well. So we have this big global mandate, which means that for my job, it is very international. So we’re talking to policy makers here in DC, sometimes at the state level, on sort of developments in digital assets. So what could a piece of legislation look like? What could guidance be to the industry, and then we’re also working with regulators and policy makers overseas as well. I would say a big portion of my job is also sort of educating internal stakeholders, so those on the product and engineering teams and make sure that they understand the policy landscape and help break it down. So I often like rely on some of those skills I used from the early days working in the intelligence community to inform how do I make something really digestible, so that they, who don’t have the time to be deep in the weeds on this stuff, can quickly understand how a development could potentially impact us? So I would say, for a policy role, mine is probably equal parts internal and external.

Jason 

Yeah, I’d be curious to get your take, because it feels like a similar split to me, but in this kind of current moment where you have a transition in the government, where you have a ton of attention being paid to the crypto policy issues, kind of at all levels of government, including by people outside of the government with a lot of money who have the ability to influence what’s going to happen. There is almost kind of an endless stream of information to consume and kind of digest, what it means for the business. I’m interested. Has that been your experience? How has the kind of last couple months been in terms of trying to keep up with everything, and do you expect things to calm down a little bit, or do you expect this is going to be kind of like this for the next couple of

Lesley 

years? I think it’s gonna be like this for a while. Jason, so prepare yourself. You know, the last few months have just been so much action, a lot of it noise and figuring out, okay, what is actually essential to the business, what could impact us? A lot of that is figuring out on the US side, because you do have that change in administration, you have a new Congress coming in, who are the stakeholders that will matter to digital assets? What should we know about them? What are their positions? And also looking at what’s been done or not done over the past four years, and what’s ripe for change. So I think it’s going to be very busy over the next six months, in particular in helping educate internally around what. What potential scenarios we might see, what could come more quickly, what’s going to take more time and helping instill a little bit of DC realism for those of us that have worked in the government, things can often move incrementally, even when there’s the best intention to move it quickly. I think that will be a really interesting area to watch.

Jason 

Yeah, it’s Brent. Just before this interview, I was, you know, in a deep slack thread with my co workers talking about like, whether Doge will be an effective or ineffective effort, you know, and who knows, right? Sort of like touching on specifically the business of Paxos. You mentioned earlier that you guys are a regulated business in kind of multiple jurisdictions here in the US, my understanding is that one of your core regulatory structures is as a New York trust charter company. I was hoping you could explain a little bit what a trust charter company is, why Paxos went that route, and what that allows you guys to do in terms of your business. You

Lesley 

know, just very simply, because I think people are familiar with banks, right? You interact with them every day, maybe less so with trust. Very simply, a bank is a financial intermediary. They take deposits into their reserves, and then they lend against those reserves. A trust, however, is an arrangement that allows a third party trustee to hold assets on behalf of a beneficiary or beneficiaries, but they are not allowed to use those reserves for other business activities. So what that all means is that your assets in trust, they’re not involved in any lending. So that’s very important. So what that means for folks that are familiar with banking? So at a bank, your assets are in reserve. Those reserves are lent out. Let’s say the bank goes south. You are insured on those deposits, but only up to a cap. It’s turning $50,000 under a trust structure say that trust is to go insolvent. All of those underlying assets are bankruptcy remotes. They’re segregated from corporate assets. Creditors can’t access them. So the whole idea behind the trust structure is that it provides a lot of confidence to those that are in business, because they know that those funds are not being lent out. There’s nothing happening with them. And I think that’s a big part of how Paxos operates. As always thinking about, okay, how do we set ourselves apart when it comes to consumer protections? And this is very core, one of those ways.

Jason 

And so that structure is probably very important to your business here in the US. But I saw news recently that you guys completed an acquisition of a company over in the EU, and as we’re going to get into discussing right, the EU has some new stablecoin rules that are going into place. Well, don’t even let me summarize. The reason my title is North American public policy, not global, is because I understand the us much better than my European colleagues on to talk to me through E money services and whatnot, but I was hoping you could tell us a little bit about that acquisition, what kind of regulatory structure you’re operating in in the EU, and maybe compare that a little bit with what your business looks like in the US. Yeah.

Lesley 

So we announced in, I think it was late November, now, that we are moving forward with an acquisition in the EU of a company called membrane finance. Membrane finance is in Finland. It’s regulated under the Finnish regulator there fin FSA. What’s really important about membrane finance is that it’s an E money institution. So it’s a licensed e money institution, which means it can issue stable coins. So that acquisition hasn’t gone all the way through, but we’re hoping it will get closed out relatively quickly this year. It will be very exciting for us, because it will allow us to bring our regulated platform to Europe. So the structure is going to look a little bit different, but I don’t think you’re going to notice it from the outside. So we’re really looking forward to it. I would say it was. It’s a big decision to go into a market like the EU obviously, we can get into more of the weeds of mica if you’re interested. When it comes to stable coins, mica as a whole is really comprehensive, right? It was a world leader in looking at crypto and putting a framework in place. The downside is that it runs the risk of being so prescriptive that it could be really challenging for the startup industry in Europe, right? So I think that’s one thing that we’re kind of looking for. But in general, I think the incentive is there in Europe to make sure this framework works, because they want to stay a leader in this. Mika is very much a moment in time it was drafted, really in a response to Libra. So you can see that a lot of the provisions in mica are around what they call AR T’s, asset reference tokens, which is what Libra would have been. But as well as EMTs, e money tokens, that’s your typical Fiat backed stable coin, there are some parts of mica when it comes to EMTs that are pretty onerous, particularly for non Euro stable coins. You know, I understand it, because the Europeans were very focused on monetary sovereignty when they put this piece of legislation together. But it’s challenging as a US dollar stable coin issuer, because the reality of the market is that, you know, something like 95% And are more of all stable coins in circulation, or US dollar stable coins. We’re very excited to go into the European market. And I think it’s not an issue that’s political in the EU as it can be in the United States. And I think we’ve got a good partner on the policy makers, both at the member state level and at the EU level, who want to get this right, but I think it’s probably going to take some tweaks over time.

Jason 

I mean, we’ve been talking a little bit about kind of the regulatory foundation that’s been in place, and you’ve made reference to issuing stable coins, but I was hoping you could give us a little bit more context on like, what does your stable coin business look like? I know you partner with PayPal on their stable coin. I saw recent announcements around the global dollar network that you guys are involved in can maybe give me a little bit of an understanding of, like, there’s not just like, one stable coin you guys are involved in. What’s business look like there? What do you guys see as the future for stable coins? You know, one of the points you made there, about the 95% of stable coins are us, dollar back. You know, I would go even further, like Chainalysis data shows, right? That I think the vast majority of transactions in the crypto ecosystem involve us, dollar back stable coins, like 60% or something more of the volume, right? And so it’s a very new form of payment that seems to be taking off. And love to understand how you guys intersect there, yeah.

Lesley 

So we have a whole stable of stable coin products. The one that you mentioned first the partnership with PayPal. It’s part of the reason I was so interested in coming to Paxos is this partnership. So in the summer of 2023 Paxos and PayPal announced the launch of pyusd, or PayPal USD, which is a US dollar stable coin issued by Paxos, it’s gonna look exactly the same as all other Paxos stable coins. So it’s transparent. It’s backed by cash and cash equivalents. It’s fully redeemable. But what’s different about that is that it has the household name of PayPal attached. And I think that was certainly the intention of it, to take stable coins out of just the crypto speculation and trading space and move them into the, you know, frankly, big and boring world of payments. Because I think that’s what the value proposition of stable coins is. And to have PayPal, which is a trusted name, and have that as one of their offerings, I think it really pushes this into the mainstream. So it’s very exciting for me. I think was exciting for the industry too, to see this get integrated into kind of that traditional payments architecture.

Jason 

It actually kind of leads me into, I mean, I feel like we’ve talked enough about business, right? We’re policy people. We talk about, like, what the what the regulatory and policy environment looks like. And I was kind of curious, what is your pitch to policy makers about stable coins. I mean, one point that you made that kind of resonated my head was the name of PayPal being associated with this was important, because I think with stable coins in a bit of a different context, and maybe the rest of crypto thinks about right, like trust matters, right, the ability to have trust in the institution and the regulations to maintain those assets, and that you’re going to be able to redeem your dollars at the end of the day are all very important, which is seemingly a different message than you know, if you’re talking about the value of Bitcoin. To a policy maker, I’m curious, is kind of like, what is your general pitch to policy makers on the value of stable coins and why it’s important, and why they should support seeing that industry grow.

Lesley 

I’m a payments nerd, so I always bring it back to payments. I think it’s also really tangible for people, maybe less so for those of us the United States, because the problems with payments, at least domestically, are not as acute. We are not feeling it every day, but I think once you try to send money across borders, that’s when it starts to hit. It can be inefficient, it can be slow, it certainly can be costly, and for communities that rely on remittances, and that’s a big problem. So these are all problems that stable coins can help solve, and I think that’s really what the value add is here. And it’s an easy story to sell to policy makers, because you can point to the challenges that they can see with their own eyes where they’ve even experienced and I’d say too, that the kind of the understanding of the technicals of stable coins, I can see that there’s been a huge learning curve from policy makers in the US globally. They understand more about how these arrangements are supposed to work, what kind of protections they’d want to see in place. But I think you know, the onus is really on the industry here to talk about why this is a game changer, what the value is. So I, you know, I’m looking forward to seeing more of that, hopefully over the next couple of years, and hopefully more data too, on how these stable coins are being used in the payment space. Yeah,

Jason 

it’s interesting. I definitely agree that, you know, the stable coin narrative outside the US when it talk about stability and payments and remittances might resonate a little bit more, but I also think there’s a factor, and this somewhat relates to PayPal involvement, is that so much of payments now is done through non bank institutions, right? That, like people are looking for alternative ways to make payments outside of, you know, just writing checks or, you know. Signing ACH transfers from their bank. And so it’s natural that technology is going to and the technology industry is going to look for ways to make that as efficient and get those payments and as many avenues as possible. And so, you know, despite what I think is an important discussion of stable coin usage outside the US, I still think there’s a really important discussion to be had inside the US, as we see kind of demand for using these assets grow and grow,

Lesley 

definitely. And I think there’s a good conversation that needs to be had. It’s already ongoing, but I wish it was amplified a bit on the role that stable coins, that digital dollars, can play in reinforcing the role of the US dollar. I’m biased. I’m coming from a background in national security international economics, and the dollar is the greatest foreign policy tool that the US has, right? There’s tremendous demand for it, and the reason our sanctions programs are so effective is because of the extent of dollar usage. So I think, you know, having digital dollars, it allows that US dollar dominance to be reinforced. Outside of my work at Paxos, I’m a non resident senior fellow at the Atlantic Council in their geo economic center, and they’ve done some tremendous work on looking at the rise of alternative payment systems. Because, you know, there are certainly countries, certainly us adversaries, that are looking at workarounds to using a US dollar based payment system. They’re not making a ton of progress right now, but what’s it going to look like in 2030, years remains to be seen. And so I think there’s a real value from, you know, US leadership and national security position to really support the development of well regulated US dollar stable coins as a way to bolster the US dollar and keep it the world’s reserve currency.

Jason 

Yeah, that’s such a good point. I kind of want to pull on a couple strings there that you mentioned. One is kind of the well regulated piece that you mentioned. And kind of going back to something you said earlier, that education is still a big challenge with policy makers. And I think most people who are probably listening to a crypto focused podcast are familiar with the events of like 2022 particularly around Terra Luna, and you know even what the term stable coin is meant to cover. You know, in terms of products that are out there on the market. I’m curious like, how has your messaging been received? How difficult has it been to kind of educate policy makers in the wake of some of those issues, and kind of like, How much work do you think is left to be done in terms of getting people up to speed and understanding the difference between a trust chartered stable coin issued with trusted institutions like PayPal and Paxos, versus what people might read about in terms of Terra Luna and other algorithmic stable coins, or whatever you want to call them.

Lesley 

It was very challenging. Very challenging after that, and I think it’s improved, but it’s still an uphill battle, because I think one of the major misconceptions around stable coins is that they’re all created equally, and that’s very far from the truth. So if you look at all the stable coins out there, very few are prudentially regulated by a competent Prudential regulator. You have some that have absolutely no oversight at all. You have some in the US that might work by state, by state, money transmission licenses. So they’re all very different. And I think that’s a big piece of the education and talking with policymakers, regulators, and just really the general public, is to educate on how these are different. I think in the US context, that certainly could change within the next few years, if we get a piece of federal legislation that mandates things. But right now, I think there’s a lot of diversity in the market, and there aren’t a ton of safe, regulated options.

Jason 

Yeah, I think one of the values of regulation is almost simply in the definitional aspect, right? That’s something that fits within the definition. That is a regulated instrument has a certain understanding of what it is, vis a vis something that’s outside of the regulatory environment. You know, regardless of the standards you’re talking about, which are difficult decisions to be made. I think in some ways, the crypto industry needs regulatory structures in part to be able to differ. You know, do some of that market differentiation, maybe aside from concerns about the trust of some specific stable coin issuer or the structure and how much risk is involved, there one of the other frequent criticisms of crypto, more broadly, but stable coins as well, is kind of and we get a decent amount of heat, because we publish data related to the connection of some of these assets to financial crimes and illicit fund flows. And I’m curious as to what your take is on some of those critiques. Do you think that there is kind of too much attention, it’s overblown. You think there’s something that’s misunderstood in that discussion. Kind of what is your response to policy makers who bring up this concern about crypto being a tool for illicit finance?

Lesley 

I think a starting point is to even look at what we mean by illicit finance in digital assets, right and chain analysis is has all the data and analysis that we rely on, and it’s so helpful because you. Even the treasury department itself has said, by volume and value of transactions, most illicit finance by far, is happening in the traditional channels, right? It’s in Fiat, not in crypto. So it’s really important to keep that in mind. Doesn’t mean that any any amount is ever acceptable, but that it’s very insignificant in the grand scheme of things, and I think it’s also important, and this is coming from me, who spent time in the US government, on sort of the NAT SEC side, is that I don’t think it’s unusual, in the early days of a novel technology, that bad actors can be some of the first adopters, because they take advantage of that kind of regulatory lag time. And you can see it was something like encrypted messaging, right? When I was working in the US government, I knew encrypted messaging as a thing that was only used by terrorists, right? It was not something for the broader public. And here I am, 15 years later, and my kids school uses Telegram for parent announcements. So in just a, you know, pretty short amount of time, you can have a dramatic change in terms of broader adoption. And so I think that’s something that we should keep in mind too, that we are in very early stages of this. And most importantly, clearly, by the work that chain analysis has done, I mean, Blockchain is transparent. It’s open. Frankly, if you were a criminal, you could not have designed a worst a worst system, right? Because it’s all out there for all to see. So I think in a lot of ways that some of those big pieces are misunderstood. So, you know, we try and do our best to kind of communicate and educate on those issues.

Jason 

In some ways, I feel like 90% of my job is simply education, right, which is, you know, it’s something new, right? And there are new risks that come with it, but new opportunities as well. And I think your comparison to encrypted messaging is so well taken because it’s, you know, it takes a while for people to understand that shift. I think I recall seeing just recently, like CISA notice to senior government officials that they should use signal as a way to, you know, ensure the privacy of their messages against foreign hacking attempts. That arc takes a while. Obviously, with the government, everything takes a while, but it is one where understanding what the real risks are and what the opportunities are, because it is the case, right that blockchains are very transparent, but it requires a lot of attention to like, what does that mean? What does this data show? How do we stay on top of that? How do we respond to that? And I think people, particularly in the government, you know this as well as I do that change from one system to another can be very difficult and time consuming, right?

Lesley 

Oh my God. Even the change, I have to say, the change from having a Blackberry to an iPhone at the Treasury Department, it caused a lot of heartburn.

Jason 

So just imagine moving to blockchain. Everybody knows as government employees with their second BlackBerry phone suffered from their own right? Yeah, we’ve been talking about things at a very high level, but I think one of the nature of a policy job is like dealing with the here and now, what’s coming up, what are the potential risks to the business, what are the opportunities from policy environment? We are in a key moment, I would say, of transition, in terms of, obviously, the US government is turning over, but I think more broadly, there’s a rethinking of people’s attitudes towards regulation in this industry. And I guess I’m interested of do you expect this transition moment means there’s going to be significant change in the underlying policy environment around stable coins in the near future? Or do you think this is more talk as the government moves slowly to your point? And one of the things that I tend to say is like, there is a ton of discussion around crypto policy, but like even looking in the last year or two, like how much has actually changed for regulated businesses is, you know, in some ways, pretty limited, but curious to your take of, do you see big changes coming? Do you just see mainly a change in attitude coming. Give us a little bit of your two cents of where we’re going from here.

Lesley 

I do see big changes coming, but I think it’s hard just having been in the government to expect something major to change right off the bat. It’s just not how government is designed. I do think having this new White House AI and crypto czar position could potentially be a huge accelerant, because I think that’s something that I’ve noticed on a number of policy issues, not just digital assets, but you really need to have White House buy in at a senior level that can rally all the agencies and departments that can collaborate with the Hill on any accompanying legislation. And so to have someone in that role, I think could be a huge benefit to the industry. But like I said, I think you have some items that are more low hanging fruit. They’re not going to take a lot to get through, and some are going to be bigger lifts. And not everything is going to be directly relevant to stable coins, per se, but I think they are broadly favorable for the industry as a whole. So I would expect things like guidance that’s been hard on the industry or hard on banks who want to do business with the industry, something like sab 121 which is this very controversial accounting guidance from the SEC I could see something like that getting pulled back relatively soon. I could see different guidance coming out of the banking regulators to make it easier for banks to engage in. Crypto asset activities. Then when it comes to something like legislation, including stable coin legislation, I think there’s a good chance that can get done. But again, the hill is going to have other priorities that are probably going to take precedence, right? First things first, they have to get through a ton of confirmations, right? So that’s going to take up the first few months. I am very optimistic, but you know, when I talk to people outside the policy space, I try to encourage them to be realistic about their timelines, because even in a best case scenario, you have a new administration that has a lot of action items outside of crypto, things like immigration, tax reform and so those are gonna, those are probably gonna go first.

Jason 

Yeah, that’s really well said one of my roles when I was within the government at the CFTC was kind of the liaison to the like interagency process as it related to the President’s Working Group on the stable coin report or, you know, F Sox report. And I don’t want to say one of the things that was missing, but one of the tricky parts to navigate is you have different agencies with different opinions on things, and who is there to kind of oversee that process and to guide like this is where the policy is going, and absent, kind of a White House involvement, or a thumb on the scale in terms it can be very difficult for the joke I often make is the government is more decentralized than crypto, right? Like it’s a huge group of people with a bunch of different opinions. And so I think it’ll be very interesting to see an environment in which you have central actors within the White House being more involved in some of these decisions. Yeah,

Lesley 

I think actually, it’s great that there is this position, because you could run the opposite risk of what we have now, where there’s there’s not a lot of action happening. People aren’t really owning digital assets. The flip side of that is, you could have every agency so eager, and you have this total unchanneled enthusiasm, and you’re all going in different directions. So I think starting off with a very empowered position that can kind of be a almost a cruise director on digital assets policy is going to be really important, yeah,

Jason 

particularly at this point in time. So I want to double click on the legislative piece, particularly as it relates to stable coins, just because it’s been such a heavy topic of discussion for quite a while now. So there have been proposed bills, you know, now, going back, I guess, a couple years around, creating a federal regulatory regime specifically to address stable coin issuance. And a lot of this comes out of the kind of pwgs call for legislation in this area. But I think right now, there is an expectation, as you were mentioning before, that there is a real possibility of seeing something get across the line here. I think there have been quite a bit of reporting that there’s a fair amount of agreement between the kind of key party leaders on some of the financial services committees as to what is necessary for federal legislation. I guess my question to you is, why is federal legislation important for stable coins? You mentioned before, like you guys have a trust charter, it works well for your business. You seem to be very successful what is offered through a federal regulatory program and legislation that would would address stable coins?

Lesley 

a great question, because right now, we have a very solid and long standing pathway in New York, right so we are regulated by a globally recognized Prudential regulator, and New York DFS has ended up influencing a lot of stable coin regimes that have developed around the world. They’ve influenced a number of drafts in DC of federal legislation. So you know, why does it even matter to have federal legislation? I think if you have good, robust legislation in place at the federal level that strikes that right balance between supporting innovation and protecting consumers. The most important value of it is that it sends a message to the market, right? It says institutions and consumers, this technology is here to stay. It’s going to be incorporated into the way that you do banking, the way that you do payments. So I think it’s really from my perspective, given that we are already prudentially regulated. It just provides sort of a signal that this technology is really lasting. So I think that’s what’s important, and I’m hopeful that we will see something in the next couple of years. Yeah,

Jason 

one of the primary sticking points that has been discussed in I feel like the media articles, but I think I’ve dealt with some of this directly, and talking to policymakers is exactly the issue you were talking about. Like, how do you balance the idea of a federal regulatory regime and putting a federal regulator like the Federal Reserve in charge of stablecoin issuing entities versus maintaining the State Route? You know, the Paxos is obviously picked. I was wondering if, like, you guys have an opinion, right? Do you think that that state route is important to preserve, or do you think like, hey, everything should transition to a more federal route?

Lesley 

If you’ve been in the stablecoin world over the past few years, it has been quite a journey. We’ve seen many attempts, both on the House side and the Senate side to put forward stable coin legislation. And you’re right. It always comes down to. To the state federal divide. From my perspective, I think an ideal situation is you get a piece of federal legislation in that allows both pathways, so you have a state option, and then you also have an option for a federal regulator. I think some of the issues I’ve had with some of the drafts that I’ve seen is the Federal Reserve is often pointed to as a potential regulator for bank and non bank stable coin issuers. To me, it’s not a logical choice, because the Federal Reserve doesn’t have precedent for regulating trust companies, money services businesses. They regulate bank holding companies, so regulating a stable coin issuer doesn’t make sense. But I think having something like the OCC digital trust charter back on the table could be a great way forward, and that was actually in one of the stable coin drafts that Senator Haggerty sent out late last year for discussion. So I think that is in the mix. And given the composition of Congress and this new Congress, I think we’ll probably see that back on the table as well. Yeah,

Jason 

it’s such a meaty issue, I feel like I could spend an hour just talking about some of this in terms of like, the Fed’s historic role, right, versus Prudential regulators like the state banks FDIC and the OCC but I think one of maybe to steel man, the argument from the Fed right is that money in general is changing. One of the pieces that I like to recommend to people that I thought was really well done is under secretary Nellie Lang at the Treasury Department did a speech on the need for kind of federal regulation of all non bank payment institutions, right? Because, and when I say non bank, I mean, you know, things like PayPal, things like Apple Pay are all ways of making payments outside of the banking industry, right and right now kind of fall into a patchwork of regulatory environments, and to the extent that that’s almost the way that we see money now, right? People see the stable coins in their wallet as money. They see the dollar account listed in Venmo as their money. You know, the Fed is like we oversee the money system in this country, and I understand the desire to want to play a very central role, versus kind of what you’re talking about, which is, at the end of the day, what we’re talking about is supervising institutions that issue these and there’s a long tradition of supervisions, or the state banking supervisors. I’m not sure I have a question here. I’ll let you just kind of respond, but just something I think I could go on for hours about. I

Lesley 

feel like Jason, this is begging for a follow up podcast on a federal payments regulator. Because, you know, that’s certainly up for discussion, and maybe that is needed. I think it might be hard, kind of in this Doge environment. I don’t know what the receptiveness to setting up a new regulator would be, but, you know, it’s something that’s been tossed around, and maybe that’s worth more exploration. Yeah,

Jason 

it’s, I mean, to pull back the curtain a little bit. I remember when we were originally starting with the PWG, which, for people who don’t know, is the President’s Working Group, which is basically a group of the financial regulators convened by Treasury to write a report on stable coins. And I was kind of working on that as the representative from the Commodity Futures Trading Commission, which didn’t have a huge dog in the fight, right? We’re at markets regulator. But I remember kind of having those initial questions of like, why are we just talking about stable coins aren’t kind of every bit of non bank payment kind of under the same thing. But it was a little bit like, Hey, Jason, we were asked to do one, give it to yourself. I guess with the time left, I’d also be interested in a little bit of a comparison. We’ve talked a lot about the US, but you mentioned your EU acquisition. You talked us through some of the Mika considerations. But like, how do you feel about where the US is right now as it relates to stable coin policy versus the rest of the world? And do you think they’re in a position that they need to catch up, or is it because their central role, as it relates to the US dollar that, like all that really matters is the US, and kind of give me the global perspective, and in comparison of what we’ve been talking to with kind of where else your business operates?

Lesley 

I think, from my perspective, if the US continues to operate without any kind of real stable coin framework, it runs the risk of not being ahead when it comes to financial innovation, which is, you know, something that the US has been for so long is a leader in finance world is going to look a lot different in the future, and I think we want to do everything we can to preserve that role. So I do think action is needed. There needs to be some leadership. I’m optimistic. I think there is a way that the US could leapfrog it’s been slow to get to this, but it could certainly put something in place and take that leadership role. I think that’s especially needed when it comes to figuring out how all of this stuff is going to be harmonized. Right? If you have a framework in Singapore that’s independent from the EU, that’s independent from the US, if you end up with all of these ring fence jurisdictions, it defeats the whole purpose of having a stable coin that’s supposed to be frictionless and make payments easier. So I think there’s a really big opportunity for the US to step up and kind of lead some of those discussions at the international level.

Jason 

Yeah, I think people sometimes underestimate how important that traditional international coordination. Has been right, and it can be a little wonky as all financial policy, I guess, can be right. But in traditional financial markets, you know, the ability to be able to trade in a global environment is really dependent on regulators having forums like Iosco and the g20 and other places to kind of come together, harmonize rules and set the foundation for what a global financial market looks like. And I think it’s interesting to watch us at a moment where so much of the focus is on, you know, regional, nation level regulation of crypto financial markets, and the kind of need to get past that line so that you can then get to those international organizations and international standard setting bodies to make what I think most people think, the promise of like more globalized financial system, real with our remaining time, we had this conversation in prep for this podcast, this idea that like potential for stable coins to actually be used by the federal government itself, I wondered if you could just like share Your thoughts on that. Do you think that’s a reality? As to how far off is something like that? What do you see the benefit being there? I

Lesley 

would love for the US government to explore this more in sort of an aid and development context and as background. So before I came to Paxos, I was at stellar Development Foundation. SDF has this project called stellar aid assist, where they leverage the stellar blockchain, MoneyGram, and then vibrant, which is a digital wallet, and they allow aid organizations to send stable coins to aid recipients. And it’s such a great program because it shows you the value of stable coins. It’s fast, it’s efficient. If you have a situation where you have internally displaced people, if you have refugees, they’re not reliant on physical bank branches. They can take their aid distribution wherever their phone is. And then on that donor side, it’s great, because I think these donor groups have really suffered from a lack of accountability and transparency in giving, and so now they can use blockchain, and they have much more fidelity into where those funds are going. So I’m really optimistic. It would be great to see some of this. And you know, from working in the US government and being around aid programs like that was always a challenge, and here is a real way that we can make it more efficient.

Jason 

Yeah, I’m, you know, I’m sure there’s criticisms to this idea, but truly, the US federal government operates globally in a lot of ways, and as you mentioned, in a lot of jurisdictions, not everybody’s got a Wells Fargo account that they can easily, you know, take a payment from. And our CEO, Jonathan Levin, has always kind of challenged me, of like, hey, think about the idea of discussing with policymakers, you know, how they might be able to lean into to using crypto. And it’s something that, you know, I don’t think I would have given much thought to before. But really the point you were making resonate a lot with me. So I guess the last thing I’ll ask from you is give me a little bit of a crystal ball view, or maybe just an assessment on how you think the future looks for crypto policy in general, for Paxos business as it relates to like where regulatory change might be coming. Do you are you optimistic? Kind of what are your thoughts there? I

Lesley 

am optimistic. I think there we’re gonna see the banks become more active, certainly once it looks like there’s gonna be a change in policy and there’s certainly gonna be competition, but I actually think there’s a lot of room for collaboration there, for banks that are interested in stable coins to go to stable coin infrastructure providers to be able to do the issuance. So I’m really excited to see what comes and I think we’re going to see first is a lot more institutional adoption.

Jason 

So I think that’s what 2025 is going to be, the year of that is great. Lesley, this is a really fun conversation. Thank you so much for spending the time with me, and we’ll get you back on to do an hour deep dive into federal payments more broadly at some point in time, thank you. Thank you.

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