Niki: I’m Niki Christoff and welcome to Tech’ed Up. Today’s guest is Chris Greico, who is the General Counsel at a crypto startup that’s created a stablecoin protocol. Lost already? Don’t be! Chris will break down everything you need to know about the concepts of stablecoins, a digital dollar, and decentralized finance AKA DeFi. I know we’re doing a lot of crypto episodes this season, but one of my goals is to create content to help smart people get savvier on tech…and right now, tech is all about crypto.
Niki: Today in the studio, we have a friend of mine, a man about Washington, Chris Greico. I think you are emblematic of a Washington professional because you have…you're an attorney, you have a background in white collar crime, cybercrime. You worked on Capitol Hill. You worked as a prosecutor and a political appointee at DOJ, and now you're doing something which is, like, classic D.C. at the moment; you've got a new gig in crypto. Welcome.
Chris: Great to be here.
Niki: So, the goal is by the end of this, people listening will know what a stablecoin protocol is.
Chris: So, a stablecoin is a cryptocurrency that is, uh, stable in value and pegged, usually to a fiat currency. So, um, it's on the blockchain. It usually has a one-to-one value between, for example, the dollar or the Euro or some other, y’know, fiat currency. Casual followers of cryptocurrency will know that there's huge fluctuations and there's volatility in cryptocurrency. So, it's a store of value, and it's theoretically a better medium of exchange than using a volatile crypto asset like Bitcoin or Ethereum or something that fluctuates by 10 or 20% on any given day.
Niki: So, I'm going to back up and explain this again, and you tell me if I'm getting it right. So a stablecoin is a cryptocurrency. And the idea is the advantage of a stablecoin is, unlike, say Bitcoin, which is fluctuating wildly, and has mostly been going up into the right over the last few years but has changed in value.
If you want to actually buy something with cryptocurrency, buying it with a cryptocurrency that's wildly fluctuating in value is riskier than buying it with a stablecoin, which is pegged to, you said, fiat currency, but that could be like the U.S. dollar or the Euro. So, it's connected to a more stable traditional currency issued by a government.
Chris: Correct. Yeah. I mean, so think about trying to buy something in the real world. Uh, we're paying for goods or services or something with Bitcoin or Ethereum, which, you know, today it's worth X, and tomorrow it's worth, uh, y’know, 20% more or 20% less. Um, so you would potentially use a stablecoin, which, you know, that's worth $1 today and $1 tomorrow, and it's always going to have that value. And so, you can say it's a hundred dollars or a hundred euros and pay somebody with that cryptocurrency.
Uh, some guy in 2013, I think he spent a couple of thousand bitcoin on a pizza, y’know, $20 pizza, and he wanted to be the first person or somebody that had exchanged bitcoin for an actual product. And y’know, now those, whatever, it was a hundred bitcoin are worth, y’know, hundreds of millions of dollars because of the appreciation and the fluctuation in Bitcoin.
Niki: Okay, full disclosure: When I started this podcast, I was a "no-coiner" and it's not because I was against cryptocurrency. It's because I just sort of, like, forgot to buy any, anything, [chuckles] and didn't want apps on my phone and was not paying attention.
Then I went to buy crypto, and I felt like the sign-up process was sort of onerous with most of the intermediaries. And I want to talk about this for a minute about the various exchanges you can use to buy crypto and then how you can purchase things with that. I ended up using Cash App, which felt like- [interrupts self] Disclaimer: they’re one of my clients. But the reason I ended up using Cash App as it was extremely easy.
So, I've got dollars in Cash App. I've got bitcoin in Cash App, but every time I think about, like, tipping someone with bitcoin, I'm like, “Why would I do that? If this $20 tip is actually going to end up being a $2,000 tip.” I'm just going to hold onto it because I have bitcoin to hold, not to spend. And so, the advantage of
stablecoins is you can spend them because right now it's actually kind of difficult to purchase things with crypto.
Chris: Right. And so, that's one of the, I still think now there, there is a, it's hard to actually buy things with stablecoins, but that's like a future use case that's not too far off.
The other advantage now is what you said about getting in and out of crypto is, y’know, you take your Wells Fargo account, and you try and put it on an exchange to buy crypto. So, you go to a centralized exchange, like, y’know, one of these exchanges that was advertising on the Super Bowl. and you try and buy your crypto. You're in it for however long. and you decide, oh, the market’s too volatile for me, I want to get out of it for a little while. It's much easier to just exchange that, um, cryptocurrency that you've bought into a stablecoin, which you know is going to hold its value, then redepositing back into your bank account.
So, you can think about it also is just holding that value on the, on the blockchain. And so, the next time you want to get into a different cryptocurrency or transfer from one cryptocurrency to the other, you can use a stablecoin as kind of the intermediary.
Niki: Okay. That makes sense! So, you've got, say, you've got your Coinbase portfolio. and you've got all these different cryptocurrencies that you're holding. By the way, anyone who has a brother-in-law in cryptocurrency has had to see his Coinbase portfolio. Like, this is a thing; they just show it to everyone.
Chris: And no coincidence that Coinbase makes one of the most popular stablecoins [chuckling].
Niki: Yes. Actually, it's really hard to get money out of Coinbase. In fact, it's almost impossible. So, if you want to put it back into dollars in Wells Fargo, there's no easy way to do that. And so, what you're saying is stablecoins still, even right now, I can't really buy that many things, but soon when we are potentially using it to buy goods and services, this is an easier way to do it. And a way that keeps the risk a little bit smaller than the highly volatile cryptos.
Chris: Right. And, and the other kind of example is, in some exchanges, you can go from one cryptocurrency to the other, but you may not be avail… some cryptocurrencies may be only available on one exchange versus another, or one, one place to buy it. And so, what you can do is you can take it, and you deposit your, or you transfer your bitcoin into a stablecoin and then use that stable coin to buy the other cryptocurrency you want. [Niki: ok]
And in the interim, if you want to hold it because you didn't want to get directly into another cryptocurrency, you could hold that stablecoin for a while. And, theoretically, there are options with stablecoins that you can earn, um, kind of appreciation on them because they're low risk. Uh, in the same way, you might appreciate something in your, y’know, checking or savings account.
Niki: I think, to a lot of people, that whole last couple of sentences sounds like total gobbledygook. [laughing] It's like, okay, I'm buying my crypto. It's volatile. I'm then transferring some of it to a stablecoin, which is less volatile. I could potentially hold it, so it accumulates some value. And I guess the question is like, why not just use dollars?
Chris: Well, so, the advantage of, of stablecoins is first that they are on the blockchain. So, there's a public ledger, and everyone can see what's going on. I think the other advantage that people talk about is that they are not beholden to any central government.
One of the co-founders of the company I work at explained it is that everyone in crypto has kind of a little bit of an anti-authoritarian streak. And so, y’know, if you can do something on the blockchain and not have to rely on the government and not have to rely on somebody else, then, then you should.
I think that's kind of the ethos of, of most cryptocurrency believers. And so, I think that's one of the advantages of not having to have it in dollars, too.
Niki: Yeah, so I'm about to use some rough language, but I'm going to quote the Tiger King's campaign manager, who you may have, don't know if anyone remembers this; he was my favorite character in Tiger King. And he said, “I'm basically a libertarian “Fuck the Feds.”
And I do think that's part of the ethos of crypto, but then I think we need to talk for a second about a digital dollar. Like, what's a digital dollar? Why don't we have it? Why isn't that a better alternative?
Chris: So, most cryptocurrencies are decentralized and to some extent, whereas, y’know, a Federal Reserve-issued digital dollar would be controlled by the Federal Reserve and be subject to the same kind of inflationary decision pressures that the U.S. dollar would. Now the advantages would be that, you know, the U.S. is currently the world’s global currency.
And so theoretically, if the U.S. got this right, and was the kind of originator, or the best example of a digital dollar, then there could be widespread adoption and the U.S. could continue leading the world in, kind of, global asset reserves. And there's definitely foreign countries that are looking at this and trying to do this, including, y’know, China and other potentially nefarious actors, such as Russia and, and others as a way to undercut the U.S.’s dominance in global currencies.
Niki: I think this is a really important point. So, right now, the U.S. dollar is the global reserve currency. So, that means that it's considered like a safe haven currency. It's stable; it's steady. It's been this way for decades.
If the U.S. dollar is going to be undermined by cryptocurrencies like Bitcoin or some of the currencies on the Ethereum blockchain, or even by stablecoins or by digital dollars, we keep saying dollars, but it could be a digital Chinese currency, a digital Russian currency. We could lose our standing as the global reserve currency, the U.S. dollar, the fiat currency. So, there's an opportunity if we issue a, essentially a digital dollar that it could hopefully get ahead of that and maybe avoid our being undermined.
Chris: Right! Yeah. I think there's definitely a lot of competition in this. And actually, so, the Biden administration mentions this in their Executive Order last week about, y’know, staying competitive in the world. But there's also, I think with the digital dollar there's advantages for big financial institutions and the way the Fed could manage things, theoretically, but there's also; I think, there's a lot of privacy concerns too. Right?
So, imagine if everything you ever spent was in a digital dollar that was controlled by the federal government instead of in cash, that was, y’know, in your private bank account. And so, at least now, your Wells Fargo or Bank of America account is somewhat private from the government. They have to do something to get records from it, but if it was a digital dollar that was on the blockchain and created by the federal government. There'd be a lot of questions about privacy and y’know, how do warrant requirements work and whatnot for the federal government to, to just look at that or even the public, because it's, y’know, a public blockchain, theoretically.
Niki: That's a great point.
So, it's much more exposed. And by the way, there's a trend against using cash. In D.C., you go to buy a salad, and it's like, “We don't accept cash.” And I'm against that! I think, first of all, they have to accept my currency. And second of all, what if I just want to anonymously buy a can of paint, which I attempted to do recently, and they wouldn't take cash?
And I think this leads to privacy concerns, and sort of where we're going; everything is becoming more surveilled. Your credit card company obviously knows everything that you're doing. The government is starting to look more closely at transactions over $600 on your Venmo account.
If we are using a public ledger, a blockchain, to spend a digital dollar or another kind of digital currency issued by a central bank, that, to your point, doesn't have some of the privacy protections that you have in a bank. The days of just using cash are coming to an end. And I do think that there's a privacy concern. So, maybe that underlies some of the desire to get out from under a central government entity. That's making all these, not just monetary decisions, but has more oversight of how you're spending your money.
Chris: Yeah, for sure! So, I, using a digital dollar all the time, I think would potentially run counter to many of the ideals and incentives of people who are getting into cryptocurrencies in the first place.
Niki: So, the work your company is doing sort of threads the needle between the two. It’s a crypto, but it's tied to a more stable fiat currency like the dollar.
Chris: Yes. Yeah. And most, most stablecoins are, like I said, they're, they're pegged to a fiat currency. And then, there's this kind of hybrid model that some people call stablecoin, and some people don't, but it's pegged to, like, a commodity such as, you know, the stablecoin is redeemable for one ounce of gold that's being stored somewhere.
Niki: Um, okay! I don't think anyone knows what that means. [chuckles] [Chris: We should cut that] No! We should keep it, but I don't know what it means. I guess I sort of get the gist, like my stable- I mean, I guess it's like the gold standard, but for crypto.
Chris: Yeah. I mean, so you think about it. So, so, uh, a stablecoin, uh, it's, it's pegged to a dollar, it's pegged to the Euro, whatever it is, whatever the fiat currency is. Depending on the model of, of stablecoin and the way that it, it, it holds its peg it is, some of them have a, literally, a dollar deposited in a bank account somewhere. So, the alternative to that for, like, a commodity-backed to one would be it has an ounce of gold that is stored at a bank somewhere.
Niki: Okay. So, can I ask a clarifying question? So, you have a stablecoin, say it's pegged to the Euro or say it's pegged to the dollar or say it's pegged to a fraction of gold, a commodity. Does the company issuing the stablecoin actually have those reserves?
Chris: There are ones that theoretically have a dollar or a dollar equivalent in a bank account. But the problem with that, at least from a cryptocurrency perspective, is that that proof of having the dollar or the dollar equivalent in a bank account, that proof has to be off-chain. It's not on the blockchain, so you can't see it. So, those companies usually to prove to their consumers that they have it, they go through an audit process and make the audit public. Although, there's certainly kind of, a different understanding, about what and how much to believe, the company's word on that. Right? So, another kind of theme of crypto, I think, is that people don't necessarily take your word for anything; you, y’know, have to be able to prove it on the blockchain.
There's others that have; their backing is another crypto asset. So, for example, to get the stablecoin to your blockchain wallet, you have to deposit a certain amount of cryptocurrency. And so, that's also a little bit difficult because the underlying asset that you're depositing with the stablecoin maker is going to fluctuate. So, you usually have to put in way more of the cryptocurrency; you have to what's called over-collateralize the cryptocurrency so that if that underlying asset goes down, the cryptocurrency can still redeem that $1 stablecoin.
And then there's others that are pegged to an algorithm, which means that a bunch of smart contracts basically control how much of the stablecoin is produced. There's no kind of physical dollar in the bank account, but it's all on a blockchain. So, you can see, and if you believe that the algorithm is sound, then you can trust the stablecoin.
Niki: Okay. So, if you believe that the algorithm is sound [chuckling] then you can trust the So, if we just pull way back, the U.S. dollar essentially used to be a version of a stablecoin because it was pegged to gold.
Chris: Right. Yeah, I think that's accurate. I don't know. My history is a little shady. So, at some point in the late 1800s, we were gold-backed, but I don't ever know if it was, y’know, like, if you could ever actually redeem it [Niki: Right] for, for an ounce of gold.
But yeah, there was a backing of gold in some form. And then, y’know, with the creation of the federal reserve and modern monetary policy, which I am by no means an expert on, but there's, it's, it's, essentially, some form of an algorithm that the Federal Reserve and Treasury and all of these kind of, y’know, smart monetary policymakers use to decide whether they should increase or decrease the money supply of the fiat dollar.
Niki: Exactly. So, there's not enough gold in Fort Knox to back all of the U.S. dollars in circulation. So, we actually right now are still using an algorithm to determine the value of the U.S. dollar?
Chris: Yeah, I think so. I mean, uh, I don't know what that algorithm is. And I think there's a little art and there's a little science in it, but it's not, y’know, the dollar is not a gold-back currency anymore. And it's based on, y’know, essentially math and feel of monetary policymakers.
Niki: [interrupts] And trust. And faith. And you do have, I mean, one thing I will say about stablecoins and crypto in all of this is you, at least, if you have your money in Wells Fargo, you have some amount of FDIC protection. If everything goes off the rails, like if there's a run on the bank, if there's a total collapse, you're insured by the federal government up to a certain amount of money. And so, if you keep your cash in different banks, you can be somewhat protected, which is absolutely not the case with crypto.
And I just think it's worth noting that because these are early days. I mean, fundamentally, I think people buy this because it's interesting. I think there is a sense of, “I want to do something that's sort of outside of the central government.” I think we do need to be careful about what other central banks are doing and how they're thinking about surveillance and monitoring people using their currency.
But we are in a moment where there is competition among currencies and it's getting, it's going. I think it's going to get fierce. Like, I look at my Cash App, and I can see a dollar, and I can see my Bitcoin, and I can see what's happening to both of them. And that is, literally, the only time in my life that I've been able to just pick a currency to use, like, in the moment. And that's going to become, I think, much more common as we go forward.
Okay! Last question. Because another thing no one understands is DeFi. Decentralized finance. [chuckles] Will you explain it to us?
Chris: Well, the first comparison is, so what is centralized finance? Uh. When people think of centralized finance in terms of cryptocurrencies, it's basically all of those exchanges that you saw running Superbowl ads. So any, all of those were centralized exchanges and those are run by a company with a CEO and kind of standard, kind of, corporate disclosures and everything in the same way that a, y’know, a banker, a hedge fund or whatever.
So, for example, Coinbase did an IPO, and they’re public. Decentralized finance is, are companies that are run by; you, you've discussed this with, with Commissioner Peirce and with your guest last week. Like, decentralized finance for the most part are, are organizations and protocols that are run by DAOs. And so, that is a collective of people that are coming together, who are making decisions as a group on, y’know, what the parameters of the protocol are, what the rules should be, what they want to use the protocol to do. It's much more dispersed power. And I think one of the interesting things is, is you kind of hinted on this with your talk last week, but so, like, Bitcoin and Ethereum are so decentralized now, that they're, they're viewed by the government as being commodities.
There's this view, at least from the SEC, that a lot of these crypto protocols are probably not commodities yet. And so, there's this stage where they're, they're not sufficiently decentralized. And so, they, they, the SEC views them as securities or potentially securities and, and that leads to this oddity where it's like, “Well, if cryptocurrencies that have been around for a little while are commodities, how does one get to be a commodity without going through being a security first?”
Niki: It's a little bit in Washington right now, a little bit of a cat and mouse game. So, you have the SEC saying, I mean, they literally have warnings on their website about don't, [chuckles] “If you're thinking of investing in an initial coin offering, don’t!” There's like a warning to people. It could be a scam, but for the currencies that have been around a long time, they're already considered; they already fall under a different regulatory framework.
So then, you now have companies saying, "Okay, well, the SEC hasn't totally sorted things out. We'll change the structure or we’ll be inventive with the structure so we can sort of avoid this weird gray area of regulation." And that's what I think you're saying.
Chris: Right, yeah, exactly!
As somebody who's, who's starting a cryptocurrency, how do you get from, how do you get to that point without being a security? And the answer to that is a DAO, which is controlled by, you know, tens of thousands, if not more, people. And that is the means which, through which you both start the cryptocurrency protocol, but also the means of controlling it going forward. It's, it's pure, it's democracy in almost it's purest form. Like, everyone gets a vote on what they should do, what the DAO should do and what the cryptocurrency should be, or what the cryptocurrency protocols should, should be used for.
Niki: So, it's a democratized type of currency. So, I just, I try to avoid in general, too much partisan commentary on this podcast, but I am going to just say, there is so much excitability in Washington right now among the Chairman of the SEC, Gary Gensler, Senator Elizabeth Warren, like everyone, it's like a hammer looking for a nail. They're completely freaked out that people are going to get caught up in DeFi scams, risky cryptocurrencies, a security that they're going to lose money on.
And one of it, to me, it honestly feels like, if you're really worried about Americans making devastating financial decisions, instead, we should be looking at revolving credit, like credit card applications going to seniors who are on a fixed income. Or, I worked for a bankruptcy trustee when I was in high school as a summer job, classic summer job for me, in Indiana. [chuckles] And everyone who came in was either uninsured or under-insured for health insurance and had had a catastrophic injury or diagnosis.
Like, these are devastating financial decisions, and I just really believe that the number of people who've been hurt by investing in a speculative cryptocurrency is like in the tens. [chuckling] It's, like, very few people, yet if you look at how much time and energy in this town is being spent focused on this space, it seems disproportionate to the actual financial risk that people face just getting through the day.
So anyway, I usually don't have an opinion, but that is my opinion, that there's a little too much excitability on the topic.
Chris: I think that's right. And, uh, y’know, Senator Warren is a classic example of this. So, anytime something happens in this space, she's sure to fire off a, a letter demanding something. So, the most recent one was talking about sanctions, and she's issued multiple letters to SEC calling on them to do something about stablecoins. And, you know, whatever the, the, the topic du jour in crypto is, she bangs the drum on it.
And I think, from, from her point of view and from, from others in her camp, all of these things are scams, which we know is not true. And they're only being used by terrorists and scam artists. And also know, that's not true, but the reality is that this in some way, undercuts central government control, and that's key to her [chuckles] and her kind of political ideology, not to get too political [chuckles].
Niki: Yeah. And I actually think if we're honest about it, some of the things that Senator Warren says herself can be destabilizing to our financial system. I mean, okay. I'll end on that. [laughing] That's my hot take.
I want to thank you for coming on this podcast. So, we met at a wedding last fall, and we were asking everybody at the table, “What did you do? What have you've been doing during the pandemic?” And at the time, you were working at the Department of Justice, and you were specifically going around making sure that the federal prisons were following COVID protocol. Like, you were going to the supermax prison, making sure they were doing that. And I said, “I started a podcast today,” and you have been so supportive! You've listened to all my podcast episodes. You give me feedback.
I’m delighted that you've moved into crypto because even though people are like, “Ugh, Niki, talk about something other than crypto!” , having you come on and explain stablecoins, DeFi, having some hot takes on the Washington [both chuckle] dynamics around it.
I'm really grateful to you for being supportive of the show, which is really hard to produce and kind of intimidating, and for taking the time to come on today.
Chris: It’s been great. Thank you for having me.
Niki: If you’re enjoying Tech’ed Up, please consider giving the show a rating on Spotify or a review on Apple podcasts – it really helps other listeners find the content. We’ll be back next Thursday with a new episode.