Stablecoins Have Their Moment in the Real Economy W/ Tanner Taddeo

Speaker A: Hi, I'm Kelly Barner and this is the Art of Supply podcast. Every business story has a supply chain angle and those stories deserve to be told. This show digs deep into news headlines and interviews thought leaders, executives and newsmakers to capture their perspective in their own words. With no agenda to lead us in any particular direction, will offer you objective coverage of geopolitics, innovation and competition. Facts will always take precedence over hype. The rest is up to you. Today on the show. I'm glad to welcome Tanner Taddeo. He's the co founder and CEO of StableC, that's S E A, a company helping lower mid market businesses move money across borders using a stable coin based infrastructure. His background spans humanitarian finance, investment banking in India and London, the Gates foundation and Fintech roles at Plan and Block. So Hi Tanner, thank you so much for being with me.

Speaker B: Hi Kelly. Great to be, great to be here today. Excited for the conversation.

Speaker A: What an interesting and varied background you have. I know I kind of hit on some highlights and some big themes of where you focused. Um, but before we get into today's conversation, I'd love for listeners or watchers to learn a little bit more about you. What else do you find it's interesting for people to know about your professional journey?

Speaker B: Yeah, it's been a fun life, uh, for sure. I um, think the common through line has always been we've been in and around the financial services space globally, um, my entire career so even starting, starting off in international NGOs in the U.S. you know, is focused on raising capital from the west and then deploying those through grant partners on the ground in various countries that were having either internal conflict or civil war or um, some sort of humanitarian need. And how you, how you get capital to those grant partners, how those grant partners deploy that capital on the, on the ground, including the foreign exchange. Um, you know there's a, there's a really great learning there. And then subsequently you know, having gone ah, and worked in, in Europe and uh, South Asia, uh, seeing just how private capital markets work uh, in those countries is really illuminating, um, and kind of lends credence to why Silicon Valley is like kind of an inn of one and um, in terms of innovation, um, and then as well as you know working we were at a spin out of the Gates foundation, um, and just learning how open source real time payment infrastructure can drive financial inclusion uh, around the globe in emerging markets, um, and then likewise at Plaid and Block, uh, really focus on how you can drive financial inclusion in the US uh which is still very much top of mind for US businesses and US consumers here as well. So always, always financial services, always a bit, um, with a bend towards financial inclusion.

Speaker A: Awesome. Well and we're going to spend a lot of time today talking about stablecoins and what they allow organizations and systems to do. But I think this might be a little bit outside of some of my audience's sort of core understanding. So can you just start us off with some basics along the lines of sort of what are stablecoins, how do they work and what does stable stable C do in, in simple terms?

Speaker B: Yeah, so very concretely stable C, it's free to sign up stablec. Uh dot com. Um, what we do is we help businesses access savings products. So money markets really. Um, so most of the businesses don't have access to high yield savings products or capital markets products. So um, money markets or fixed income. So if you don't have a business savings account, we help uh, companies put that capital to work and then we also help companies move their money efficiently. Cross border. So um, we do cross border payments, uh, all of our payments settle same day. Uh, we cover 40 markets and we have the cheapest FX rates on the market. So the best way to think about stable C, um, is a payments or is a financial technology platform that helps businesses access capital markets and uh, savings products and then access uh, cheap cross border payments. Um, and so that's what we do and that's very much what we sell. Most of our companies have uh, global suppliers around the world. They have um, contractors in foreign countries, um, or they have subsidiaries abroad. And so when we go into these discussions it's really around do you have idle cash and do you need to put it to work in a savings vehicle? Yes or no? If the answer is yes, let's have that conversation. And then second is do you pay out suppliers or vendors or contractors or subsidiaries around the world? Yes or no? We what are your rates? Can we get you cheaper rates with faster settlement? Yes or no? So like that's how we lean into the conversation. How that is facilitated is through a new technological paradigm shift that's happening with a stablecoin infrastructure. But the way in which I like to think about it and we can dive into the nuances of stablecoin here in a minute. But I like to think about stablecoin as like a new rail. So you know, if you're a, if you're a merchant in the US and you have like a square point of sale system where like consumers can tap their credit card no merchant really truly cares about the underlying infrastructure of like is it same day? Ach, is it, Ach, is it rtp, is it the clearinghouse? Is rtp? Like those are all technologies that make money move a little bit faster and more efficiently. And stablecoin is no different. It's the next uh, era, it's the next evolution of payment infrastructure. Um, but for the vast majority of people uh, and businesses out there, they just want to make sure that they can get their money a little faster, a little cheaper, uh, and then put it to work a little bit more efficiently. Um, and then how it's done is kind of like where the nerding out of the underlying technology comes uh, into play.

Speaker A: So you've talked about the fact that you're helping facilitate cross border payments and certainly given the global nature of today's supply chains, I think it's very easy to see uh, how often that's applicable and where it's going to apply. You talked about both the cost and also the speed of making those payments. Does stable C exist predominantly to address those two things or were there other challenges or maybe opportunities to do something a little bit better that you saw as sort of your uh, your moment to realize that you should found stablec?

Speaker B: Yeah, I mean our primary mission um, that drives all the decisions in the company is you know we, if you and I, Kelly, ran John Deere or Coca Cola today, um, we would typically get the best in class financial services. We would bank at one of the top transaction uh banks in the world. We would get access to global settlement capabilities across 100 and 100 some odd countries with like very cheap B2B wholesale FX rates. And then we would also have our money managed for us um, and always be put to work. Right. If you and I ran like a Coca Cola and uh, we had a billion dollars in free cash flow, that cash flow would be managed by one of the major transaction banks and be put into fixed income products, money markets, gold hedging strategies, futures forwards, derivatives list goes on and on. Um, and so you know, that's what you get if you're like a top 100 company. But if you're a steel manufacturer and like Dothan, Alabama and you make 50 million in revenue, you pretty much have, you don't have access to that. You've got QuickBooks, um, maybe a slightly more sophisticated ERP system. You've got like a state bank or a regional bank, um, and you typically rely on a third party for your payments which costs an arm and a leg, um, and so our mission here at staplesea is really to take Wall street grade financial services both on um, global payments and on capital markets and provision those out to businesses, uh, up and down the stack in the economy.

Speaker A: And so I guess that's your point of what you were talking about earlier when you mentioned financial inclusion is taking those sort of world class services and making them available. Is there a specific segment of the market that's able to benefit from having this kind of access that just simply to your point, if you're not Coca Cola or John Deere, you couldn't access this before.

Speaker B: Yeah. So the companies that get the most value from STABILC are mid market companies. So companies that make anywhere between 30 to 250 million in revenue, um, that have like a global supply base. So most of our companies either pay out suppliers or vendors in two or three countries and they have like a local operating entity in those countries. Um, so they, they, those companies take full advantage of stableseas product offerings. Um, but we have companies uh, like we have a company that runs on us that, that makes $400,000 a year. So uh, like small business all the way up to uh, some, some large companies that make in the billions of dollars in revenue. So um, our platform is for, for everyone. But from a, um, from a, who benefits the most is typically like middle market companies that have uh, suppliers and, or subsidiaries in a handful of countries uh, around the world.

Speaker A: Now one of the things that my team and I are regularly discussing with especially chief procurement officers, um, but you know, sometimes in supply chain as well is they'll say okay, what do I need to do to become a customer of choice? And we always say it's one thing, pay your suppliers on time, period. Right? That's, that's the thing. And obviously everybody likes to be paid on time. That's a very natural thing. But I think when you think about some of the different complexities, especially when you're operating globally, it's more than just making your supplier happy around speed of payment. Um, what beyond sort of being a good business partner or a customer of choice is so important about this ability to pay suppliers quickly and on time.

Speaker B: Yeah, there's a few things. So suppliers around the world um, essentially are operating on relatively thin margins and so like timing of that payment is critical. Right. If um, a vendor misses their payment, uh, and they're going to have to draw from someplace to fulfill their operating needs day in, day out. So the finality and the settlement of that payment um, is something that is uh, quintessential but also it depends on the corridor, depends on the, the vertical. But nine times out of 10 the vendor pays uh, the foreign exchange fee as well. Um, and so getting cheap fx uh, as well as fast settlement time is imperative. And then also with uh, with Stablecoin, um, those suppliers, so like if a supplier is in Mexico or Brazil, um, they typically have the option to either hold in that stable coin, so a US dollar backed one to one US dollar pegged stablecoin, um, they have the ability to settle it in a yield bearing product, so like a US money market fund, or they have the ability to settle it in their local currency. So you can convert that to Mexican peso. Um, and so what, what stablecoin does and the value props for not only the sender but also the receiver, um, is you can from a sender's perspective, uh, instead of, if you know that a payment has to go out in you know, 10 days, um, you don't have to just set that aside. You can put that in a money market, let it make money for you right up until like 24 hours before the payment needs to go out. Then it'll get converted into US dollar and then ship out. Um, and then from the receiver's side of the equation they re, they get optionality, they can receive in either usdc, which is like a stable coin, so US dollar, um, they can receive in a yield bearing account where their money just makes money for them or they could receive in local currency. And so it drives efficiency both on the sender side and the receiver side to be able to uh, get that money in quicker and then also uh, have your capital be working for you longer and not have to be stuck either in the correspondent banking ether, um, or you know, sitting in the checking account, just not making any money, waiting to, waiting to be paid. Yeah.

Speaker A: Now we've talked about this being global and you mentioned a couple of example countries and in what you were just saying there, can you give me a sense of the reach globally? How many different countries are you currently operating in or transacting with?

Speaker B: Yeah, so we cover 40 markets today. Um, and we, we do collections so we can collect in local currency and we do payouts in local currency, um, to 40, 40 countries mostly in Latin America, Middle East, Africa and Asia Pacific. Um, we do, we do cover some G7 currencies. But the correspondent banking system, like paying a supplier in Europe or Canada, it works pretty well today and the rates are pretty good. Um, so where Stablecoin is having the moment is really unlocking uh, corridors that historically take long to settle in, um, and then have high volatility with the foreign exchange rates. Um, so that's why we cover mostly latam, mena, Africa and Asia Pacific.

Speaker A: What is the process like of setting up in a new country? So if you're looking to add that 41st market, let's say, what is it like for you to establish that connectivity?

Speaker B: Yeah, so we, we work with regulated uh, bank and payment processing partners in every country that we work in. Because it's also a really, you know, when you go and you ask a business to onboard the stablec, um, it is a very intimate ask. Right. Because like you're, you're asking a business to move money into stablesea, um, and then have stablec send that into foreign country xyz. So not only is trust paramount, security is paramount. And also insurance is paramount. Um, and also the partners by which, um, that are facilitating that money movement under the hood are also paramount. And so we're very transparent on who is doing what and where, uh, your money is at every point in time across the payment supply chain. Um, and so for us to go light up like our 41st market, we're typically customer led. So when a customer comes to us and they say hey, we really want to get to uh, like we don't cover Australia today. Um, and so if a customer came to us and said hey, we want to do Aussie dollar, um, what we would do is we would spend, it typically takes us six weeks to light up a new corridor. Um, so we would go into Australia, we would find a banking partner or a payments provider there and uh, then we would, we would wire up the technical flows end to end. We do the vetting, the kyb, uh, make sure the partner is above board. Um, and then we would do that integration and light it up for our customer. So typically takes us about six weeks to unlock new corridors, but we've scaled to 40 markets on the basis of what our customers have asked us to light up. Yeah.

Speaker A: Now you mentioned trust and security there. I want to ask you about two things that to me sort of connect to that. One is visibility and the other one is traceability. To what extent are those important in the system that you've built?

Speaker B: It is paramount, uh, of paramount importance. I mean most, if you think of financial services in general, um, like banks don't, in general banks don't really have great infrastructure, they don't have great technology underneath them. But you, you still bank at your bank because you trust them.

Speaker A: Yes.

Speaker B: And that's Ultimately what they're in the business of selling, they're in the business of selling trust. You know, your banker, they might bundle some financial services, but you know, you can get them on the call, they know you. And so it's still very much a trust based business. And even if you're selling new technology for like financial services, capital markets, payments, the trust is still paramount there. So as a result of that, that's why um, with stabilc we make sure that like you have a full auditability so you can see where your money is at every point in the payment supply chain. We also insure our wallets up to 250 million. So anyone that moves money in, your money is insured up to $250 million, which is materially more than FDIC insurance. Um, and then also we connect directly into your ERP system. So whether you use QuickBooks or NetSuite or Oracle or SAP, we take all of that transaction data, the sales data, the tax, uh, related data, et cetera, uh, and we pipe it directly to your erp so you've got full auditability and full traceability of all of your funds. And you know exactly what provider did, uh, the FX and who uh, handled the last mile payout. Um, and so you can see all of that. And then our system also has like role based account controls, uh meaning that like if you're the CFO of an organization, you can permit uh, certain access to different users in your organization. So not just one person can go in there and send a bunch of money around the world. Yeah.

Speaker A: Now when we talk about this, and you even mentioned it briefly before about sort of onboarding an individual supplier that's in one of these markets, what you need to go through to get them onboarded and then of course what you need to have to be connected into that market makes me think that there's an opportunity sort of through this financial supply chain for you to also support your customers around things like maintaining their regulatory compliance. They're on the lookout for sanctions that may have been brought against one of their suppliers, sort of overall risk management. Is this an area of the supply chain or at least the exchange of information that you end up getting into big time?

Speaker B: Yeah, we, compliance, uh, and global, global compliance in general is, is at the forefront of everything that we do because ultimately Stablec is liable. So if we make a payment to a supplier and that that supplier shows up on a sanctions list or the bank account is caught up in like uh, OFAC screening or a sanction screening or there's some sort of aml, like anti money laundering concern with the downstream bank, bank provider or like the bank account, Stablec uh, is on the hook for that. So um, as an interesting. Yeah, so we have, we have a very much a vested interest to um, you know, make sure that these uh, suppliers and the folks that connect to Stablec, um, you know we, we run ongoing um, ongoing off chain so like bank account monitoring programs and then we run on chain account uh, monitoring programs as well. And then we. Our compliance infrastructure uh, runs 24, 7, 365 around things like adverse media screening, it checks the sanction lists every 24 hours etc. Etc. So um, compliance is at the forefront of what we do because unlike software as a service or just general software, you know, if you're, if you're in the funds flow and uh, you guys are actually moving money on behalf of customers to and fro, uh, fortunately or unfortunately you are on the hook. So compliance and monitoring um, is absolutely top of mind.

Speaker A: Now one of the other things that's interesting about this is just the raw technology of it. I mean certainly today we're all AI crazy, right? Everything's got AI. AI is going to make everything better. But it wasn't that long ago that blockchain was the big topic of conversation and blockchain was being tested out for all different kinds of use cases. Certainly a lot within procurement and supply chain. It sort of had its moment and then stopped being discussed. Um, can you talk about why this specific use case has been more practical or more applicable than some of the other pilots where blockchain was brought into? You know we talked about um, you know, having contracts like smart contracts that involve blockchain, but this actually seems to have taken off and you're using it operationally. Why is this more effective than what we tried before?

Speaker B: Yeah, I think it's because it's a bit more simple. Sometimes people in the blockchain space, uh, they like to go deep on the technology and forget to build for specific use cases. But just for your audience, how stablecoins generally work is with stablec, you would wire or ach money into stablec. So there's a bank account that we use. Um, what we do is we take that US dollar and then we convert it into a stablecoin. So USDC Mint with Circle. Circle is a publicly traded company. Um, they are the ones that actually mint the stablecoin on your behalf, uh, for usdc. And then the interesting part about a stablecoin is stablecoin is one to one backed. So for every stablecoin that you have, there is a reserve typically held at a major bank with all of those dollars in it. How that's different from the regular banking system is that if you and I bank at like bank A, uh, in the U.S. um, banks today they run on what's called fractional deposit lending or fractional depository reserves. Meaning that like even my personal bank, If I put $5,000 in my personal bank, that bank is taking my deposits in my checking account and then turning around and lending it out to the economy. So the US dollar in my bank account is never one to one backed. That's why like when there is a bank run, you uh, typically see the collapse of banks and you have now like with uh, you know, with the Fed you have every bank every year has to go through a stress test to make sure that they have enough liquidity on hand to meet a kind of a capital run on the bank. Stablecoins are different. It's always one to one backed. Um, so once that comes into stable C, we convert it into usdc. We hold that in a wallet that is on a blockchain, um, that's insured up to 250 million and then we send that to one of our in country banking or payments partners. Uh, and our banking and payments partners are regulated entities in those markets. They convert that USDC into Mexican peso, South African rand, Kenyan shilling and then we attach payment instructions. That is what bank account, the supplier's information that needs to get paid out to and that in country provider pays it out um, in country there. So I think the reason, I guess to answer your question succinctly is why is it taking off now as opposed to before is because more infrastructure is built, um, and then more regulation has come in. And so companies large and small, um, you know, are now being able to participate with clear eyed regulatory guidance by the SEC and the IRS on how these cross uh, border payments are supposed to be treated. Um, and so as a result of that you're starting to see more adoption from real economy companies.

Speaker A: Yeah, and I asked this somewhat facetiously, um, but you know, when I think about this, I know it's not the same as cryptocurrency, right. But to uh, people that don't necessarily focus on this space, the two might seem a little bit related. Stablecoins are actually stable. You know, you talked about that one to one backing. This isn't something where you have a story where a pro football player negotiates to have his Salary paid in cryptocurrency and it sounds like a great deal. And then three months later like, oh, guess what, you're making minimum wage now. Um, so stable coins are in fact stable in terms of their value.

Speaker B: Yes, yes, they are stable in terms of their value. Like when you, when you move money into um, uh, either a stable C or a circle, um, who's the actual mentor of those coins? Um, what a, what a minting process is, is just, it's a digital representation of the dollar held. So it's essentially just a ledger. Um, but where that money is actually held, it's held a qualified custodian. So most of the banks that hold the deposits for like a circle are going to be like a BNY melon or a black rock. So when you put like, even if myself, if I go and I put like $10 into stablecoin, um, my $10 will ultimately end up at a place like BlackRock or BNY. And then in my wallet I will see 10 USDC, so 10 digital representation, like 10 stable coins of that dollar. And so when I go to redeem it. So if I want to sell my USDC to get my US dollar back again, it goes from this pool of holdings that are typically managed by the underlying custodian, which is like a BNY or BlackRock. So always one to one. And those funds typically just sit in a money market fund so they're not being used for lending purposes, etc. Etc. So that's why um, people make the claim that it's one to one backed, which is very different than how the traditional depository system in the US works today. Yeah.

Speaker A: Now this is all interesting because it certainly applies in the supply chain, but clearly with a very heavy tech focus, I'd be curious to get your perspective on either broader trends of what you see going on with the role of digital in global financial supply chains, um, or even some forward looking trends where you're kind of getting a sense of what the next thing might be in this area. Um, what are some of the sort of bigger picture things that we might not encounter otherwise but that you're keeping an eye on because you think there's some promise?

Speaker B: Yeah, I like to think, you know, financial technology, whether you're on Twitter or LinkedIn, you know, everyone says that, oh, we should like, like in Silicon Valley, it's, you know, move fast and break things. It's kind of like the Silicon Valley motto. Like it's not apparently clear to me that, that breaking the financial system is a good thing. Uh, there's a reason that it has stood the test of time and we should move slowly. And as a result of that innovation is typically um, you know, it's not like you're putting a human on the moon. You are essentially taking technology that exists and you're making it incrementally better. So like a business or consumer can save an additional 1 or 2% or move money a little bit more efficiently. Right. So it's it new technology should be approachable. And with, with stablecoin what we found is that the vast majority of our customers originally came to Stable C and started out um, for using us for payments. So using us to move money efficiently, same day settlement, cheap FX into n number of countries. And then what we found through talking with them, which is where I think the next innovation or the next uh, era of like the, this stablecoin world is going, is a lot of them said you know, hey my supplier is on net, uh 15, net 30, uh, even net 60 payment terms. I know that I have to like move capital because I am going to make payment historically that capital has just set in a checking account. I would like to actually move it for 30 days into a money market fund and generate three and a half percent APY. So three and a half percent yield on it and then instead of sending it out seven days in advance because you know it's going to take seven days for that payment to settle in Kenya or South Africa, um, you can now make money all the way up until the day that that payment is needed and then the supplier or the recipient on that, on the receiving side will get those funds within typically 15 hours. So um, that's where I think the next era is going is like the merchants that have adopted stablecoin for cross border payments in the last two, three years, they've seen efficiency gains and access to cheaper FX on their payments. Um, and then where it's headed is now those same merchants are saying can I turn my liability into a profit? And so you know that you're making a payment, you put it in a money market fund and uh, then from that money market fund you execute that payment. So I think that's where the world's headed. And then probably in the next nine to 12 months you'll see more and more merchants be able to access lines of credit a little bit cheaper because you've got the payment data and you've got the digital asset data on chain. Um, it's much quicker to underwrite uh, and then unlock lines of working capital, um yeah. Working lines of credit facilities for some of these cross border instruments.

Speaker A: Yeah. Ah, well, Tanner, super interesting to learn about this option in terms of moving cross border payments. Um, if people are countering this idea for the first time or meeting you for the first time through this conversation, what's the best way for them to reach out, connect with you, and maybe learn a little bit more about how stablecoins work?

Speaker B: Yeah, Um, I mean, feel free to drop me, um, an email in the show notes or uh, if you go to stablec.com um, you can reach out, Contact us, uh, also available on LinkedIn. Um, we love to chat with a lot of, a lot of folks, um, and there's no question, you know, too silly just because for us we serve companies in the real economy. So we typically don't serve companies out of Silicon Valley or New York that uh, are like tech forward. We serve, you know, folks that are operating in mainland America, in the heartland. Um, and so as a result of that, we spend a lot of our time just educating because again, going back to a previous point where it is a very, um, you know, it's a very intimate ask to have someone to move their money into your platform and then, uh, move that money, like be the actual steward of that capital to their end recipient. So we take a, we take a great weight and responsibility, uh, in that and we believe that trust should be at the forefront, um, of all of that money movement. And so we spend a lot of our lot of time with our customers who um, even if they don't end up using us, we'll spend two or three days with them just showing them the platform, telling them how it works, showing the value proposition. So we love to chat with, uh, anyone and everyone. So please definitely reach out and I hope people do.

Speaker A: I hope people take you up on that offer. And I do think it's important to remember that if this is new to you, there is no such thing as a silly question. Right? I mean, I think it's important to be able to ask those things if you're going to evaluate all of the options available to you. Um, Tanner, thanks for getting us started with a little bit of background, hopefully sparking some thoughts and some curiosity in people's minds. Um, I'm glad we were able to have the conversation, of course.

Speaker B: We appreciate the time. Thanks for having us.

Speaker A: Art of Supply is part of the Art of Procurement family of brands. To ensure you never miss new content, I invite you to sign up for our newsletter@artofsupply.com if this episode of the Art of Supply podcast made you think? Please spread the word. You can support the show by giving us a thumbs up, a star rating, or a review. Wherever you find your podcast audio, join me next week for another deep dive into the Art of Supply.