The conflicts and confusion around regulations in the digital asset industry in the U.S. have prompted policy makers and Web3 developers in other parts of the world to stand up and take note of an emerging opportunity.
No more so than in Asia, where governments in a number of jurisdictions — most notably Hong Kong, Singapore and Japan — are drawing up new rules of the road to attract investment and jobs from these emerging industries while the U.S. is distracted by arguments and lawsuits over cryptocurrency definitions.
Circle’s Yam Ki Chan, vice-president of strategy and policy at the Boston-based issuer of the world’s second largest stablecoin USDC, said it is too early to sound the death knell for the U.S. digital asset market. But he added that Asia’s ongoing shift from Web2 consumer to Web3 creator offers opportunity for the region to play a central role in developing the global digital asset industry.
Chan spoke with Forkast’s Will Fee at the WebX conference in Tokyo on July 25-26. This Q&A has been edited for length and clarity.
Will Fee: You arrived at Circle in April this year from Google in Hong Kong, and prior to that, as a U.S. government economic policy lead focused on Asia during the Obama administration. How are you finding the switch into the digital asset industry?
Yam Ki Chan: I’m learning a lot. It is a very vibrant industry, as you can see here at WebX. As I’ve seen at all the various conferences I’ve attended since I joined, there’s a real excitement in the community overall. It’s still a very nascent industry and I think it lends itself to, for the most part, the ecosystem trying to work together. We all want to see this ecosystem work. We all want to see it prosper. And then we’re all also working on ways to improve transparency, consumer protection and stability for the industry as a whole.
Fee: Corey Then, Circle’s vice-president of global policy, said during a previous interview that the regulatory scrutiny in the U.S. will prove to be a long-term positive for the development of the digital asset industry. Do you agree with that view?
Chan: Absolutely. Prior to all of this, I was a crypto skeptic. I was about as TradFi [traditional finance] as you can come. My first job out of college was with an investment bank in Silicon Valley. A tech focused one, but an investment bank nonetheless. And then I’ve worked at hedge funds, I’ve worked at microfinance institutions, I’ve worked at the U.S. Treasury Department. So pretty traditional finance. And there’s a lot of legitimate skepticism from folks outside the crypto industry to really wonder and question — what does this thing do? And the industry hasn’t helped itself, with a lot of the bad behavior from various actors we’ve seen over the past 12-18 months.
Now the industry is cleaning out its bad actors, policy makers are coming in and really setting some clearer rules on how they want to see this industry work. I think there was a hesitation with policy makers in the past because they weren’t sure if this was going to be real or a flash in the pan. We’ve seen now several cycles in the crypto industry and with every turn, its equilibrium state grows a little bigger. We’re also seeing traditional finance companies seriously looking into this space, such as Citadel Securities backing a decentralized exchange and BlackRock filing for a Bitcoin exchange traded fund.
So we are seeing an inflection point where the bad players are cleared out and traditional finance institutions start to have products that you can see and touch in this space. Then, the final piece we believe we’re about to see is a move from the speculative phase to the utility phase of digital assets, and legislation and policies will only help with that transition.
Fee: You were quoted when you joined Circle as believing the company’s role as a stablecoin issuer and Web3 developer is to raise global economic prosperity. You’re based now in Singapore. How do you see that stated mission taking effect in the wider Asia region?
Chan: We are now seeing the use of stablecoins for payments, which is extremely interesting, and in particular it’s very applicable for Asia. Asian economies have a higher trade to GDP ratio than the US or Europe when you exclude your intra-European trade because that’s one monetary system. So Asian businesses are essentially paying a higher share of their revenue in terms of costs.
This impacts them on not just cost, but also settlement time. Within Asia, there are lots of companies that operate across different countries within the region. You may be a business sitting in Osaka, while your customer is in Taipei or Seoul, so you’re taking New Taiwan dollars or Korean won. And then your vendor and producer may be in Vietnam or Thailand and you pay them in Vietnamese dong or Thai baht. And all of these transactions are costly for an average Asian business. That isn’t the case if you are producing in Germany and selling to France or producing in Oklahoma and selling to Colorado. So those costs really impact businesses here and disproportionately so.
Another aspect is trade financing. The Asia Development Bank estimated that there is a US$500 billion financing gap in Asia. These are businesses that want to be able to do exports but can’t because they can’t find the financing. And that might be working capital, loans, insurance, or any other type of financing that’s needed for them to produce their goods and move those goods overseas before they receive payment for it. So stablecoins can be a way to help close some of that gap.
Then another aspect is related to cross-border remittances. In Asia, there are a lot of migrant workers. They have to pay to move their money home to their families and they face high transaction costs of around 5.9% per transaction for the average US$200 remittance. So we see stablecoins as a digital native way to help lower transaction costs, shorten settlement time and make it safer also for the users. And that’s not just by being fully reserved and transparent and regulated, but also by existing in users’ mobile phones, which are now ubiquitous all across Asia and around the world.
No longer do you have to take money and walk it to a bank and wait in line hoping to not get mugged and deposit the money, hoping the bank is solvent so that it can then move that money halfway around the world and to your family. Now, I can just with a few clicks send money to my family home. So that’s really intriguing.
Fee: Considering the regulatory stalemate in the U.S., there is a narrative developing that Web3 firms may choose to leave the West — and the U.S. in particular — to move to Asian jurisdictions more favorable to their activities. Do you buy that? And if so, where is the evidence of it happening?
Chan: An intelligent person can hold two things to be true that are contradictory. So yes, it’s happening. And no, it isn’t, because at the end of the day, the U.S. is still a very important market and extremely vibrant. It’s a large market, but it’s one that doesn’t yet have the regulatory clarity. But it’s getting there. There’s now legislation on Capitol Hill that will provide that clarity. We’re extremely supportive of that.
At the same time, countries out in Asia are not standing still. They’ve seen this play out before. If you were to take a step back and look at the development of the internet, the development of Web1 and Web2 were largely US companies who then took their products and expanded overseas. And Asia was the consumer of that. So Google creates a search engine, they put it online. Anyone on the Internet could use it. It wasn’t until the latter half of Web2 where three things came together that made creation in Asia possible and Asia became a creator.
Those three things were cheap and powerful smartphones, cheap and accessible broadband, with high bandwidth and third, a very important part, was the emergence of developers. This region benefits from a generally younger population who came of age with the internet and understand very innately that this is their big global opportunity. And this has prompted them to begin building.
There are countless companies across Asia that are not yet global companies, but certainly regional players and leading players in their own countries. And what’s interesting is, as we look toward Web3, these companies — and also policymakers — say, wait a minute, we have a chance to leapfrog other regions and actually take the lead here. The question then becomes, how do we harness the talent that we have, the technology that’s open source and the market size that’s developing here to really build on our own so that we’re not just a consumer, but also the creator and the owners of the technology?
And I think that, because of that attitude, countries out here in Asia have been leading the effort to establish some of the new rules for the industry. There’s going to be some more harmonization work that will have to happen. But they are ready. They want to be there ready to go, especially once there’s greater clarity from the US. But even in the absence of that, they’re going to do what they can to support the growth of the industry.
