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Bloomberg Invest: Banking and Blockchain Conversation with Former SEC Chair Jay Clayton and Dan Morehead of Pantera Capital
Pantera Capital | Dan Morehead | Jun 29, 2023
Image: Pantera Capital CEO, Dan Morehead
“I think the crisis is a harbinger for the future. If you think about it, banks are a terribly-designed stablecoin."
A conversation on banking and blockchain with Dan Morehead, CEO Pantera Capital Conversation and former SEC Chairman Jay Clayton at the Bloomberg Invest Conference on June 8th moderated by Carol Massar of Bloomberg:
Carol Massar: “On lending and banks, regional banks, obviously the other crisis….”
Dan Morehead: “I think the crisis is a harbinger for the future. If you think about it, banks are a terribly-designed stablecoin. “I’ll pitch you a stablecoin idea…”
Carol Massar: “Do you agree? Do you agree, Jay?”
Jay Clayton: “Banks serve an incredibly important function and they have been the source of liquidity transformation throughout the growth of our economy.”
Dan Morehead: “Let me pitch a stablecoin idea: I invest $15 million in equity in my project. Then I sell to the public $195 million stablecoins. With those proceeds I buy $210 million in risky assets. I promise the stablecoin holders incredible liquidity. With just one click on their smartphones, they can get their money back same-day – in unlimited amounts.
When asked: ‘Isn’t 13-to-one leverage kind of aggressive on a stablecoin?’
I’m honest – I tell everybody the truth: ‘If the risky assets go up, I’m keeping all the profits. But, if they fall in value, I’m going to stiff the taxpayer.’
“Unfortunately, that’s what a bank is.”
See: Global Regulatory Collaboration Key to Cryptocurrency Asset Oversight, Urges World Economic Forum
Banks as Flawed Stablecoins:
- According to Dan Morehead, CEO of Pantera Capital, traditional banks operate similarly to poorly designed stablecoins.
- Morehead argued that banks, like a hypothetical stablecoin, leverage funds at a high ratio, promising liquidity to holders while keeping profits from risky assets and passing losses onto taxpayers.
- This model, according to Morehead, is flawed and unsustainable, and recent failures in the U.S. banking system underscore this point.
Blockchain as the Future:
- Morehead emphasized the potential of blockchain technology to revolutionize the financial industry. He compared the advent of blockchain to the Medici family's use of double-entry accounting in the 15th century, which laid the foundation for modern banking.
- Blockchain, as the next evolution of distributed ledgers, offers transparency, decentralization, and resilience against crises, as demonstrated by the performance of cryptocurrencies and DeFi (decentralized finance) during recent banking failures.
- The conversation suggested that blockchain could gradually replace traditional banking systems, a transition that may already be reflected in the market valuations of cryptocurrencies compared to established banks.
Read: Dispelling FUD: Why Binance’s Exit from Canadian Crypto Markets Strengthens Canada’s Ecosystem
Regulatory Challenges:
- Clayton acknowledged the need for rigorous regulation of retail investment products, including those based on blockchain.
- Morehead, however, warned that lack of regulatory clarity in the U.S. could push innovation offshore, as has already happened with many blockchain protocols.
- Both agreed that it's in the national interest for the U.S. to embrace blockchain technology and provide clear regulatory guidance. The conversation suggested that the U.S. could learn from other countries that are actively supporting blockchain-based financial systems, including the issuance of sovereign debt.
Watch this Fireside Chat with Charoline D. Pham, Commissioner of the U.S. CFTC for a perspective on crypto regulations:
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