For this week’s podcast, we had the pleasure of interviewing Scott Nelson, CEO and Chairman of SweetBridge, at their offices in London. SweetBridge is an organisation with an over-arching vision and framework to power individuals, businesses and governments to transform global commerce and supply chains using their Blockchain based protocol stack, and their stablecoin, BridgeCoin.
This interview is <30 minutes, feel free to click play and listen to it now, or subscribe to our podcast here, or just go ahead and read the edit below. Please enjoy and let us know what you think!
SR: So, our traditional first question: What got you into crypto, and what inspired you to create a stablecoin? SN: What got me into crypto was the question: How do you provide liquidity to the supply chain space? I’ve worked in the supply chain my whole career and realised that the number one problem is the ability of small and mid-size organisations to get liquidity. Large organisations can be much less efficient yet more competitive because of their lower cost access to capital. There is over 100 trillion USD tied up in payments of the supply chain process, while there is only around 60 trillion in fiat currency.
SR: The name SweetBridge rings a bell to many people in the crypto-space, you guys are creating partnerships across the board. Can you talk about the partnerships and SweetBridges’ grand vision/strategy? SN: We are doing something the space has not seen before, we are trying to build the first real computer that can handle global commercial trade, with the regulatory compliance and parts necessary to make it happen. That’s obviously really hard and takes time, it’s really expensive to go on/off crypto, governments are suspicious, banks are hesitant to deal with it…and we need people to move billions a day on/off crypto, without the currency crashing. This is why stablecoins are important to us, nobody is going to stop using fiat to settle their bills in any substantive supply chain or commercial activity without knowing they’re not going to lose money or make money artificially, because that’s a risk they can’t manage. Yet it’s absurd for a business to put in place some kind of trading desk to manage their buy/sell operations to reduce their exposure to risk. SweetBridge solves this gap by providing all of the legal infrastructure, regulatory licensing, wallets, bank accounts, credit cards…the entire infrastructure, so you can trade things with fiat or crypto and not know the difference.
SR: When you say that you are building a computer and working with regulators, what does that mean in the real world? A lot of people in the crypto space are worried about the SEC, but the parties we should be concerned about are the Treasuries and the Central Banks, because they are concerned with money laundering. Huge progress has been made in the last three decades to limit money laundering activity in the banking system, which has also created massive increases in tax revenue, and they don’t want to go back to the past and loose the money.
SR: There’s been a higher return in tax revenues than the actual money being prevented from being laundered… SN: Oh, by far. But it’s not popular for them to say they need the money, so instead they talk about terrorism and money laundering, because it gives them motive. Public infrastructure and services do cost money, so governments are going to be very hesitant on seeing that income reduced, and KYC/AML is going to become the big issue in the future. We need a stablecoin with built-in KYC/AML and Payment Information Process (PIP) Compliance at the protocol level, as well as the ability to be confidential, yet provide government access to the data in case of a subpoena or court order.
SR: Lets talk about your dual token system, a limited-supply discount token, Sweetcoin, and the stablecoin, Bridgecoin. Could you explain their difference and similarities? SN: Bridgecoin is a fully asset-backed currency, but it’s not just backed by fiat currency — because there is not enough fiat supply out there to handle global trade at scale, and we are also trying to create additional liquidity. We want to use assets worldwide, in all the legal jurisdictions, to act as collateral backing the currency. Currency used to be backed by precious metals, and we can go back to that — using price discovery and efficient markets mechanism of today, or we can use these methods to treat as assets and commodities many things that were not previously treated as such, to back the coin. One has to legally lock the assets, so we can use the laws created for bank lending, which turn assets into collateral. If you have assets as collateral, its very easy to mint a coin without charging interest, but the problem is when you want to exit to fiat — who would want something backed by houses, equipment, inventory and other things…instead of a pound or dollar? We solve this problem by actually charging interests, which is earned as a fee by those providing fiat to the system. There’s 37 trillion dollars that are sitting in current business accounts, just sitting there, earning <.5% of interest because of the expensive infrastructure we put in place for banking. What BridgeCoin does is tap into the fiat these businesses have locked in tax havens, and use it to provide liquidity in the system, in exchange for a higher interest rate. In that system, the purpose of * SweetCoin is to do three things:
To decrease your interest rate, sort of like buying down your interest on the mortgage, letting you pick the cost of interest on your money.To increase the amount of collateralization, similar to FDIC insurance, with SweetCoin as the asset.To exit the system at zero cost, and with guaranteed stability.
The mechanism that is used will be published in the next white paper in the coming weeks, but the primary drivers are not going to be market makers, because their problem is that you can never reach full stability. Market makers are price takers, which requires an arbitrage, and that means there is a flucutation in price. BridgeCoin is actually a financially rated instrument that is treatable on your balance sheet as cash, we are trying to target commerce, and can’t have more than 10 basis point variation. To make all of this work, the key everyone has missed in commerce is to be a unit of value, that is actually what you contract around — which is BridgeCoin. The very act that users and sellers contract with it means there is no pressure to raise or lower the price. Then the only question is, how to get out of the closed system into fiat? And for that you need a mechanism in place to compensate the fiat providers at the target price. By using interest as the mechanism in the system to expand and shrink the money supply, the collateral ratio and interest rates change over time to increase or reduce the desirability of the currency. This is fundamentally how nation states manage their trade deficit between themselves and other currencies and how they achieve the pricing they want.
SR: You mentioned the collateral is backed by multiple assets, in multiple jurisdictions, and multiple flavours. What other assets could be used? SN: All the major asset classes will eventually be available, that includes real estate, receivables and other forms of commercial payment, inventory, and anything that qualifies as a valued asset. To be valid for backing, it has to have a discoverable value, a market for liquidation, and can be locked up on the blockchain.
SR: There’s also companies conducting crowd sales through BridgeCoin, what are their incentives to do so? SN: We have not done that yet, but it’s on the roadmap. If you raise money through a crowd-sale/ICO, its very hard to get a bank and exchange it for cash, there is a lot of currency risk. You really don’t want to raise money and leave it in a volatile cryptocurrency, you want it in something stable. We are creating all the infrastructure for our partners to not only get stability, but all the banking infrastructure and regulatory compliance to instantly move it into the real world. We have some of the highest KYC/AML standards in the space, higher than many banks.
SR: How distributed are the asset collaterals, how many banks? SN: There are multiple banks and exchanges already, but we have not announced them. The key isn’t the bank or the exchanges, but regulatory compliance, and we’ve spent as much time as anyone in the space asking them what their concerns are. Regulators are not evil people trying to rain on anybody’s parade, they have a job to do and perceive a lot of risk. The way to address these concerns is not to run and hide but to work together with them.
SR: Is it in SweetBridge’s plan to expand to the developing world? SN: Our very first POC using liquidity in supply chains is in the Philippines. It’s a place where the interest rates that people would have to pay for liquidity are very high -even people trying to do micro loans have a difficult time. By reducing the cost of access to capital and simplifying it you can create an environment that dramatically reduces the cost of lending.